After a period of significant growth from 2009 to 2014, the Chinese art market has experienced a drastic decline in the first half of 2015 with reports that the fine art auction turnover contracted at 30% less than the 2014 period. Interestingly, Ai Weiwei, one of China’s most well-known and most controversial contemporary artists, has not been affected by this turn in the market. The divergence between the general downward trend in the Chinese art market and the increasing value of Ai Weiwei’s work illustrates how politics in China continues to have a substantial impact on the trajectory of the market and the artists in seemingly contradictory ways.

One of the major factors responsible for the falling prices of Chinese art is Beijing’s anti-corruption campaign. The art market in China has been reported as facilitating bribery schemes, colloquially known as “elegant bribery”. For example, auctioning artwork is used by bribe offerors to influence public officials. Rather than a direct exchange of cash, the bribe offeror agrees to buy a piece of art from the bribe recipient at an artificially inflated price. This scheme can make the bribe virtually undetectable because the exchange is masked as a legitimate transaction. Another strategy is to offer precious artifacts as a “gift” to officials. While cash is usually preferable, some recipients started to accept the artifacts as gifts for their art collection as well as to avoid the harsh criminal penalties. Under the current Chinese Criminal Law, the length of a prison sentence for bribery is based on the value of the property exchanged. For instance, the penalty for a bribe of RMB 100,000 (USD 15,748.5) ranged from a ten year prison sentence to the death penalty. Because the value of artwork in China fluctuates quite drastically and it is difficult to determine an appropriate fair market price or appraisal value, courts faced significant challenges in determining prison sentences for individuals that were guilty of engaging in elegant bribery. Although we haven’t seen a law specifically regulating “elegant bribery” in other countries, there seems no problem for the judges. The international standard, including the U.S. Foreign Corrupt Practices Act, defines bribe as “anything of value”, the courts are not required to alone base their rulings on the determined bribe values.

Despite the serious difficulties of identifying and punishing elegant bribery and general corruption, Xi Jinping, China’s president, has remained determined to carry out his ambitious anti-corruption campaign throughout the country. The campaign has already been successful in exposing certain corrupt practices and discouraging many officials from participating in the art market all together. One side effect of the crackdown is the obviously declining performance of local art market. According to an Artprice report, “foremost of the factors to the slowdown was the drastic anticorruption…that has momentarily paralyzed the country’s luxury goods and art market sector.”  Despite the economic slowdown, the campaign is still going strong. On August 29, 2015, the Chinese legislator adopted amendments to the Criminal Law that add new crimes related to corruption and impose higher penalties on individuals engaging in bribery. The amendments, which will take effect on November 1, 2015, expand the definition of bribe recipients to include anyone closely related to government officials and add monetary penalties for several corruption-related crimes. Most significantly for the elegant bribery, the amendments, in line with the international standards, abolish the requirement that the sentencing standards be tied to a specific bribery amount. The New Criminal Law gives judges more discretion to determine prison sentences on a case-by-case basis rather than solely on the basis of the bribery amount. While the Supreme People’s Court is expected to elaborate on the new requirements, the plain meaning of the amendments suggests that judges no longer have to worry about finding precise values of artwork and may consider the circumstances in which the bribery occurred when issuing a prison sentence or monetary penalties.

Another side effect of the campaign has been the cooling effect felt by most of China’s top artists. Interestingly, however, Ai Weiwei has managed to promote his work internationally and has seen the price of his work rising. In June, the artist broke his auction record with the sale of his “Circle of Animals/Zodiac Heads” for 3.4 million pounds in London.[1] The main reason for his continued success in that his public image as a political dissident in China has attracted many international art collectors to his work. While the anti-corruption campaign has turned away the local buyers, it has had no impact on European and North American art collectors who are Ai’s main buyers.

Although it remains to see whether the anti-corruption campaign could make the ultimate success, the impact on the art world is visible. Like the investors concern about political risks, China art market stakeholders also need to learn to predict and manage the unexpected impact the changing of political landscape may have on the market.