Nobody expected that Hong Kong’s art scene would thrive better under Chinese rule than when the city was administered by the British government. In fact, more funding and a more vibrant creative environment have made the art market dramatically bigger than it was at Chinese handover time.
The Hong Kong Government has set aside HK$20 billion for arts and culture expenditure this financial year, compared with just HK$840 million just two decades ago. International art fairs and auctions are bringing more collectors and investors to Hong Kong. The Xiqu Centre of the West Kowloon Cultural District have recently been completed, while other major facilities will also come to life in the next few years. Different projects to be rolled out in the coming ten years include the construction of the New Territories East Cultural Centre and the Heritage Conservation and Resource Centre; the expansion of the Hong Kong Science Museum, Hong Kong Museum of History and Hong Kong City Hall; and the renovation of the Hong Kong Cultural Centre. A further HK$500 million are to be allocated this financial year to the Leisure and Cultural Services Department for the acquisition of museum collections and holding art exhibitions.
Dramatic growth of the Chinese art market and investment
The number of commercial galleries has jumped from about a dozen in 1997 to a few hundred. Internationally renown names have set up operations in Hong Kong: Gagosian, David Zwirner, Massimo De Carlo, White Cube amongst others. Independent art spaces, theatre and music groups are thriving. In the past decade we have also witnessed the acquisition of Art HK by MCH Swiss Exhibitions – which owns Art Basel and it’s the biggest contemporary art fair in the world. This tactical move, combined with a fast-rising auction revenue, favourable tax considerations, a fresh interest in art as an asset class, and interest based on national identity, cements China’s role – and Hong Kong in particular – in the global art market.
The contemporary Chinese auction market has grown to about HK$3 billion. Prominent auction houses, like Sotheby’s and Christie’s Hong Kong have seen sales turnover increase exponentially and even mainland Chinese state-owned auction houses – such as Poly and Guardian – have seen their Chinese sales grow dramatically. The art world focus in Hong Kong, as opposed to mainland China, may also be connected to the tax advantages it provides. While the importation of artworks is taxed by Mainland China at a steep 34%, Hong Kong offers collectors and investors the advantage of more relaxed tax and export policies. Organizers of art exhibitions and fairs are aggressively promoting with both collectors and investors the incredible tax advantages, since there are no tariffs on the import or export of art as it relates to the initial sale. Importantly, Hong Kong has no wealth, gift, estate or capital gains tax
A brand-new interest in art as an asset class has also pushed growth in the Chinese art market. High Net Worth Individuals in China have begun to invest in art as an asset, something that decades ago was considered as a Western luxury. Experts point out that the explosion of art in China is the continual result of a rise in investment-oriented purchases of art, boosted by China’s growing wealth. In response to this, at least three Chinese financial institutions have set up hedge funds investing in Chinese art. Remarkably there have been many prominent Chinese clients spending millions of dollars recently at several high-profile international auctions.
National identity and pride is clearly another meaningful aspect behind the new wave of Chinese interest in the art world. Such national pride is evidently by some of the top Chinese artists having ranked amongst the highest ten global art auction earners.
Hong Kong advantages as a major art hub
Hong Kong offers a range of comforts for those doing business in the art market. Apart from the remarkable tax advantages in the importation and exportation of art in Hong Kong, doing business in the territory is made easier by the fact that English is commonly spoken and that Hong Kong adheres to international standards of business law, with a high level of transparency in commercial transactions. Moreover, in contrast to other cities in mainland China, the logistics of obtaining shipments in and out of Hong Kong do not normally implicate long turnaround times.
When exporting artwork from Hong Kong, buyers must ensure to complete and submit an export declaration in Hong Kong, as well as an import declaration in the destination country, where import duties and taxes greatly vary according to the destination country. Where the buyer is shipping the artwork to the same country that the seller originally exported it to Hong Kong from, it may be possible for the buyer to avoid payment of import customs duty in the destination country under a “returned goods relief” procedure, as long as the seller can provide the buyer with the relevant proof of original export.
A new role for cryptocurrencies and blockchain
Cryptocurrencies and blockchain technology are slowly infiltrating every part of our lives – in particular with Hong Kong becoming a strong blockchain hub – and art gallery business is not an exception. Undoubtedly, blockchain has a role in provenance authentication.
Though cryptocurrencies seem like an alien term to many, they are similar to currencies commonly used on the market. Nowadays, there is an growing number of galleries that accept Bitcoin, Ethereum and other types of cryptocurrencies for artwork purchases. Such trend also includes markets like the U.K. or Singapore.
Though the art world is catching up on the new technology, it will still take time. We notice that many art world institutions are still concerned in using cryptocurrencies as a payment method, including important auction houses like Sotheby’s and Christie’s. However, as cryptocurrencies begin to infiltrate our lives more and more, it’s foreseeable that galleries will accept them more widely and find many benefits in using them.
Overall the future of the Chinese art world looks optimistic, and it is clear that the impact of both the art culture and the use of cryptocurrencies, especially in Hong Kong, have a crucial role to play in this continued growth.
Our team at Hugill & Ip has extensive experience in dealing with art law, financial and risk management issues – so if you need further advice on these subject and other topics discussed, get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.