China should draft a national law to regulate its nascent listings of cultural works on exchanges where their shares are traded, an official with the Ministry of Culture said on Monday.
The suggestion came after the prices of artworks fluctuated dramatically amid unauthorized asset securitization on a number of booming art and cultural exchanges in cities with a strong culture industry.
“The practice poses huge risk to investors as it lacks policy support, industry standards and credit guarantees. It often involves money laundering and thus requires supervision,” Li Xiaolei, deputy director of the Culture Industry Department under the ministry, told the Global Times.
China overtook Britain as the world’s second biggest art market with auction sales of 6 billion euros ($8.62 billion) last year, accounting for a global market share of 23 percent, according to a report from European Fine Art Foundation.
Since the Chinese government aims to raise the culture industry’s percentage of national economic growth from 2.5 percent to 6 percent over the next five years, the Shanghai Cultural Asset and Equity Exchange piloted the trading of ownership, creditors’ rights, equities and intellectual property associated with cultural assets in October last year.
Currently, China has more than 20 such exchanges in first- and second-tier cities, such as Shenzhen, Guangzhou, Chengdu, Shenyang and Zhengzhou.
Beijing is also preparing to have a slice of the pie, but will neither trade in stocks nor use public funds, but instead it will rely on a small group of high-end investors, according to the Ministry of Culture.
“Somehow, the stocks are extremely appealing to small and medium investors,” said Gong Liang, president of the Suzhou Changrun Culture Asset Exchange. The Suzhou exchange sold 21,000 shares at 1,800 yuan ($279) per share before its initial public offering of 80,000 shares on Sunday.
However, analysts said dramatic swings of the share prices have led to questions of whether the trading is manipulated or even a scam.
The price of two paintings – Roaring Yellow River (Huanghe Paoxiao) and Autumn in Fortress (Yansai Qiu) rocketed more than tenfold within six weeks after the shares were issued on the Tianjin Cultural Artwork Exchange in March. The exchange revised its trading rules several times to curb unbridled investment in “art stocks,” but did not clarify trading ambiguity during its evaluation process.
“Stocks represent part ownership of a company and the right to receive a share in its profits while the listing of culture works, without a specific index to measure their growth and returns, is more unstable,” said Zhao Li, a professor at China Central Academy of Fine Arts and director of Arts Finance.
“Speculation on such stocks would further disturb the already volatile art market in China,” Zhao remarked.