Skate's Art Investment Review

Beijing Poly International Auction Co. Ltd is not even seven years old, but it is the world’s third largest auction house, selling RMB 12.2 billion worth of art (USD 1.9 billion) in 2011. It remains in the third spot so far this year, trailing behind Sotheby’s and Christie’s in terms of trading volume.

Skate’s covered the rise of Poly on July 26, 2011, and this week we learned the latest updates from the company concerning their strategy and vision going forward.

So far Poly’s business has been squarely focused on Asia, specifically on China where the absolute majority of its art-buying clients reside. The firm acknowledges that its meteoric rise could have not been possible without backing from its parent, China Poly Group Corporation, a diversified state-owned holding group with commercial interests in industries ranging from arms to culture. This support, which includes funding for the Poly Art Museum—the largest corporate museum in China—has helped to build up domestic demand for the Chinese artworks that are Poly’s primary offering. It is also helping Poly to achieve its first strategic objective, which has been to put Beijing on the map as one of the world’s art trading capitals.

Poly currently trades in four auction categories: ancient Chinese art and calligraphy, pre-modern art and calligraphy, contemporary art, and antiques. It does well in each of these categories, eating away market share from the world’s major auction houses in the Chinese art segment (the fastest growing globally) and efficiently blocking attempts of smaller rivals like Philips with their BRIC strategy to venture in the category.

Poly’s strategy was timed perfectly. The surge of Chinese art acquisitions could have brought a bounty of revenue and profitability growth to international auctioneers, but instead thanks to efforts from Poly and smaller auctions like China Guardian (incidentally, a name that is itself very characteristic of a Chinese art market strategy) it helped to create a powerful domestic art auction industry in the emerging world’s superpower. This new Chinese industry now intends to go global; China Guardian was the first to set up operations in New York, and Poly has just followed.

Beijing Poly International Auction Co. Ltd is smart in its approach to global expansion. It began by educating the global art market community about the strength of its domestic distribution capabilities for Chinese art. Just a few years ago when Christie’s wanted to auction famous fountainhead bronzes in Paris it ran into considerable controversy as official China attempted to block the sale. The Chinese now put forward purely economic arguments for consignors—why consign important Chinese works to global auctions if Chinese auctioneers offer better sales channels? Poly has spared no expense in proving this point, sending its marketing team to European cities this summer to educate potential consigners about the company’s distribution capabilities. Poly intends to play aggressively in New York as well, having purchased real estate for its New York headquarters on West 44^th Street and establishing a fully staffed office to focus on U.S. expansion, specifically the sourcing of Chinese material from the vast community of U.S.-resident Chinese and American collectors of Chinese art, clearly the largest international source of Chinese works of art.

This strategy will work. Poly should be recognized as a lasting and increasingly global force in the international auction business. Move ahead four or five years, and Beijing Poly International Auction Co. Ltd will greatly dominate the global trade in Chinese art by adding a strong client roster of international consigners to its domestic Chinese buy-side clientele, the firm’s original competitive advantage. This growth will set the stage for Poly to challenge the high-end market oligopoly of Sotheby’s and Christie’s. Unless the powerful duo of global auctions established in the 18^th century finds a way to defend its market position and discover new sources of growth, the seven year-old Chinese rival will increasingly depress Sotheby’s and Christie’s equity story well before it starts hiring away key employees in New York.

We continue to expect that Poly will go public soon. Although Beijing Poly International Auction Co. Ltd officials declined to comment on the matter, it really does make sense for Poly to float its shares as it starts Western expansion. It could benefit from exceptionally favorable valuations for art stocks, as was recently proven by the IPOs of Abbey House in Poland and Weng Fine Art in Germany. That said, the art market is not the place where one necessarily needs to be transparent about ownership. We just observed Frieze get away with its entry into the New York art fair market without even being asked about the funding sources behind the lavish Randall Island extravaganza. Frieze is notoriously secretive about its beneficial owners, and in that context Poly can well be called a model of transparency: it is a Chinese government sponsored international expansion of the art trade and Chinese cultural mission executed by a Beijing-headquartered firm beneficially owned by Chinese state. It’s as simple as that. Now, the company is in New York.

To read the full article with data, please click here.

In this Issue:

• Chinese Art Market Research Based on Skate’s Top 5000
• Entries to Skate’s Top 5000 in March 2012
• Top 5 Art Investment Ideas for April 2012
  • Zhang Daqian, Guan Yin
  • Zhang Daqian, Lotus in the wind
  • Wu Guanzhong, Victoria Falls
  • Wu Guanzhong, Snow mountain in spring
  • Zao Wou-­‐Ki, 25.06.86

To read the full report, please click here.