The Heat of Art Financialization Attracts 62 Trillion Yuan of Personal Capital
By July 31, cultural and art property exchanges that had been listed and started operations reached 21 nationwide; 15 cultural and art property exchanges were in preparation. It is estimated that by the end of 2011, the total number of cultural exchanges nationwide will reach or exceed 40. The large-scale emergence of cultural exchanges will have a landmark impact on China's traditional art collection and investment sector, widely attracting investors from the financial investment field to enter the art collection and investment sector.
A recent report showed that in 2010, the scale of investable assets held by individuals in China reached 62 trillion yuan, increasing by approximately 19% compared to the end of 2009. The number of high-net-worth individuals in China with over 10 million yuan in investable assets has reached 500,000. In terms of investment direction, enthusiasm for directly purchasing domestic residential properties has decreased, while interest in gold, art investments, etc., has increased.
Financial capital becomes a promoter of collections
With banks, trusts, and funds representing financial capital entering the art field, various art wealth management products and financial products based on art are frequently emerging. Thus, the era of financialization of Chinese art has also begun. Overseas, such as in the United States and Europe, the entry of financial capital into the art collection and investment sector has become a major driving force behind the art market. On August 7, the "2011 China Art Collection and Investment Summit Forum" co-organized by "Collection Investment Guide", Huaxia Relics Organizing Committee, and co-organized by "International Finance News" was held in Beijing.
Zhu Xiangyuan, vice chairman of the Beijing Municipal Committee of CPPCC and vice chairman of the Central Committee of the China Democratic建国Party, stated that the financialization of art can guide 62 trillion yuan of personal investable capital into a channel where it can appreciate in value. Zhu Xiangyuan said: "If we do well in our own financialized art market, we will have pricing power. With pricing power, our cultural sovereignty can be protected. Some people estimate that according to international norms, about 5% of personal investment funds are currently invested in art, which translates to a potential of 3 trillion yuan. However, the total art market turnover in 2010 was just over 50 billion yuan, less than 2% of 3 trillion yuan, leaving 98% potential for art market investment."
Jiang Zhanguo, deputy editor-in-chief of China Securities News and president of the "Collection Investment Guide" magazine editorial board, said in his speech: "According to incomplete statistics, more than 20 art exchanges have been established in our country in the past two years. Most of them have developed fractionalized art products. Art trust funds and private equity funds are increasing day by day. Other art financialization products - such as art mortgages, pawns, guarantees, art banks, art insurance, and art futures trading - have all made significant progress. The financialization of art has immeasurable impacts on the development of China's and even the global art market. It not only changes the transaction mode and management methods of art but also profoundly affects the structure of the art market."
Zhou Yongjin, director of the Hunan Provincial Department of Culture, said that investors participating in art investment may not necessarily all understand art. There needs to be an authoritative institution to make a correct and scientific evaluation of the objective price of art. Hunan Province is currently preparing to establish a provincial-level art appraisal committee before entering the market. Cultural administrative departments of the government should not wait until problems arise in the art market to criticize, but should participate in the process of its development, guiding and regulating it, and providing good services.
Special Risks in Art Investment
"As an industry insider, I have repeatedly warned in different occasions that art investment carries special risks, different from gold, oil, and stocks. Its value judgment, although difficult to quantify and standardize, still has intrinsic standards. Professional operation of art funds is a stable factor for the continuous growth and development of our art market, rather than a volatile factor. Of course, this premise is professional operation," said Gan Xuejun, chairman and general manager of Beijing Hua Chen Auction Co., Ltd., while expressing his views at the forum.
Gan Xuejun said: "Art has financial attributes. From the perspective of financial markets, under the current macroeconomic background of China and the investment market context, the emergence of a new type of investment - art investment - and a new financial product related to art makes sense conceptually. However, the financialization and broad financialization of art may still bring some confusion. This professional operation involves two aspects: one is the professionalism in fund operation, and the other is the professionalism in the value judgment of art. Without the judgment of art value, there would be no discussion of fund operation technology or the social and economic benefits anticipated after the financialization of art."
Paul Huang, Vice President and General Manager of Asia at Modigliani Fine Arts, said: "The main purpose of art investment is to achieve high returns in a short period. Investments should be divided between long-term and short-term. Long-term investment targets must have great liquidity. Works with high liquidity and strong market demand are usually representative masterpieces with high prices. High price is a unique attribute of art, so the unit price of long-term works is high, but the risk is relatively low because their status in art history is established and they are masterpieces. Short-term works generally have low value and high risk."
