Hong Kong vs. the mainland (Spring 2011)

The last decade in Asia for Sotheby’s and Christie’s has been phenomenal. While both have strong, resilient brands, deep pockets and sophisticated marketing machines, the mainland auctions pose a lingering, long-term threat to their market share in Asia. When Sotheby’s market capitalization fell to a low of US $0.5 billion in 2009, some speculated that they were ripe for a buyout from Guardian or Poly.
Combining the results of the major auction houses from both mainland China and Hong Kong shows a disturbing trend emerging for Sotheby’s and Christie’s. Despite the extraordinary growth of their Hong Kong sales, their market share percentage is actually shrinking. When analyzing market share among nine major auction houses active in Beijing, Shanghai and Hong Kong from 2007 to 2010, Sotheby’s and Christie’s market share fell dramatically from 42.8% to 30.7%.
Even with increased investment in Hong Kong by the big two Western auction houses, the growth of mainland sales will only accelerate, putting further pressure on Sotheby’s and Christie’s market share in the region.
Two obstacles exist for the growth of Hong Kong. First, the mainland Chinese face currency restrictions which make it very difficult for them to get large sums of Yuan out of the country to pay for their purchases in a timely manner. And second, if they bring the art back into China, they face a 34% tax on imported art. (This seems to be a counter-productive policy for a country that publicly expresses a strong desire to repatriate its lost culture). As a result, many Chinese collectors are buying art and storing it in purpose-built warehouses in Singapore and Hong Kong as a means of transferring a portion of their wealth and, consequently financial risk, out of the country.

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