The Financialization of Art In China

As the cultural economist Claire McAndrew claimed, “The growth of art funds and other professional art investment vehicles bears out the fact that both individuals and institutions have now fully embraced the notion of art as an assert class for investment.” However, based on a review of relevant research, in spite of the fact that the investment potential of art has been recognized, its recent financialization has been resisted by both members of art world and of the financial markets. Members of the art world have opposed the definition of art as an asset class and the commensuration efforts which this definition entails. Members of the financial community, in contract, have hesitated to recognize art as a valid asset class because of the art market’s lack of liquidity, transparency, and standardisation. This paper elaborates the research the potential yet vulnerable status of the financialization of art in China. Practically, there exsit many problems in the financialization of art in China, such as traditional concept constraint, lack of experts and specialists in art business field, lack of creditworthiness, lack of valuation system, lack of laws and regulations and so on. Thus, to analysis art and wealth management in China would be of assistance to have appropriate mindset when we perceive Chinese financialization of art.

Compare and contract with art and wealth management global insight, I would love to analysis the art banking & financial service both in China and the West. The private banking business in common firstly, many banks for artistic activities, artists, museums, art galleries to provide various forms of sponsorship. Banks will support the arts as a strategic investment in corporate social responsibility, corporate image and publicity of cultural taste. Secondly, the service target to lock high-end customers, the main business is to provide works of art appreciation, asset allocation and other advisory services. Due to higher investment threshold, asymmetric information, whether foreign or domestic, commercial banks are mostly art products for high net worth crowd. Thirdly, work closely with art experts due to the high art investment professional requirements not only for investors, but also it requires investors are very sensitive to changes in market direction, and therefore, banks as wealth managers, is inseparable from the professional art market in the introduction of art financial products.In contract, China’s banks and the Bank of Europe and the United States compared to the private banking business in the difference: Initially, many European and American countries have done a lot of self-employed works of art, the banks themselves will be a large number of collections, investment and transactions artwork. In China, fewer banks directly into the art market to buy art. Secondly, the art of the loan collateral requirements are different. At present there are some domestic banks and auction companies to cooperate in the sale of works of art auction loans due to the high threshold of art and the lack of domestic integrity, the bank can not determine the value of art, so in addition to the art of pledging and in accordance with the valuation of certain discount loans, the general also requires the auction company to provide guarantees for the loan. At present, domestic banks are mostly taking a cautious wait and see attitude towards art and collateral loans. And Europe and the United States for private bank customers art collateral loans only according to the professional institutions of the valuation of works of art, you can give a discount loan. Overall, the level of European and American banks involved in the art market deeper and more professional service.

CMBC (China Minsheng Banking CORP.Ltd): 

CMBC is the first and only one to formally develop the financial products of the bank. Since 2007, CMBC in the field of art and more action, in addition to the issue of China's first "Art Investment Project No. 1" financial products, have also donated Yanhuang Art Museum, held the Asian Art Forum, to build Shanghai Minsheng Art Museum, which in addition to "art investment plan" this financial products, the rest are public welfare nonprofit activities.

Innovative leverage on art finance:

