Skip to main content

Deadbeat art buyers rise in China

By Pauline Chiou, CNN
June 7, 2012 -- Updated 0217 GMT (1017 HKT)
A man looks at artworks on display during a Christie's spring auction preview in Hong Kong on May 24, 2012.
A man looks at artworks on display during a Christie's spring auction preview in Hong Kong on May 24, 2012.
STORY HIGHLIGHTS
  • As art sales in China grow, so are the difficulties receiving payment for auction buys
  • Rise in art sales defaults comes in tandem with Asia's growing impact on the global art market
  • Sotheby's recently introduced a policy where all bidders must pay a minimum deposit
  • "Up until 2008, Asia was 2-4% of group sales. Today, 25% of our buyers come from (Asia)"

Editor's note: Editor's note: Pauline Chiou is a CNN anchor/correspondent based in Hong Kong. Follow Pauline on Twitter @PaulineCNN

Hong Kong (CNN) -- Hong Kong art collector Alan Lo and his father share a love for Chinese art. The younger Lo buys modern Chinese art; his dad owns an important collection of traditional Chinese ink drawings. In the past, they've sold some of their pieces at auction without much drama. However, there was one particularly frustrating transaction.

"My dad encountered an experience where he sold a piece of work upwards of $5 million to $10 million. It took the buyer almost half a year to pay the auction house," Lo recalls, saying the anonymous buyer was most likely from mainland China.

Whether it's a cultural issue or a calculated financial move, non-payment causes major headaches for all players involved. The sellers don't get their money, the auction house doesn't get its commission, and storage and insurance costs add up.

"With big-ticket items, it's becoming more and more of a concern with mainland buyers. To a certain extent, they have less of a tendency to follow the rules of the game," Lo says. "Sometimes, it's not so much about the money. They just can't be bothered. Their attitude is, 'I'm such a big customer. I can't be bothered. Maybe I'll pay a third now and then another third later'."

The rise in deadbeat art buyers in the region comes in tandem with Asia's growing importance in the global art market. "Up until 2008, Asia was 2% to 4% of group sales," says Francois Curiel, president of Christie's Asia. "Today, 25% of our buyers come from this region."

China's race for resources
Woman at the heart of 'China's Google'
Manufacturing relationships with China

"Mainland buyers not paying seems to be a phenomenon that's increasingly prevalent," says fine art consultant Jonathan Crockett, based in Hong Kong. "They always have the money but they don't necessarily want to spend it. Yet, they still want the art. They want the best of both worlds." Crockett's worst experience was overseeing a transaction in which the buyer took two years to pay up.

Sotheby's has been bitten hard in the past and now takes a very aggressive stance against deadbeat auction winners. Sotheby's Asia has filed 13 lawsuits since 2007 with five cases still unresolved.

"Our lawsuits do not mean that we are experiencing more defaults than other auction houses. It just means that we take our obligations to our consignors seriously and are willing to take this step when necessary to protect them," Kevin Ching, CEO of Sotheby's Asia, wrote in an email to CNN.

Sotheby's recently sued two mainland buyers, Ma Dong and Ren Chunxia, because they hadn't paid for winning bids that totaled $15 million. Sotheby's confirms Ren has since settled her payment while the case against Ma is still winding its way through Hong Kong's High Court.

While mainland buyers get most of the bad rap, industry insiders say the problem also exists among buyers from other emerging markets like Indonesia and Malaysia.

Christie's Asia says the problem is not a major issue for the auction house today but it was a problem back in 2010. "I always wondered why someone would come to an auction, raise their hand and bid, and decide not to pay afterward," says Curiel. "I thought it was something new for some customers -- like going to a gallery, deciding to buy and the next day changing their mind. I suppose it was because some collectors were new to the auction game and were not familiar with it."

As a safeguard, major auction houses often require significant deposits before the bidding takes place. Last October, Sotheby's introduced an across-the-board deposit policy in which prospective bidders must put down a minimum deposit of HK $200,000 (US$25,800). At Christie's Asia "we ask you to pay a 20% deposit on what we think you're going to buy ... If you win the bid, that 20% goes toward the sale," says Curiel. "If not, we return the money to you the day after the auction."

Before an auction, both Sotheby's and Christie's ask for bank references from bidders or talk to major dealers to find out if the bidder has a good track record.

Still, buyer and seller beware. "The risk is inherent. Art is generally not the most liquid of assets. It's probably one of the most illiquid in terms of worth. So people trying to put off payment is just part of that," cautions Crockett.

Lo explains why the risk may be worth taking at auction, compared to buying art through a gallery or middleman. "Chances are you are still getting the best price at auction," he says. "The risk is higher and there's more concern about getting payment, but it's the risk the seller has to take."

ADVERTISEMENT
Part of complete coverage on
September 10, 2014 -- Updated 0538 GMT (1338 HKT)
Home-grown hip-hop appeals to a younger generation but its popularity has not translated into record deals and profits for budding rap artists.
September 9, 2014 -- Updated 0545 GMT (1345 HKT)
Reforms to the grueling gaokao - the competitive college entrance examination - don't make the grade, says educator Jiang Xueqin.
September 5, 2014 -- Updated 1218 GMT (2018 HKT)
Beijing grapples with reports from Iraq that a Chinese national fighting for ISIS has been captured.
September 1, 2014 -- Updated 0200 GMT (1000 HKT)
CNN's David McKenzie has tasted everything from worms to grasshoppers while on the road; China's cockroaches are his latest culinary adventure.
September 5, 2014 -- Updated 0057 GMT (0857 HKT)
Beijing rules only candidates approved by a nominating committee can run for Hong Kong's chief executive.
August 29, 2014 -- Updated 1914 GMT (0314 HKT)
China warns the United States to end its military surveillance flights near Chinese territory.
August 29, 2014 -- Updated 0312 GMT (1112 HKT)
China has produced elite national athletes but some argue the emphasis on winning discourages children. CNN's Kristie Lu Stout reports
August 19, 2014 -- Updated 0513 GMT (1313 HKT)
Chinese are turning to overseas personal shoppers to get their hands on luxury goods at lower prices.
August 15, 2014 -- Updated 0908 GMT (1708 HKT)
Experts say rapidly rising numbers of Christians are making it harder for authorities to control the religion's spread.
August 11, 2014 -- Updated 0452 GMT (1252 HKT)
"I'm proud of their moral standing," says Harvey Humphrey. His parents are accused of corporate crimes in China.
August 6, 2014 -- Updated 1942 GMT (0342 HKT)
A TV confession detailing a life of illegal gambling and paid-for sex has capped the dramatic fall of one of China's most high-profile social media celebrities.
July 31, 2014 -- Updated 0410 GMT (1210 HKT)
President Xi Jinping's campaign to punish corrupt Chinese officials has snared its biggest target -- where can the campaign go from here?
July 30, 2014 -- Updated 0712 GMT (1512 HKT)
All you need to know about the tainted meat produce that affects fast food restaurants across China, Hong Kong, and Japan.
July 18, 2014 -- Updated 0230 GMT (1030 HKT)
Some savvy individuals in China are claiming naming rights to valuable foreign brands. Here's how companies can combat them.
July 16, 2014 -- Updated 0911 GMT (1711 HKT)
Is the Chinese president a true reformist or merely a "dictator" in disguise? CNN's Beijing bureau chief Jaime FlorCruz dissects the leader's policies
July 8, 2014 -- Updated 0344 GMT (1144 HKT)
With a population of 1.3 billion, you'd think that there would be 11 people in China who are good enough to put up a fight on the football pitch.
ADVERTISEMENT