The information presented in this section, unless otherwise indicated, is derived fromvarious official government publications and other publications and from the marketresearch report prepared by Frost & Sullivan, which was commissioned by the Company.The Company believes that the information has been derived from appropriate sources andhas taken reasonable care in extracting and reproducing the information. The Company hasno reason to believe that the information is false or misleading in any material respect orthat any fact has been omitted that would render the information false or misleading in anymaterial respect. The information has not been independently verified by the Company orany of its respective directors, officers or representatives or any other party involved in thiscircular nor is any representation given as to its accuracy or completeness.

SOURCE OF INFORMATION

The Company has commissioned Frost & Sullivan, an independent market researchand consulting company, to conduct an analysis of, and to prepare a report on the Chinesepaintings and artworks platform market in China. The report prepared by Frost & Sullivanfor the Company is referred to in this document as the Frost & Sullivan Report. TheCompany paid Frost & Sullivan a fee of RMB530,000 which the Company believes reflectsmarket rates for reports of this type.

Founded in 1961, Frost & Sullivan has 40 offices with more than 2,000 industryconsultants, market research analysts, technology analysts and economists globally. Frost& Sullivan’s services include technology research, independent market research, economicresearch, corporate best practices advising, training, client research, competitiveintelligence and corporate strategy.

The Frost & Sullivan Report includes information on China’s Chinese paintings andartworks platform market and other economic data, which have been quoted in thedocument. Frost & Sullivan’s independent research consists of both primary and secondaryresearch obtained from various sources in respect of the target market. Primary researchinvolved in-depth interviews with leading industry participants and industry experts.Secondary research involved reviewing company reports, independent research reports anddata based on Frost & Sullivan’s own research database. Projected data were obtained fromhistorical data analysis plotted against macroeconomic data with reference to specificindustry-related factors. Except as otherwise noted, all of the data and forecasts containedin this section are derived from the Frost & Sullivan Report, various official governmentpublications and other publications.

In compiling and preparing the Frost & Sullivan Report, Frost & Sullivan has adoptedthe following assumptions: (i) China’s economy is likely to maintain a steady growth in thenext decade; and (ii) China’s social, economic and political environment is likely to remainstable in the forecast period, which ensures the stable and healthy development of Chinesepaintings and artworks platform market in China.

OVERVIEW OF CHINESE PAINTINGS MARKET IN CHINA

Definition and Classification

Chinese paintings, or guohua, are done using a brush dipped in black ink or colouredpigments, usually on paper or silk. The finished works can be mounted on scrolls and hung.Chinese paintings have also been done on walls, porcelain and lacquer ware. Based on the dateof creation, Chinese paintings can be divided into ancient, modern and contemporary sectors.

Ancient Chinese Paintings: Chinese paintings which are created prior to the year 1840.

Modern Chinese Paintings: Chinese paintings which are created between the year 1840and the year 1949.

Contemporary Chinese Paintings: Chinese paintings which are created after the year1949.

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Value Chain of Chinese Paintings Market

Upstream

Individual Artists

Suppliers of Chinese Painting Agencies and Dealers

Arts Galleries Artowrks Platform Individual Purchasers

Institutional PurchasersOthersAuction House

End Customers

Midstream Downstream

Chinese PaintingCreator

Individual artists are creators of the Chinese

paintings.

Generally, individual artists, especially those

reputable artists do not directly involve

in the Chinese paintings sales.

‧

‧

Trading entities provide centralized trading place

serving for both purchasers and sellers of the Chinese painting.

Other trading entities include the artworks

exhibition, private sales in second hand market and etc.

‧

‧

Chinese paintings purchasers could be classified into

two categories: individual purchasers and institutional

purchasers.

Investment and collection is the major

motivation for Chinese Painting consumption.

‧

‧

Trading Entities Chinese Painting Purchasers

Source: Frost & Sullivan

The upstream of Chinese painting market consists of the Chinese painting creators.Theoretically, in a comprehensive market, individual artists, especially those reputableartists do not directly involve in the Chinese paintings sales.

