Barton nodded. He was beginning to feel depressed.
Seeing the Englishman’s face he changed tack. “Don’t worry Tom, the fact is immigrants arriving here come from Latin America, the US and Europe. We do have a few Arabs, but many are Christians, Lebanese. So integration’s not a problem.”
“Well I can’t say the same for Europe. If you take France, there are a lot of Muslims and they’re not integrated into the political system.”
“Here the Farc is a revolutionary movement fighting for social justice. There are no other connotations. Their ideology is Marxist. A kind of latter day Castro style Communism.”
“In Europe the party to which immigrants will adhere to has yet to be invented, and when that happens it will be radically different to our traditional political parties, almost certainly with some kind of Muslim identity, which will inevitably be a cause of conflict.”
“Here in Colombia the question doesn’t exist. We are all Christians, Spanish speaking, and identify with Colombian history, even if it has been painful, and not some foreign religious ideology.
“The Pope and the Vatican are not foreign?” he said smiling
“Today no, the Pope’s Argentinian.”
They laughed.
“Of course. I see what you mean.”
“OK, let’s talk about your new home, Casa Verde, we don’t have to worry about Venezuela in Cartagena.”
BANKING & ART
Pat Kennedy was preoccupied by the growing dilemma facing the Chinese financial system, its ever growing shadow banking sector and the fact that loans were increasingly used to roll over existing credit. It was estimated as much as seventy percent of new credit was going to pay interest and principal on existing loans and much of that was provided through the shadow banking system, that is outside of government control.
The shadow banking sector was born of the need to circumvent restrictions imposed by government and an ever growing demand for credit. Its development was such that it had even overtaken conventional banking as a source of credit.
The shadow banking system existed in a broad variety of forms: funds, trusts, brokerages, small lending companies and every kind of wealth management product on the market, often invented by the conventional banking system itself.
Regulators turned a blind eye to its extraordinary development and by doing so tacitly authorized its existence, whilst governments positively encouraged it.
These were facts that every banker was aware of. It was the proliferation and excessive use of these means concerned Pat Kennedy. INI itself was part of the system with its funds and wealth management products.
It was the unregulated and sometimes underground nature of the Chinese shadow banking system that made it a knee jerking subject. Many of the wealth management products offered by Chinese banks had the same damage potential as the products that precipitated the 2008 crash: structured investment vehicles and collateralised debt obligations, both of which had been used by banks to keep loans off balance sheets.
Many Chinese banks attracted investors by telling them they could earn over ten percent on such products, which was possible given the country’s exceptionally high growth rates. What many investors could not easily determine was the quality of such wealth management products, often stuffed with non-performing loans in risky companies.
Kennedy made a mental note to speak to Angus MacPherson the next morning on the matter. If as certain forecasters were predicting, a serious slowdown for the Chinese economy was on the books and, it was essential that INI Hong Kong ensure the solidity of its investments.
With that in his mind Pat set off for Sotheby’s at One Pacific Place. An important auction of Chinese art was being held that evening and Lili’s friend, Liu Sunfu, a collector from Shanghai, in town for the occasion, would be joining them.
Amongst the works that were to come under the hammer was a series of ink paintings by Qi Baishi, one of China’s twentieth century masters who died in 1946, which according to Liu were expected to fetch several millions of dollars.
Once at the auction house, Pat forgot his banking worries. He was soon bubbling with enthusiasm in the hope of picking up some lesser known works for their new home in London. However, Liu quickly dampened Pat’s exuberance when he spoke of the scandal that was rocking the world of Chinese art: the question of authenticity.
“The problem today Pat, is the market’s is going a very difficult period,” Liu explained. “Few people here in Hong Kong, not to mind London or New York, take China very seriously when it comes to authentication. I mean would you risk investing millions of dollars in fakes?”
Pat was startled. He had reason to worried considering he was about to bid several hundreds of thousands of dollars for the works he had inspected at Sotheby’s viewing.
The market was being destabilized by forgeries, a problem which in itself was nothing new. What was new was the quantity of high quality forgeries, which coupled with the vague records kept during the turbulent years of Chinese history, from the fall of the Qing dynasty to Mao’s death in 1976, was enough to give serious collectors a nightmare. On the positive side there had been improvements in the market, but that was tempered by a flourishing industry which had emerged capable of producing the most astonishing forgeries.
The real problem however was China’s art market was expanding faster than regulators could keep pace. The demand was spectacular as an ever growing number of Chinese nouveaux-riches wanted a piece of their now powerful country’s cultural heritage.
Chinese art auctions had overtaken those of the US with a staggering nine billion dollars in sales, though in general the tastes of rich Chinese were in relative terms restricted in that they preferred traditional Chinese works.
“I’m sorry to say we’ve been extremely successful at making reproductions,” said Liu. “Jingdezhen, which has been one of our most important porcelain making centres for more than a thousand years, is producing work that even our most experienced experts have difficulty in detecting.”
