In terms of art, China is certainly in a buying mode. Meg Maggio, an American gallery owner with 20 years of experience in China, found that western firms are pouring into the Chinese art market nowadays. This year, China has officially surpassed the United States in becoming the world’s profitable art and auction market. The Chinese art market posted auction revenues of $8.9 billion in 2013. However, freedoms of foreign firms in the industry are strictly limited by Chinese authorities and competition has increased between local and foreign firms. This post will address the challenges that foreign auction houses are facing in the Chinese art and auction market.

The power of incumbents is one challenge. Western giants Christie's and Sotheby's are banned from selling the hottest item in China—antiques. These popular antique items from Western firms are banned because of laws in place for protecting China's cultural heritage. Therefore, foreign firms have no competitive advantage against local firms since half the value of all items auctioned were composed of old Chinese antiques and only local firms have the permission of selling these products. However, Chinese rivals Poly and Guardian have seen tremendous growth in China these years due to their political ties. Also, knowledge, innovation, and a global brand identity have helped foreign firms generate revenues despite competition and policy challenges.

Another problem is the prevalence of counterfeits. Forgeries are not new in the auction market, but the Chinese market is particularly vulnerable because the art industry has expanded too fast for regulators to keep pace and the market is plagued with corruption. It is extremely problematic that the market is tainted with fake products. Many buyers have backed out of sales because of the risk of counterfeits. Foreign firms also have difficulty in recognizing counterfeits since they have less experience than the local firms. Although China has developed various regulations to correct such bad market behaviors, such practices are still abound.

The potential of the Chinese art and auction market is clear, but foreign firms should think about the many challenges when entering a new market. The Shanghai Free-Trade Zone will be launched shortly which may have a positive effect on the art and auction market of China. Lastly, I think Chinese trade promoters should consider the limitations in place and truly create a free and fair trade environment in China for not only the art market but for all economic sectors.

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