By Lu Min and Zhang Jin

November and December coincide with the Autumn Auction of many auction houses in China. The reporter noticed that some companies have introduced the "art works finance pawning" service this year.

As a new thing, what's the status quo of the development "art works finance pawning" in China? What kinds of business does it cover? What's the volume of the market like? With these questions, the reporter interviewed some industrial participants.

Double insurance of auction and pawning

"Art works finance pawning can provide collectors with dual insurance", said Mr. Yang, manager of the comprehensive business department of Beijing Ronghaijia International Auction. According to Mr. Yang, before the auction season, many collectors, due to fund shortage, hope to cash their collections to purchase new art works. Generally, it takes more than one month to liquidate the collections through auction, whereas in pawnshops, although cash can come in faster, the collections may not be able to take part in auctions before they are redeemed and thus miss the auctions. 

To solve this problem, many companies have introduced the "art works finance pawning" service. It is told that to participate in the service a collector needs to sign pawning and auction agreements with the pawnshop and auction house respectively. Then, the collector hands over the collection to the auction house for auction and get a loan from the pawnshop in the meantime. After the auction is settled, the collector can pay the pawnshop with the auction money; in case that the auction flops, the collector can choose to redeem the collection or terminate the pawn directly.  

The reporter learned that this service has been positively received by many collectors since its introduction by some companies in 2008. In the first half of 2010, Huaxia Pawnshop and Beijing Googut Auction jointly introduced the "Art Works Auction & Pawning" program, greatly facilitating the "art works finance pawning" service. With complete certificates and papers, the collector can get a loan instantly through the "Auction & Pawning" program, with a maximum loan amount of as high as 90 percent of the evaluation of the collection. 

Evaluation and assessment bottleneck

However, as an emerging business, "art works finance pawning" also faces some problems that require imperative solutions. When interviewed by the reporter, Dong Yi, CEO of Beijing Baoruitong Pawnshop, said: "Assessment is the most difficult problem in a pawnshop's evaluation of art works. Although many pawnshops have their own assessment teams, they still need to work with authoritative organizations, such as the Palace Museum, in order to evaluate the pawned art works, and refer to the opinions of qualified assessment organizations about the price". Dong Yi suggests that because of the complicated process, the assessment process tends to be lengthy and may cause the pawnshop to fail to determine the final loan date.

The lack of art works pawning professionals is another important factor that impedes the development of the business. Xiong Zhi, from the Planning Department of Huaxia Pawnshop, points out that art works are not articles for daily use, and that their values can only be recognized by certain markets. Therefore, it is highly necessary for professional organizations to take part in the assessment process, which requires art works pawning professionals. "But it takes more than 5 years to train an arts work pawning professional. In Huaxia Pawnshop, there is currently only one permanent art works professional". At present, fake art works are ubiquitous, which decides that art works will not have the relatively stable value like other pawns do, because any bad judgment may cause great loss for the pawnshop." 

Uncertain future

The reporter noticed that although many collectors welcomed the "art works finance pawning" business, others were still taking a wait-and-see attitude. Take the "Art Works Auction & Pawning" by Huaxia Pawnshop and Beijing Googut as an example, many collectors have come to it attracted by its fame, but 2 months after the launch of the program, only 10 collectors had ended up signing agreement. This is an indication that the majority of collectors have not yet fully recognized and participated in the new program.

"There are two causes of the situation: first, most collectors do not understand the program well enough; second, although some collectors may be in urgent need of cash, they have some other channels to turn to", said Hu Ping, art works assessor of Huaxia Pawnshop. "At present, there are three main channels to cash art works: auction, pawning, and personal trading. In auction, the bidding is fair, but the transaction cost, including catalogue fee and commission, and its comparatively long payment cycle cause many collectors to think that it is not cost-effective. The elaborate assessment process of pawning has also put off numerous collectors". Hu Ping tells the reporter that, besides auction and pawning, most collectors now choose personal trading, which gives them more freedom. But transaction in this manner is not properly regulated and risk-control is difficult. The collectors often need to bear the consequence and risk by themselves. 

According to industrial experts, as a new financing instrument, "art works finance pawning" may have been recognized by the market, but such a marriage of auction and pawning still needs to be supported and regulated by proper supplementary measures. Besides innovations in pawnshops' assessment process, talents training and government support and regulation are also indispensible.