Jingdezhen, the ‘city of all day thunder and lightning,’ located in the north-eastern part of Jiangxi province in Northern China was known as the porcelain centre of the world. It was where ceramic production started in the Han dynasty, two thousand years ago, thanks to the abundance of pottery clay in the region, but more especially, the Gaoling mountain, a source of pure kaolin, named after the mountain, the most important raw material for the manufacture of porcelain.
Pat nodded. He was acutely aware he was one of the world’s nouveaux-riches with a bank account many magnitudes greater than his knowledge of art and in particular Chinese art.
“Sorry to say our artists are trained to imitate the old Chinese masters, that means they are very skilled in producing high-quality copies of paintings, ceramics and jade carvings. It’s good for tourists, but bad for collectors when there’s a great deal of money to be made by crooked dealers.”
Lili had disappeared, off for the ritual of preening ceremony with influential friends and acquaintances gathered for such occasions, which were as much about social events for the rich as art or business.
Pat spotted Tom Barton and waved him over to meet Liu.
“Got your eye on something interesting Pat?”
“I’m not so sure,” he said with a nervous laugh. “Sunfu tells me there’s a lot of fakes about.”
“So I’ve heard.”
“Look’s like I’ve got Mr Kennedy worried,” Sunfu said with an embarrassed titter.
“I wouldn’t worry Pat, you’ve got a guarantee from Sotheby’s.”
“I suppose so,” he replied, though a hint of doubt lingered.
“Look at it this way Pat, you can afford to take a few risks.”
“What do you mean?”
“Well with the crisis behind us we can relax a little. I mean what have you got to lose?”
Pat smiled. Barton was right. In spite of negative mumblings things were looking up and what was two or three hundr
ed thousand dollars compared to his burgeoning fortune.
Since marrying Lili, Pat shuttled back and forth between London and Hong Kong, where he had gained the confidence of her family, directing investments towards their business empire, profiting not only the bank but his own personal affairs. In spite of that there were days when he felt alone, nagged by a lingering doubt when he surveyed the riches and complexities of Hong Kong from his home in Victoria Heights, what if he was just a pawn in the wily hands of Lili’s family.
Pat had been encouraged by Lili to read Midnight, a novel written by Mao Dun in the early thirties, which described life in Nationalist China, where rich industrialists rigged markets and corrupted officials with scant regard for their workers, in a complex interplay between very wealthy families. Little seemed to have changed, it was if China had reverted to form, more modern, richer and more powerful.
Pat was surrounded by Lili’s family and business friends, he had no close family to speak of on his side, other than very distant uncles, aunts, cousins; he had felt closer to Michael Fitzwilliams, who he met in Boston when they were two young Irishmen learning the ropes of their trades far from the confinements of their respective, but different, backgrounds at home in Ireland.
“Where’s the buffet Pat?” asked Barton. “Let’s get something to drink before the show starts.”
Liu excused himself and the two Europeans headed towards the spread in the adjacent reception area.
The question as to whether the work they were about to bid for was a fake or not was foremost in the minds of a good many of the potential buyers present at the sale.
In the past fakes had gone virtually unnoticed, passing from one collectioner to another until a series of high-profile scandals broke. Not long before, a Chinese oil painting sold for more than ten million dollars was exposed as a fake, produced thirty years after the artist’s death by a student.
Rich Chinese saw the art market as a place to invest, but fraud was cooling their enthusiasm, something that encouraged Pat to think they would be keener to bank their money offshore in London, hedging against changing government policy in Beijing.
With a seriously overheated property market, compounded by a lack of enthusiasm for the stock market, investors were left with few alternatives, which is why many had turned to the art market.
C
hristies – Hong Kong
“What are you looking for Pat?”
“Here?”
“Where else?” Barton said with a laugh, thinking Kennedy was as inscrutable as a Chinese.
“There’s a couple of interesting Zhang Daqian paintings,” he replied with the aloof air of a connoisseur.
Barton nodded in approval of Pat’s newly gained knowledge in Asian art.
“He’s a modern landscape painter,” Kennedy added.
Barton had never heard of him, Chinese art did not really excite him, if anything it was Sophie’s domain and her tastes were very European.
“Is the market here really that important?”
“You’d better believe it Tom, it’s a multi-billion dollar business.”
Barton wondered if he was exaggerating. But if what Kennedy said was true, it was a confirmation of the mind boggling dimension of the country and its wealth. In a few short decades a new class of very rich Chinese had sprung up from almost nowhere.
Statistics were faceless and the names of Chinese companies told him nothing about their owners; anonymous for the most part. But the individuals that gathered at Sotheby’s sales in Hong Kong were real and as ever their wealth more than conspicuous. They arrived in Rolls, Ferraris and Mercedes accompanied by their elegant wives dressed in the latest fashions, adorned with gold and diamonds; husbands sporting exclusive watches, exuding the confidence of the very rich as organisers and flunkies scuttled around them.
As Barton observed the opulent scene, the reality of the transformation, which had taken place almost unannounced, sunk in. A new elite had appeared and were making their presence felt in domains that had been the exclusive reserve of Europeans and Americans in modern times. The US had been surpassed in art sales and a new market had been created to feed the voracious demand for art by Chinese tycoons, banks, businesses and investors.