Liu Shangyong, General Manager of Beijing Rongbao Auction Company, believes that the commodification of art does not equate to the financialization of art. For solid forms like paintings and sculptures, their commodification might eventually lead to financialization. Art is a special commodity, and when it becomes a financial product, many conditions need to be met, such as whether it can be mortgaged, pawned, correctly assessed, reasonably and fairly appraised, and whether there is a very good storage mechanism, along with insurance. A lot of credit systems need to support financialization.
The Era of Financialization Has Not Arrived Yet
Data shows that China has surpassed the United States to become the world's largest art market. In 2010, China accounted for 33% of global art sales, surpassing the US's 30%, ranking first. In 2010, China's art auction market achieved nearly 30 billion yuan in market share, and the total art market turnover reached 57.3 billion yuan.
Yü Wenyi, Director of Peking University's Institute of Cultural Finance, believes that objectively speaking, the era of art financialization has not yet arrived. However, media professionals seem to be aware of this earlier, and using 'era' as a marker might be premature, but it is a good wish. He indicated that the transformation of public and industrial investment concepts requires us to establish a concept: if systematic, school-based, and typical collections are not made, then generalized collections can only be called hobbies, not investments. Popular education and institutional guarantees, including the establishment of trading systems and a complete art financialization support system, are needed. Additionally, supporting services such as valuation systems, such as creating artist catalogs, are necessary.
Qin Changgui, Director of External Cooperation Department of China Economic Information Service Holding Co., Ltd., said: "For art financialization, the most core element is accurate market judgment, which is the core competitiveness for standing invincible after art financialization. It includes two aspects: one is the correct valuation, which leans towards academic nature, and the other is the accurate judgment of the art market, which leans towards market nature. These two must be organically combined to be the fundamental basis of art financialization."
Gan Xuejun believes that from a macro perspective, the market is still in a stage of rapid growth. Any market that grows rapidly will inevitably face opportunities and risks simultaneously. Yü Wenyi hopes that art financialization will become an important part of China's investment transformation and industrial structure optimization during the '12th Five-Year Plan' and beyond.
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Decoding Art Investment Funds
UBS' "Development Report on Art Banking Business" shows that when a country's per capita GDP exceeds $3,000, there is often a tendency towards collection. When it reaches $5,000 to $8,000, art collection will experience a period of rapid growth. By the end of 2010, China's per capita GDP approached $4,000.
Currently, China's art market is experiencing a double-digit growth era. In 2010, the total auction amount of Chinese art reached 57.3 billion yuan, and art transactions accounted for 23% of the global market. The influx of large amounts of capital is the reason for the rise in this year's art market. Although Tianjin Cultural Art Exchange's "art stock" has been controversial, its lively trading has made art as an alternative investment widely recognized. An increasing number of high-net-worth individuals in China are adding or increasing their share of art investment in their asset allocation.
Art investment appears to have a low threshold, with participation possible with 1 million yuan or even less. However, it requires a high level of personal artistic cultivation and quality. For newcomers to the art investment field, grasping the nuances within a short time and accurately entering the market presents objective challenges. As a new channel for high-net-worth individuals to invest in art, the essential purpose of art investment funds is to build a platform for customers to understand and invest in art under controllable risks.
Banks, trusts, insurance companies, and third-party art investment management companies are beginning to enter the art market. They gain customer recognition through the advantages of the fund system and professional operations.
As the first art wealth management product in China, Minsheng Bank's "Extraordinary Wealth Management Art Investment Plan No. 1," Minsheng Bank's partner Beijing Bangwen Contemporary Art Investment Co., Ltd.'s (Bangwen) Chairman Huang Yujie introduced: "Art investment is managing art as an investment object, similar to real estate funds and stock funds. The difficulty lies in authenticity identification and market value estimation. Our characteristic is to let art professionals handle identification and valuation, and let financial investment professionals handle how to invest."
Shenzhen Xingshi Investment Management Co., Ltd. issued a total of 2 billion yuan Xingshi series art fund in June 2010, which is the only art fund initiated and custodied by a local cultural property exchange (Shenzhen Cultural Property Exchange). The issuance amount for the period was 20 million yuan. In December last year, Xingshi cooperated with CITIC Trust as an investment advisor to establish the "CITIC Wenda·China Calligraphy and Painting Investment Fund Collective Trust Phase 1," raising 40 million yuan.
Xu Yongbin, head of Xingshi Art Investment Fund, said: "Currently, the prices of modern Chinese masters' works are not very high, but the market is just beginning to return to its due value. In the future, it will gradually align with the international art market. Art bubbles exist relatively, not absolutely. As China's comprehensive national strength increases, the art market will continue to rise."
For individual investors choosing qualified fund management, Huang Yujie mentioned three criteria: first, look at the company's past performance; second, look at the composition of the company's management team; third, check the company's standardized investment and risk control processes.
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