1. "Art Investment Project" No. 1 products: CMBC for high-end groups interested in art collection investment, high-profile launch of its development of financial products, which was extraordinary financial "art investment plan”. The rate of investments of No. 1 products over 2 years, the expected annual rate of return of 0% -18% by the banks, trusts, investment consultants to participate in the project operation, investment in the great potential of appreciation of the "Chinese contemporary painting and calligraphy plate ", Investment threshold on the previous breakthrough in the financial products 50,000 start the practice. Since the release of the product, "the investment income is very good,” The CMBC wealth manager said, "the current people's livelihood into the first investment plan of Shanghai customers, funds in the 500,000 to 100 million RMB which is temporarily leading is amount in the country. "To be sure, this product is mainly for high-end customers.” the previous report that CMBC wealth manager said, “earned the issue fee which is about 1% -2% of the entire project, through the art of financial products to obtain the proceeds is not the most important, but to test A new field, the development of new products, if the project can do a lot in the future, there will be gains, but at least in this period is very small income.”
2. China Artists Individual Fund: CMBC has been awarded the first CBBC license issued by the China Banking Regulatory Commission and officially operated in 2007. The priority for this fund is currently supporting Chinese outstanding young artists.
3. Hosted the Asian Art Forum: This discussion is aimed at studying the current Asian art issue and is a platform for young critics and researchers. The Asian Art Forum held the first seminar in the Suzhou Museum in November 19th, 2007, the next one moved to the Shanghai International Hotel. CMBC will host be the Asian Art Forum at a permanent level, the forum is headquartered in Beijing, by China, Japan, India, South Korea, Singapore held in turn. Asian art as the core point of discussion. Each meeting will have two chairpersons who will host the meeting and comment on the speakers, and the speakers will be based on young theorists.
4. Sponsor Yanhuang Art Museum: CMBC raised 100 million funds to enter the Beijing Yanhuang Art Museum (construction and ten years each year 6 millions RMB long-term investment) in 2007. More than a year, through the exhibition and activities will be Yanhuang Art Museum to create a "academic first, to serve the public, calmly study and show our nation's outstanding art" image. In 2009, Yanhuang Art Museum held a high-profile exhibition of "Xu Beihong Art Exhibition", co-ordinated with the external experts selected Xu Beihong 80 representative works, State Council Secretary-General Ma Kai, Chairman of the CBRC Liu Mingkang, Chairman of the National Committee of the Communist Party of China Jia Qinglin, Ji Xiang and other national leaders have arrived at the scene after the exhibition, the relevant state departments decided to allocate a few hundred million to re-transform Xu Beihong Memorial Hall, can not be said that the direct effect of Yanhuang Art Museum exhibition. It will be launched Lin Fengmian, Liu Haisu, Yan Wen, and so on, and gradually show the Chinese modern art in the future. 
5. Established Shanghai Minsheng Art Museum: In September 2008, Shanghai Minsheng Art Museum officially registered as public welfare private non-corporate legal person units. Building area of 3,000 square meters, is the first in mainland China to financial institutions as the background of public welfare art institutions, to collect, research, display and exhibition of contemporary Chinese contemporary art as the main content, while supporting the pioneer film, drama, music, Poetry and other art creation and display, to carry out academic exchanges and discussion at home and abroad. In addition to its own collection plan, Shanghai Minsheng Art Museum will work with important artists and collectors to share the long-term display and exhibition rights of important works and encourage artists to donate important works of art. At the same time, Shanghai Minsheng Art Museum as the community to raise funds to mobilize and encourage CMBC shareholders, strategic partners, cooperative enterprises and individuals donate or donate important works of art, the funds raised daily operating expenses dedicated to the development of Chinese contemporary art and various academic activities.
6. Be sponsorship of exhibition: In 2007, CMBC as one of the organizers held Fang Lijun's solo exhibition in the Shanghai Art Museum. In addition, CMBC also sponsored the Art Beijing Exhibition, Today Art Museum "energy - spirit, body, material" and other large contemporary art exhibition. Focus on contemporary art, mature artists and young artists.Effect Highlight: CMBC launched extraordinary financial "art investment plan", It is reported that customers who buy this product are the most high-end customers in the bank.

China Merchants Bank: 

In 2009, China Merchants Bank held a high-profile sponsorship of the Boao Forum For Asian Art Exhibition, held art salon and in June China Merchants private bank officially launched the "art appreciation program", as a high-end customer value-added services. Mayor Ma Weihua speak after the Boao Forum, involved in art due to many customers have the appreciation of art and the needs of hobbies, the bank for customer service, but also take into account the needs of this part of the customer. Especially, the private banks provide high-end art appreciation Opportunity is "China Merchants Bank because of your change" as a manifestation. In addition, as a social responsibility of enterprises, to support the arts, but also China Merchants Bank to fulfill the performance of social responsibility.

