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Stanford Smarts in China’s Art Marts

Museum-goers at the opening of the UCCA exhibition view Geng Jinyi's "the Second Situation."

Traditional LandscapeBy Pamela Yatsko

In the mid-1990s, a European contemporary art connoisseur called the Chinese contemporary art collection of Guy Ullens, MBA ’60, “rubbish.” Few people internationally, let alone in China, were interested in Chinese contemporary artists or their art. “Nobody knew about them,” the retired Belgian businessman chuckled.

How times have changed. Last October, a painting by Chinese contemporary artist Wang Guangyi sold to a buyer at a London auction for $1.59 million, 63 times more than its American seller paid in 1996. Ullens, who owns one of the world’s finest Chinese contemporary collections, has helped foster this change in international attitudes. Now, with the recent opening of a groundbreaking contemporary arts center in China, the 72-year-old collector is bent on changing Chinese attitudes as well. He explained, “The whole thing is to promote Chinese artists and at the same time show Western art. The Chinese will learn very fast.”

Soaring prices, expanding Chinese wealth, and an emerging market spell opportunity for the entrepreneurial, so it is no surprise to find Business School graduates investing in China’s art marts. Reynolds and YeeChris Reynolds, MBA ’04, and Craig Yee, MBA ’03 (pictured, at right) have started an art management company focused on classical Chinese art. According to Pauline Yao, an independent curator formerly with the Asian Art Museum in San Francisco, these projects indicate “a growing awareness of art among the Chinese, who, because of the improved socioeconomic situation, have time and money to indulge in art.” They also represent two different approaches toward enhancing the value of art. If successful, they will further the Chinese art market’s development.

Guy Ullens de Schooten did not always spend his days promoting Chinese contemporary art. Taking over his family’s food empire in the early 1970s, the Belgian baron had by the late 1980s turned the troubled conglomerate around. Just prior to his retirement, his Artal Group in 1999 bought a majority stake in Weight Watchers from food giant H.J. Heinz.

Ullens’ attempts to gain a business foothold in Asia proved less successful. But during his many trips to Beijing, he often relaxed on weekends with local contemporary artists. The businessman’s ease in the seemingly alien worlds of art and China stemmed from a long family history in both, including a father and uncle who were diplomats in China after World War I.

During the 1980s and 1990s, Chinese authorities often shut down contemporary art exhibits, which they viewed as social threats. Artists, with little commercial experience or following, were ecstatic to earn $5,000 for a painting, Ullens says. Moved by their work, he eventually amassed a collection of more than 400 pieces.

Upon retiring in 2000, Ullens and his wife threw themselves headlong into their passion; in 2002 they mounted the largest Chinese contemporary art exhibition in Europe. After holding a few more exhibitions, Ullens hired prominent Chinese contemporary art expert Fei Dawei to help him realize the full potential of these efforts. Fei advised him to include video and installations. “I’m an amateur,” Ullens recalls replying, “Where am I going to store all that?”

Thus began Ullens’ search in 2004 for storage in China, which eventually snowballed into the Ullens Center for Contemporary Art: an enormous, state-of-the art exhibition space in Beijing’s thriving 798 Arts District. He signed a lease in June 2005 for a dilapidated electronic components factory built in the 1950s by East Germany. He then hired a top international architect to transform its two 25,000-square-foot industrial spaces into three exhibition halls, a 200-seat auditorium, a contemporary art reference library, a children’s center, a shop, a cafe, and VIP facilities. The center, which opened in November with Fei as artistic director, holds solo and group exhibitions of Chinese and foreign artists in addition to programs aimed at educating visitors. More a museum than a gallery, it does not price or sell exhibited works.

Ullens is currently financing the project himself. He originally hoped to set it up as a nonprofit, but greater bureaucratic scrutiny and an underdeveloped legal code for nonprofit foundations made him opt to operate it as a commercial venture. The center still runs itself on a not-for-profit basis, however, with all income earned from admission fees, and room rentals plowed back into the project.

Ullens will not profit financially from the Center. But like all works exhibited there, the value of his personal collection should benefit indirectly from the public exposure. He insists he will have little say over art programming matters, however, and leaves decisions on shows and works chosen to the Center’s curators.

From the project’s outset, Ullens leaned for help on Boston Consulting Group’s China team, led by David Michael, MBA ’92. The team was instrumental in devising the center’s strategy, dealing with the Chinese government, and recruiting and training staff. “Without them we would not exist,” Ullens insists.

