The past three years have seen the fast and furious establishment of art exchanges throughout China: the Shanghai Cultural Assets and Equity Exchange, the country’s first artwork exchange, opened for business on June 15, 2009. Following in that model’s footsteps, more art exchanges were set up, and by June 2011, only two years later, 20 art stock exchanges were operating in China. Remarkably, by October 2011, just four months later, 16 more art exchanges had opened or were in the process of being established.
Now, most of the 36 or so art exchanges currently in operation or preparation in China are facing an unprecedented shakeout following a State Council decision, the State Council Decision On Rectification of Trading Exchanges and Preventing Financial Risk, 2011 No. 38, to clean up all trading exchange operations, and large numbers of private exchanges – which includes virtually all of the art and cultural asset exchanges – will almost certainly face financial problems as a result of the measures.
More dramatic still, some commentators noted with alarm that many art stock exchanges might not even be allowed to continue to exist, as Decision No. 38 declares that only legally established exchanges and exchanges for financial product transactions which have been approved by the State Council will be allowed to offer public shares and engage in centralized bidding transactions.
Decision No. 38 caught the attention of investors the world over, as it applies to all securities, commodities and financial products exchanges in China, and had been promulgated at the State Council level. The more interesting development for the art sector, however, is the subsequent document, published on December 30, 2011, entitled the Opinion on Implementing and Carrying Out the State Council Decision to Strengthen the Supervision of Cultural Property Rights Transactions and Trade in Artworks, 2011 No. 49. An English translation of Opinion No. 49 is provided below.
Opinion 49 sets out some requirements, unique to art stock exchanges, that are not found in Decision No. 38, and which clearly reflect the government’s concern with the highly unregulated development and on-going operation of art and cultural asset exchanges in the country. One high-profile example is the Tianjin Exchange for cultural and artistic works, which began issuing and trading in shares of artworks in 2011. The Tianjin exchange elicited criticism from several quarters due to its incomplete transaction system, and is now embroiled in a number of lawsuits brought when prices experienced steep declines. The exchange may be shut down as a consequence.
Contrary to the central government-level approval requirement set forth in Decision 38, Opinion 49 makes clear that art exchanges may be established at the provincial level, although it should be noted that even this is a significant raising of the bar for most aspiring art exchange organizations. Moreover, the approval procedure that has been laid out is daunting if only for the roster of ministries, departments and working groups that must weigh in prior to any final approval. Opinion 49 itself, however, creates an exception to the provincial-level rule, by mandating the establishment of pilot art exchanges in Shanghai and Shenzhen. This also appears to be an exception to the provision prohibiting the establishment of any new art exchange during the “period of rectification,” which is scheduled to end in June 2012.
Art exchanges in China are now required to have “statutory registered capital … and must provide authoritative and professional investment advice, evaluation, appraisal and financial services, and other intermediary services.” The recognition that evaluation and appraisal services are essential to any professional transaction of art buying and selling is heartening. The concern is that these requirements for expertise may be impossible to satisfy in the near future, and even more vexing – who will be evaluating the evaluators?