Innovative leverage on art finance:

1. A sponsor of Boao Forum For Asian Art Exhibition, Art Salon
2. Merchants Bank Private Bank Sponsor Art Exhibition
3. Private bank art appreciation program

Highlight: The customers are highly interested in the innovation of the Merchants Bank, the first batch of works of art has been identified almost, and even customers put forward a number of works of the request, the next line of private banks have been set the second batch of works of art selection. China Merchants Bank's appreciation plan is to achieve lead to buy the financial model, that is, by borrowing, through the investors and holders of the experience of art financial products, the bank invited customers to jointly decision and choose investment, highlighting the concept of Merchants Bank design products The At the same time, Merchants Bank's art product model emphasizes the collection of knowledges, requiring investors to the cultural meaning of the product have a certain degree of recognition.

CCB (China Construction Bank):

China Construction Bank to set up private banks for two main reasons: in line with customer needs and maintain the direction of the market leader. CCB believes that art-related services are mostly carried out in private banks, which is according to the relatively limited time, energy, interest and capital of customers involved in the art world. Therefore, CCB to provide art services for its own private banking customers, not only to meet customer needs, but also has the role of cultivating the market. This is the primary solution to the customer for the art market then solve the "bank in the art field can do what can be done for its high-end customers and customers are willing to do. A series of more in-depth questions. At present, CCB and its partners are still tentatively different attempts how to minimize the risk and diversify in order to maintain a relatively stable developing trend.

Innovative leverage on art finance:

1. Launch works of art trust products
2. Held a collection of appreciation salon
3. Flexibly seek academic support for the arts

Highlight: the trust program was officially launched in June 18th, 2009, 46.5 million RMB to raise funds only three working days to sell works of art. SDIC Trust to consider the issue how to secure the works of art. Almost every detail need to be taken into considerations to protect the security. Guotai Trust's works of art trust to learn from other traditional trust products, but also to find a third party to guarantee, and asked to make a certain purchase arrangements. "We need not only the commitment of the intermediary, but also the investment adviser's commitment.” And in the highly critical identification of this, the requirements of the SDIC Trust is also more demanding that they require the identification of the value of the product. It must be a number of top art experts to sign.

CITIC (China Citic bank):

Innovative leverage on art finance:

1. Hire an exclusive art investment advisor
2. Art Appreciation Service
3. Lectures on Art

CITIC Bank private bank staffs often go to the lectures with customers. Bank managers have their own international vision, aware of the importance of this category of art, aware of the art is a luxury on top of a consumer category. To ensure that the enterprise's forward-looking in this vision.

Along with the development of Chinese art market in the last decade, , many domestic banks began to explore and get involved in the art market. For instance, some banks have given credit to famous auction houses, giving the auction house with sufficient guarantee loans, increasing the leverage of the auction house, and enhancing the ability of the auction house to compete for customers and goods. There are also banks according to the characteristics of the local economy and industry, the galleries and other institutions as the main target of the loan, enrich and expand the model objects and works of art, unsecured loans, innovative works of art financial services, and achieved good results.

There also exsit many problems in the financialization of art in China. Finding the line chart on Artprice has shown that Chinese Art Market’s slowdown in 2016, the turnover for Chinese art auctions totalled $4.79 billion accounting for 38% of the global market share, an increase of 8% since 2015, and bringing China to rank first worldwide (in front of the USA with $3.5 billion in 2016). The global art market continued to settle down in 2016. Auction results from Fine Art sales totalled $12.45 billion (including buyer’s premium), a 23% drop since 2015. However, due to the development of corporate collections over recent years coupled with increased efforts from auction houses to unearth premium artworks and ‘fresh’ commodities, the Chinese art market has been able to break through and slowly crawl out from the slump. “The absence of a centralised financial market reduced the liquidity of both. Transaction costs high, debts were hard to value, market makers were absent, and it was difficult to match buyers with sellers. Potential buyers and sellers were scattered about, and it was costly to bring them together” as Carruthers and Stinchcombe’s portrayal of late seventeenth-century stock and bond markets reads like a vivid description of current art market. Wading through the specificities of this market shows that the financialization of art has been an evolving process, and is not yet complete. It is too early to tell if the limits of what can be financialized and securitizied have been reached in this market, or if it is merely a slow process. Currently, art investment lacks widespread legitimacy for both the art community and the financial community; the former because of opposition to the redefinition of works of art into speculative assets, the latter because of the market’s lack of standardisation, information, and liquidity. The creation of boundary objects such as art indexes have helped art to become a boutique investment, but have failed to capture widespread approval. 