The center’s opening is well timed commercially and politically. The high prices contemporary artworks are fetching at auction these days and the staging of the summer Olympics in Beijing in August should spur attendance. Moreover, the center’s mission coincides with Chinese government efforts during the Games to highlight the country’s cultural progress in addition to its economic achievements.

Ullens credits his Stanford training with giving him the vision to seize a unique opportunity. He said: “We probably would not have the chance again because the building would cost too much and we’d face too much competition [from other large internationally recognized groups]. Here we will be the first. It’s really the Stanford way of thinking.”

Of course, being first and high profile in a country like China is risky. The government is likely to watch the project more carefully than smaller exhibition spaces, and such scrutiny hampers the center’s ability to offer edgy art. Some galleries hold controversial shows without government approval—something the Ullens Center can ill afford. “We have to be sensitive not to anger the censors and Chinese society in general, which is fairly puritan,” Ullens acknowledges.

Cloister

Cloister beween exhibition hall 2 and exhibition hall 3(B) at the UCCA.
Courtesy Photo: UCCA

The project fills critical gaps in China’s contemporary art scene by raising overall standards and indirectly enhancing the value of works shown there. Although there are a handful of private and state-run exhibition spaces for contemporary art in China, they are smaller, less professional, and more cash-strapped. They sometimes undermine their credibility by accepting payment from artists for exhibition space. “The Ullens’ project is important because it is so dedicated to running the project in a highly professional way,” explains Yao, the independent curator formerly with San Francisco’s Asian Art Museum. The center also brings greater intellectual rigor and international prominence to the market. According to Yao, “A big difference is the caliber of artists the center will be able to work with because it has such a reputation outside of China.”

LotusSimilarly, Craig Yee and Chris Reynolds are finding opportunity in the inefficiencies of China’s market for classical pre-1949 Chinese paintings. They set up an art management company focused on raising private equity funds to buy high-quality collections that are undervalued due to credibility problems dogging that market. After closing the credibility gap, mainly by conducting academic research on the paintings, China Fine Art Management (CFAM) plans to sell the collections for a profit.

Their business model grew out of a Business School independent study project that merged Yee’s knowledge and passion for Chinese art with Reynolds’ financial know-how and desire to invest in China’s expanding private wealth. The pair met at the school’s Asian Society, where Yee expressed to Reynolds his many frustrations with the Chinese art market. Sensing a commercial opportunity, Reynolds investigated possibilities in an independent project with two Business School experts on inefficient markets, A. Michael Spence (2001 Nobel laureate for work on signaling theory) and the late John McMillan (expert on market design and problems plaguing developing economies). “This is an example of the benefits of the cross-disciplinary mindset and entrepreneurialism that the GSB fosters,” Reynolds says.

Since its inception in 2005, CFAM has raised a $35 million fund (Spence is one of its investors), is in varying stages of acquiring major collections, and is undertaking a large-scale research project in China of targeted works. “The project concurs with advice I’m giving my clients, which is that classical Chinese paintings remain an undervalued sector of the market,” says Chinese art agent William Hanbury- Tenison, comparing the situation there to the speculation he sees occurring in Chinese contemporary art.

Undervalued? Some collectors of classical Chinese paintings have seen values jump 10-fold since the 1980s, with 19th- and 20th-century painting prices surging more than 30 percent over the past five years. Reynolds attributes this growth to the entry of newly rich Chinese mainlanders into the market.

Still, genuine masterworks consistently sell at a discount of their appropriate value, he explains. Most classical Chinese paintings for sale at auction are either mediocre in quality or fake. Auction houses and museums do not have the expertise to judge the quality and authenticity of classical Chinese paintings for buyers like they do for mature markets. Indeed, the world’s most well-known auctioneers, Christie’s and Sotheby’s, stopped guaranteeing classical Chinese painting authenticity in the 1980s following repeated difficulties retaining credible experts. Buyers assume the worst and pay accordingly. Collectors subsequently resist putting genuine masterworks up for sale for fear of not realizing their full value.

To overcome this market failure, Reynolds and Yee target for purchase museum-quality works or collections with established ownership histories but little public exposure. They then invite scholars to do research on the pieces and publicize the findings in publications, exhibitions, and conferences. “By inviting scholars to authenticate the works of art, you add another layer of approval that may make these works more acceptable to the marketplace,” Tenison says.

Ultimately, Yee and Reynolds hope to help the market better discriminate between good and bad paintings by damping doubts about collections in CFAM’s portfolio. By obtaining premium prices for authenticated paintings upon resale, they expect to generate healthy profits for their investors and themselves. “CFAM is trying to drive greater efficiency by creating more transparency,” Yee explains. “If we do what is good for the art, we will enhance its value”—and theirs!