As China’s art trading market continues to expand, the capitalization and financialization of artworks have also moved onto the agenda, making “art plus finance” a hot topic in both the financial and art communities. However, addressing issues such as authenticating artworks and determining their value has become a major challenge in the financialization of art. Recently, reporters learned from the Shanghai Institute for Cultural and Artistic Assets that the institute has been commissioned by relevant national authorities to conduct research on establishing an art authentication and appraisal system. Currently, the institute has developed a scientifically sound art appraisal system and is conducting pilot programs in sectors including the Bank of Shanghai, the Shanghai Free Trade Zone Art Trading Center, and several insurance companies.

　　Kong Dada, Executive Dean of the Shanghai Institute for Cultural and Artistic Research, stated that a crucial prerequisite for developing art-finance business is that the issue of valuing art assets has, to some extent, seen breakthroughs. “Relying solely on price databases for price forecasting, or depending exclusively on the price forecasts of a single market expert, are both one-sided approaches and insufficient to establish a pricing standard that can gain broad recognition within the financial sector. Independent third-party appraisal and authentication institutions will be the decisive force in breaking through the challenges facing art finance.”

　　Authentication

　　The expert panel members will each evaluate and review using a one-vote veto system.

　　It is understood that the auction industry has been developing in China for two to three decades, and its scale has grown rapidly. However, the supporting appraisal and authentication system has long been lacking. Currently, domestic assessments of art’s value and authenticity still rely on traditional methods, which are heavily dependent on human expertise. Yet this model clearly fails to meet today’s market demands. As one by one of the veteran appraisers pass away, and with no market-adapted appraisal and authentication models emerging, the art market’s appraisal and authentication system is facing a developmental bottleneck. Speculators have taken advantage of the imperfections in the appraisal and authentication system to reap huge profits, leading to a series of high-profile scandals involving fake expert appraisals and deceptive valuations. As a result, the integrity of the art market has come under public scrutiny, making it an urgent issue that must be addressed in the art market’s ongoing development.

　　Establishing a Chinese art appraisal and authentication system has become an industry consensus.

　　According to Kong Dada, Executive Director of the Shanghai Academy of Arts and Culture, the valuation of artworks depends on a comprehensive database of sales prices that accurately reflects market conditions. Currently, many existing art valuations are based on auction data. In theory, the auction market is characterized by openness and transparency, seemingly capable of faithfully reflecting the current market situation and price levels. However, given that China’s auction industry is still developing and remains imperfect—particularly during the years when art funds were prevalent—the auction transaction prices have been significantly inflated, indicating that the auction results publicly announced by auction houses deviate considerably from actual market conditions.

　　“The valuation of Chinese artworks cannot simply rely on referencing the transaction prices published by auction houses and mechanically comparing them to arrive at an appraisal price. Instead, we need to establish a comprehensive valuation benchmark that enables a deeper understanding of the intrinsic value of these artworks, taking into account economic development factors specific to particular periods, thereby restoring the true nature of the art market.” According to Kong Dada, the institute received a research project several years ago from relevant national authorities to develop and build an art appraisal and authentication system. This system is now largely complete and is currently undergoing practical testing.

　　According to the aforementioned sources, the art appraisal and evaluation system developed and established by the institute features meticulous design at the operational level.

　　First, in terms of authentication, the research institute relies on a team of experts and specialists—drawn from major cultural and museum institutions across China—who have accumulated extensive experience over the years to conduct rigorous appraisal and quality control. Every artwork submitted for appraisal must undergo review by this expert panel. As long as even one expert raises an objection, the artwork will fail to pass the appraisal and cannot proceed to the pledge-financing stage. Each expert is personally accountable for their appraisal conclusions and must sign a guarantee beforehand. Should an artwork that has been approved for pledge financing later encounter problems resulting in actual losses for the financial institution, the experts involved in the appraisal will be held accordingly responsible.

　　The system is primarily based on expert appraisal, yet it does not rely solely on experts’ experience. Reporters learned that the system proposes a “6-2-2” approach—a method of appraisal that combines 60% standardized procedures, 20% technology-based methods, and 20% expert experience.

　　“In the art valuation system, there’s no need to definitively confirm or deny the authenticity of every artwork submitted for review—otherwise, we’d get stuck in an endless quagmire,” Kong Dada told reporters. The system employs a method of elimination when determining authenticity: As soon as even one expert has even the slightest doubt about a particular item offered as collateral, the financial institution can reject it and refuse to accept it. Only collectibles that enjoy unanimous consensus among all experts—items that are openly and widely recognized—will have the chance to enter the financial institution’s pledge-financing platform.

　　The aforementioned individuals further explained that, under the current pilot program for art-backed loans, lenders require borrowers to provide at least three or more pieces of artwork as collateral when mortgaging art, and the loan amount must exceed 10 million yuan.

　　Valuation

　　Establish a model for comprehensive evaluation based on multiple indicators.

　　After the pledged artwork has passed the authenticity verification, it will enter the second stage—valuation and risk assessment.

　　Kong Dada told reporters that, when valuing artworks, they have developed a model in which the valuation of an artwork takes into account a wide range of factors, including the auction prices of the item over time, changes in monetary supply and psychological expectations resulting from shifts in macroeconomic policies, and changes in purchasing behavior driven by evolving consumption trends.

　　“There’s also an additional evaluation factor: namely, at which stage of the artist’s career the artwork belongs—whether it’s in the growth phase, the mature phase, the peak period, or the declining phase. Naturally, masterpieces from the artist’s mature phase will command significantly higher prices than those from the peak period,” said Kong Dada. “Moreover, this valuation model also incorporates an indicator of the artwork’s market liquidity—the artwork’s ease of circulation. If an artwork circulates extremely well, its price will be very favorable; conversely, if its liquidity is poor, its price will decline accordingly. Only by comprehensively considering all these factors can we arrive at a thorough valuation and risk assessment report for the artwork.”

　　Step 3: After the appraisal of the artwork intended for mortgage is approved, the process moves on to the art insurance stage. The Shanghai Branch of Ping An Property & Casualty Insurance Co., Ltd. will handle both the insurance coverage and claims processing for the artworks pledged as collateral for loans. Meanwhile, the Shanghai Free Trade Zone International Artworks Bonded Service Center will provide pledge custody services for these artworks.

　　Finally, the Art Finance Department of the Bank of Shanghai extends loans to the pledgor—the collector—based on the valuation report and the risk report.

　　With this, the entire process of art-backed financing has come to a perfect conclusion.

　　Southern Daily reporter Ou Zhihui, intern Xiao Qian