|Qi Baishi's painting and calligraphy sold for a record price|
A recent Xinhua report says there are irregularities and fake deals particularly among small auction houses in China that are pushing prices up. And in some cases, auctions are used to launder money, or bribe officials. For example, an official might be persuaded to put a piece of art under the hammer and then the briber buys it at an inflated price, Zhang Ning, deputy chief of the Chinese Cultural Relics Academic Society's committee for cultural relics appraisal was quoted as saying in the Xinhua story.
There are cases where an artist will hire someone to buy his work at an inflated price, hoping it will boost the prices of his work in the future. Artist Han Meilin was quoted in the article as saying that he had received so many complaints from people tricked into buying fakes of his work that he was sometimes forced to paint genuine works for the victims. Han had to get his lawyer to send letters to auction houses to stop them from putting fakes up for auction.
Then there are the transactions where an employee represents a company and reaches a deal with the seller before the auction and then collude with the auction house to boost the price during bidding. After it's over, the two parties split the difference between the prearranged price and then inflated bidding price.
"Such corruption and money laundering exists in any industry," said Bian Yiwen, general manager of Beijing Johan Auction said. "Markets can naturally eliminate players who follow irregular procedures amid tight competition. We shouldn't be too reliant on the government to step in, because sometimes they are powerless to face problems like this."
These are shocking revelations, but also not surprising with the record-setting prices we're seeing at auction particularly in Hong Kong these days which makes one wonder what is going on behind the scenes.
For example a painting with calligraphy by Qi Baishi called Eagle Standing on a Pine Tree with Four-character Couplet in Seal Script set a record for modern art and calligraphy when it was sold for 425.5 million RMB at auction last month.
There are four big auction houses in the mainland -- Poly International Auction, Guardian, Hanhai and Council -- and there are claims the smaller ones cheat customers. One trick is to tell sellers that what they found at a flea market is genuine and persuade them to put it up for auction. They then tell the seller to pay them several thousand RMB in handling fees and printing costs for brochures. But the item is never sold because the experts know it's fake.
However, some in the industry think this is just part of the teething problems China is going through with its fledgling auction industry.
"China's economic power is on the rise and the auction industry has improved its abilities compared to 1992, when it began," explained Ouyang Shiying, deputy director of the publicity department of the China Association of Auctioneers. "Although some isolated problems occurred as the auction market developed, it's not fair to blame the whole industry for problems in some individual auctions that are not run properly, or some cultural companies that are not qualified to run an auction business."
Another interesting point in the Xinhua report is that the top four auction houses on the mainland paid taxes much lower than they should have based on their announced turnovers. A lawyer speculated that perhaps the auction companies were evading tax or their announced revenues were inflated.
Nevertheless, an employee from Poly explained the problem was due to delayed or installment payments. "For instance, some sales in December are paid the next year, so the tax is not included in that year's statistics. Some buyers prefer paying by installments with the sellers' permission. In that case, some transactions are not completed until a certain period has passed."
Sounds like either it's creative accounting or installment payments are a convenient excuse. Companies like Poly have strong government connections so the likelihood of it being forced to pay up its tax bills will be rare, so they can continue getting away with what looks like inflated figures.
In the meantime until the process of weeding out of bad auction houses from the good happens, we're still going to continue seeing obnoxious prices for art -- that may not even be real.
You have been warned.