Pat found Lili in conversation with one of the organisers, a specialist in the history of Chinese art.
“Pat, you know Mr Zhan?”
“Yes of course.”
Kennedy had met Zhan at different gatherings in Hong Kong and was indebted to him for his introduction to the world of Chinese art and its long history.
“So Mr Kennedy, looks like an interesting evening.”
“Yes, and I hope I’ll be lucky enough to get what I want.”
“It’s not my role, but be careful if the bidding gets wild!”
They all laughed nervously remembering rumours of ‘stir frying’ that certain unscrupulous auction houses rigged the bidding.
Art collecting was nevertheless in its infancy in China with many nouveaux-riches acquirers being very inexperienced with little real knowledge of art and too much money to spend. It had become a craze in China with get rich quick aficionados of every ilk piling into the maker, mobbing auction rooms across the country. The prices of even modest cultural objects had exploded feeding the ancient Chinese tradition of gambling and risk taking as buyers bought with the sole idea of flipping their acquisitions to turn in a quick profit.
John Francis remembered Hong Kong thirty or more years before when Chinese art and antiques was the domain of arcane collectors. As a young man he had been introduced to Chinese ceramics by Kim Adhiyatman, head of Adam Malik’s cabinet. Adam Malik at that time vice-president of Indonesia owned the largest private collection of antique Chinese ceramics in South East Asia, and Adhiyatman’s wife had taken advantage of her husband’s position to build her own extraordinary collection.
Francis had collected cultural objects, mostly ceramics, ivories and textiles, in markets across South East and East Asia, picking up interesting pieces here and there for a few dollars. After China opened up there were many new opportunities, though he paid a little more in Beijing, when such objects were sold to mainly foreign tourists or exported to dealers in the US and Europe.
In those days serious Chinese collectors were mostly from Taiwan, Hong Kong or Macao when Mainland China was just emerging from the austerity of Maoism under the direction of Deng Xiaoping.
The Chinese art market did not really take off until 2004, when China’s wealth was bolstered by booming Western economies, confirming its place as the world’s leading manufacturing and exporting nation, at the same time as Europe fuelled its own bubble, abandoning large swathes of its manufacturing sectors by investing in services led by banking and property construction.
Hundreds of Chinese auction houses had since sprung up, the largest of which being billion-dollar businesses having links to the ruling elite, establishing offices in major foreign capitals.
Kennedy reassuringly told Barton: “Don’t worry Tom, I’m not going to mortgage our home in London to buy a couple of fake paintings.”
Lili frowned at the very thought.
“Maybe I’ll just offer them to the minister next week, when he signs up for the deal in London,” he said lowering his voice. “They call it yahui, that means elegant bribery.”
“Yah ... what?”
“Shush,” said Lili with a serious frown.
“It’s a kind of baksheesh,” said Pat lowering his voice. “Giving a valuable piece of artwork for favours. Lili’s father tells me it’s as old as the hills, goes back to the Ming Dynasty.”
“I see,” said Tom Barton discretely, as though they were conspiring together.
“They’re cracking down on it … even have spies at auctions.”
“Why?” asked Barton puzzled, “it was not as if paintings would be given away in public.”
“It’s to know how much artwork is sold for and by who. In a way selling a paint is like cashing a cheque
.”
“Okay.”
“So when ministers and high officials retire they sell their collections, or at least part of them. Now they’re afraid to sell them at public auction, so they use middlemen. The trouble is it distorts prices, as businessmen snap up pieces sold by their friends.”
“I get it, very clever. So objects are deliberately overpriced.”
Yes. Some of the gifts are forgeries, which are bought back at auctions by the same businessmen.”
“Laundering.”
“Not even that, just pure corruption, they were worth nothing in the first place, it’s plain bribery.”
Lili made an urgent sign to Pat who had raised his voice again. “You want someone to lose his head Pat!” she hissed with pretended concern.
It was a well known fact that government officials had their finger in the pie, using frontmen to buy and sell works to camouflage bribery and corruption.
“Today clever forgers are turning their attention to foreigners, like those two naïve princesses over there,” Pat said nodding in the direction of two overdressed Middle Eastern looking women.
“At least they’ve brought an expert with them,” said Lili, recognising Alexis Poniatowski a London art specialist with them.
Poniatowski was accompanied by three women: two were exotic and richly dressed; the third, stylish, though in subdued manner compared to here friends, was European.
“Mr Kennedy, let me introduce you to Princess Ameerah al-Taweel and Princess Iffat Al-Thunayan.”
Pat, instantly recognising them as Saudis, gracefully bowed.
“And this is Agnes de la Salle, Comtesse d’Urtubie, from France.”
To the amusement of Agnes, Pat offered a baisemain.
“The princesses are amateurs of Chinese art.”
They both nodded enthusiastically.
On closer inspection Pat noticed they were younger than he had imagined at first appearance. Perhaps it was their style that made them look older, a little too fashionable and a little too much jewellery.
Cornucopia Page 39
