Financial instruments are incomplete and auction payments become chronic diseases

In 2013, the total volume of global art sales was 47.4 billion euros, close to the historical high of 48 billion euros in 2007. In 2013, the United States once again became the world’s largest art market with a 38% market share. China’s 24% market share ranks second in the world’s art trade, and the United Kingdom maintains third place with a 20% market share. (In 2011, China once surpassed the United States with a market share advantage of 1%, becoming the world's largest art market, and in 2012 it fell by 24% to second place.)

It is worth noting that although China is the second largest market for global sales of artworks, delays in payment and successful bids and protests remain a persistent problem in the Chinese art market. Just as the Poly Culture previously listed in Hong Kong stated in its prospectus - "We cannot guarantee that we will be able to fully recover the lot deposit and prepaid lot, or we will not be able to recover the money at all."

The people in the auction industry believe that although the Chinese auction industry association has been paying attention and trying to solve the problems of refusal payment and deferred payment, the financial means at the source are not perfect, and the payment problem will be difficult to completely solve.

Ten million dollars, only 47% settled

"TEFAF2014 Global Art Market Report" pointed out that different auction houses and different prices of art will have an impact on the settlement rate. From mid-2011 to mid-2012, according to CAA (China Association of Auction Industry), 581 sample lots with a unit price of over 10 million yuan from a licensed auction house were paid out, 45% were paid out, and 15% were a part of Paying, 40% is unpaid. At the same period, 58% of the 175 works of art sold by Poly International in the unit price of more than 10 million yuan were paid off, 11% were partial payments, and 31% were still outstanding. At the same time, of the 129 artworks sold by the China Guardian Auction House, whose unit price exceeded 10 million yuan, 54% were cleared, 13% were partial payments, and 33% were not settled.

According to CAA's data, as of June 2013, of the 206 works sold for more than RMB 10 million, 47% have been settled (up by 2% from the same period in 2012), and 23% have been paid (up 8%), 30% are not settled (down by 10% and below the 44% unpaid rate for all artworks).

In 2013, the settlement rates of the three major auction houses were significantly higher than the industry average. Among them, the Guardian Auction House increased the most. Among all the 46 auction items with over RMB 10 million, 83% had settled, 11% partially paid, and only 6% did not pay. In Poly International, of the 68 auctions that exceeded 10 million yuan, 34% were settled, 47% were partially paid, and 19% were not settled. In Beijing, 23 auctions with over RMB 10 million were sold, of which 56% were cleared, 26% were partially paid, and 18% were not settled.

Dougong Xuan, deputy general manager of the auction house, said in an interview with reporters: “Deferred payment and refusal is not a new problem, but the performance in recent years has been outstanding. This is related to the economic trend and it is also related to the buyer’s cash flow. There are not too many refusals to pay, and delays in payment are common. Delays occur for several months, six months, or even one year."

The carrier told the reporter that Duo Yunxuan had encountered a buyer who refused to pay. The buyer took a picture of a million-dollar painting and calligraphy, and after signing the confirmation of the transaction book, he considered that there was a problem with the auction item and he did not want to pay. After Duo Yunxuan failed to communicate with buyers, he sued the buyer. The court of first instance found that the defendant refused to pay the reasons are not sufficient, the plaintiff Duo Yunxuan won the trial. The current legal dispute arising from the refusal payment is still in the second instance. "In the event of a refusal to pay, we usually cancel the transaction and deduct the security deposit. According to the commissioner's wishes, we can retrieve the auction item or leave it for the next remake. The real case is the individual case."

The TEFAF report pointed out that the settlement rate will affect the analysis of industry data, and its differentiation means that smaller auction houses face higher risks of overdue payments and refusal payments. In many small auction houses, the settlement rate has affected turnover. Moreover, overdue payment will also cause the cash flow shortage of the auction house.

Industry sources told reporters that some small-scale auction companies have adopted a “zero guarantee” system to attract buyers. However, it has not been known that small and medium-sized auction companies have closed down due to refusal to pay or delay payment.

Foreign auction house ** and advance payment services

In response to the issue of refusal payment and deferred payment, most auction houses have a deposit system and payment deadlines. For example, Poly holds 500,000 yuan and 1 million yuan in bids for auctions held during daytime and nighttime; for high-priced auctions, prospective buyers need to pay an amount of 1 million Hong Kong dollars in advance or the total value of all auction items. 20% (whichever is higher), the remaining amount owed must be paid within 7 days after the end of the auction; Sotheby's had previously requested that all auctioned bids of more than HK$8 million be subject to a special bid price of 1 million. Hong Kong dollars deposit, and buyers must complete payment for auctioned lot within 10 working days after the auction. Domestic payment time is relatively loose, usually 30-35 days.

The bearer said that the reason for the better receipts from foreign auction houses is that the financial networking function is powerful. If an individual refuses to pay, it will result in reputation taints and a series of associated influences. Although the Chinese Auction Industry Association has always paid attention to and wants to solve the problem of refusal payment and deferred payment, the financial means at the source are not perfect and the payment problem will be difficult to completely solve.

In addition, foreign auction houses have more sophisticated services and provide prepayments to clients. According to Bao Li Zhao Xu, executive director of Poly International Auction Co., Ltd. in Beijing, "This can slow down the impact of slow payments from some collectors."

Sotheby's internal documents show that Sotheby's financial services department provides its clients with services, including the sale of art objects**** and artwork that is not ready for sale as collateral**.

Sophie’s ** policy is, in principle, that the amount of the loan is capped at 50% of the low price of the relevant item's auction. In addition, the minimum amount for consignment is 25,000 pounds, and the mortgaged puppet is 250,000 pounds.

In addition, due to the cyclical factors of art auctions, Christie’s and Sotheby’s will help sellers obtain some funds in advance. According to public reports, Christie's advance payment ratio is approximately 30% to 50% of the minimum value of arts valuation, and Sotheby's is slightly higher, reaching 50% to 60%.