Sotheby's taps into mainland market by setting up JV

Leading auction house -- Sotheby's -- is entering the Chinese mainland with a Beijing-based cultural company, looking to get a foothold in the art collection, trade and investment sector.

Sotheby's reached an agreement on Sept. 3 with Beijing Gehua Cultural Development Group (BGCDG), establishing a joint venture called Sotheby's (Beijing) Auction Co., Ltd., sources from both companies confirmed with Xinhua on Friday.

Under the agreement, Sotheby's will invest 1.2 million U.S. dollars into the venture for 80 percent ownership, while Beijing Gehua Art Company, a subsidiary of BGCDG, will own the remaining 20 percent, investing 300,000 dollars, said Wang Yudong, general manager of Beijing Gehua Art Company.

The joint venture will be located within the freeport that was jointly established by BGCDG and the Tianzhu Free Trade Zone in Beijing's suburb district of Shunyi.

Founded in 1744 in London, Sotheby's has established its presence in the world auction market. The company has 90 offices in 40 countries and regions, including China's Hong Kong.

The establishment of the joint venture in Beijing will help Sotheby's gain a foothold in China's mainland and expand its business opportunities, Kevin Ching, chief executive officer of Sotheby's Asia, told Xinhua.

"We are not coming to make instant profits. That's not our premier goal," Ching said. "Instead, we will strategically enhance our company's long-term presence in China and grasp the opportunities presented by the Chinese art market once auction policies for foreign companies turn more favorable."

According to the website Artprice, China has become the world's largest art market since 2011, representing over 40 percent of global art sales. Beijing, with its cultural history, is the center for the country's art market.

However, China does not allow foreign auction houses like Sotheby's and

Christie's trade in the mainland unless they have a Chinese partner.

The joint venture will take the duty-free advantage of the freeport to organize auctions, exhibitions and other activities, Wang said, noting that the new company is yet to obtain approval from authorities.

China charges duties of up to 26 percent for imported artwork, which Wang said is too much.

"However, the duty will be exempt and won't be charged within the freeport if such artwork is eventually taken abroad instead of entering the Chinese market," Wang explained.

"In the meantime, the freeport will provide a tariff-free storage service," Wang added.

Approved by the Chinese Cabinet, the State Council, in July 2008, the Tianzhu Free Trade Zone is the country's first airport-based comprehensive free trade zone.

Wang said the establishment of the cultural freeport and the introduction of joint ventures like Sotheby's will help build Beijing into an international cultural center.

The new company will initially focus on modern and contemporary art, jewels as well as luxury watches, Wang said.

He said the goal of the joint venture is not only to capitalize on opportunities in the art market but also to forge a platform for the country's younger generation of artists to display and trade their art on a broader stage.

"Sotheby's will not be allowed to auction cultural relics in China's mainland, but eventually we hope that restrictions will be lifted," Ching said.

While the Chinese auction market is luring foreign giants like Sotheby's, home-grown auction houses are eying the broader overseas market.

China's top two auction houses, Beijing Poly and China Guardian, both announced plans to make their debut auction in Hong Kong later this year. China Guardian, now the fourth biggest auction house in the world, also opened a New York office in 2011.

"They (the two Chinese companies) are good at trading cultural relics like ink paintings and calligraphies, but Sotheby's is leading the market and more experienced in other areas like jewels, luxury watches and contemporary art," Ching said.

He said the presence of Chinese auction houses in Hong Kong would diversify the art collection and auction categories.

"I am not worried about the competition from Chinese auction houses, though they grow fast," Ching said. "The competition is complementary, which is good for the whole auction market," he added.

Meanwhile, auctions by Beijing Poly and China Guardian in Hong Kong will also bring Chinese customers to Sotheby's, he said.