 World Wealth Report (WWR) 2015 

Capgemini and RBC Wealth Management present the 2015 World Wealth Report (WWR), offering detailed insight into high net worth individuals (HNWIs1) across the globe and the shifting dynamics of the wealth management industry. 

As the graphs shown on World Wealth Report (WWR), driven by robust growth in Asia-Pacific and North America, global HNWI population and wealth expanded at moderate rates of 6.7% and 7.2% respectively in 2014, the second slowest rates of the last five years, and more modestly than 2013 HNWI population and wealth growth (14.7% and 13.8% respectively). Asia-Pacific overtook North America to become the region with the largest HNWI population at 4.69 million. The U.S. and China helped drive more than half the global HNWI population growth, while other top-10 markets expanded less than the global average. Global HNWI wealth is forecast to top US$70 trillion by 2017, growing by 7.7% annually from the end of 2014 through 2017. Having already overtaken North America in terms of HNWI population, Asia-Pacific is forecast to surpass North America in HNWI wealth in 2015. There is the tendency that dynamic wealth management is consistently developing in China. As my perspective, economists and wealth mangers will play a significant role in the global art markets, mainland China as emerging art market but own phenomenal HNWIs populations would affect the art investment in the global scale. Therefore, art banking & financial service as the economists and wealth mangers in China will tremendously impact the global art investment in the future. 

Art & Finance Report 2016 Deloitte (Artactic) 

My suggestions on Art financial service would based on the findings of this 4th edition of the Art & Finance Report 2016, we continue to see new and interesting development in the art and finance industry, with particular emphasis on the role of art and collectibles in the broader wealth management context. Despite an art market slowdown in China, as well as lower sales in Europe and the US, still six out of eight global art markets experienced a positive trend 2015, with a neutral-to-positive outlook for 2016. This shows that art and collectibles will continue to play an important part of wealthy individuals’ overall portfolios in the years to come. As shown in Art and wealth management survey Art & Finance Report 2016 Deloitte (Artactic):

• Majority of wealth managers believe that art and collectibles should be part of a wealth management offering.
• Client demand for art-related service.
• A large majority of collectors buy art for passion with an investment view.
• Investment value is an increasingly important motivation among art collectors.
• Wealth managers are realising the importance of art and collectibles as part of a wealth management offering, but are not yet aligned with their clients’ expectations.
• Collection management and wealth reporting.
• Negative outlook from wealth managers on the growth of the art investment fund industry. 
• However, more than a third of collectors would be interested in art investment funds.
• Art-secured lending continues to increase. boosted by third-party lenders.
• The US art-secured lending market is expanding rapidly.
• Lack of regulation in the art market remains a hurdle for art and finance industry.
• Skill and knowledge transfer between the art and wealth management sector.

From my perspective, the potential yet vulnerable status of the financialization of art in China is still a big challenge. The failure of art exchange, funds of fund, opaque small auctions. Failures can be seen as a natural step in the process of experimenting to find the correct instruments to simplify, standardize, and homogenize art, stripping each individual works of its distinctiveness and grouping categories of art together in order to make them comparable and commensurable. Employing these financial investment understandings opens up a notion of markets and financial instruments as inherently evolving and developing. Cultivating specialists both in art and finance field is tremendously crucial for expanding art finance service in the future. Innovative leverage for further expansion of art finance is a must. I firmly believe that the more art professionals and wealth managers who are multidisciplinary background making effort to this industry, the more innovative business strategies and effective communications can be put together. This could be interpreted as a type of remarkable effect on art investment market in the near future.