The midstream market participants of the Chinese painting industry consists ofagencies and dealers. Trading entities in this segment includes arts galleries, artworksplatform, auction houses and other trading entities such as arts exhibition, etc. Thosetrading entities provide centralized trading place for both purchasers and sellers witheliminated information asymmetry, increasing price transparency and less counterfeit risk.Nowadays, time interval between first and secondary sales of Contemporary Chinesepaintings are usually from six months to a year. Moreover, the China Artists Association isan official national association of Chinese artists, with its headquarters in Beijing. Thenational association oversees many specialized subordinate committees, including those forChinese painting, oil painting, sculpture, architecture, ceramics, print, fresco, animation,ethnic art, and children’s art. The association sets pretty high bars for the artist who wantto be one of their members, which includes, but not limited to: (i) the applicants need tohave obtained outstanding results in exhibitions; (ii) have published several high-levelpapers or theoretical works with significant influence; or (iii) have at least 15 years ofexperience in relevant industry positions, etc. From 1949 to 2019, there are in total 18,976members (including the deceased) in the China Artists Association, including but notlimited to: art creators, art theory researchers, art-related news publishers, art educators,art-related organizers or event managers. Additionally, ‘‘Members of the China ArtistsAssociation’’ is an authoritative certification in China, the members of China ArtistsAssociation generally produce premium art works which are more worthy than thoseproduced by non-members.

The downstream market participants of the Chinese painting market are individualpurchasers and institutional purchasers. Their mainstream trading motivation of theChinese painting includes investment and collection, gifts and consumption. In China,majority of the Chinese painting trading value are attributed to the investment andcollection demand. In addition, certification is one of the most important components in thevalue chain of Chinese painting trading market.

Breakdown of Chinese Paintings Market (By the Date of Creation)

Based on the date of creation, Chinese paintings can be divided into three categories,including ancient Chinese paintings, modern Chinese paintings and contemporary Chinesepaintings. In 2019, in terms of transaction value, contemporary Chinese paintings took upthe second largest percentage of the whole market with the figure of 31.1%, while ancientand modern Chinese paintings took up 44.5% and 24.4% of the total market respectively.Stimulated by the changes in Chinese paintings purchasers’ preferences, as well as the rising

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popularity of the artists of new generation, the market size of contemporary Chinesepaintings is estimated to witness the fastest growth from RMB14,841.5 million in 2019 toRMB21,612.2 million in 2024 with a CAGR of 15.5%. The rising trend of the Chinesepainting market is mainly due to the increasing transaction volume on the Chinese paintingsplatforms, along with the popularity of contemporary Chinese paintings and increasingnumber of purchasers with annual income between RMB0.5 million and RMB10 millionand with annual income below RMB0.5 million.

Market Size of Chinese Paintings Market in China(By the Date of Creation, In Terms of Transaction Value), 2015–2024E

Source: Frost & Sullivan

Breakdown of Chinese Paintings Market (By Transaction Value)

Market Size of Chinese Paintings Market in China(By Trading Market, In Terms of Transaction Value), 2015–2024E

First hand market contributes to the transaction value of the Chinese painting marketin China which accounted for 52.9% of the market share in terms of the transaction value in2019. While second hand market contributes to 47.1% of the Chinese painting market inChina in 2019, with the transaction value of RMB22,433.2 million. The number of newlyadmitted members in China Artists Association reached 1,233 in 2019, among which about65.8% are Chinese painting artists. And the customer base for second hand market, whobuy artworks mainly driven by the motivation of investment and collection, accounted for68.8% of the total customer base in 2019. Due to the COVID-19 epidemic, the total marketrevenue of the artworks market is expected to witness a temporary decrease in 2020. Drivenby economic development and increasing disposable income in China, more artworksconsumption demand will surge in the long-term perspective. As such, the market size ofboth first hand and second hand market in Chinese painting is expected to witness asustainable growth. The transaction value of Chinese paintings in first hand market andsecond hand market are forecast to reach RMB23,354.6 million and RMB30,082.5 millionin 2024, respectively.

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Price Trend Analysis of Chinese Paintings in China

The price movement of Chinese painting is consistent with the artworks market,showing an overall downtrend due to the financial crises in 2015. However, supported bythe stable trading activities of premium connection (Chinese paintings created by famousartist, and usually charge high prices) and large market demand for Chinese paintings, thedecreasing rate of Chinese painting is not as much as the price of whole artworks market.The average price of Chinese paintings in China decreased from RMB38.5 thousand in 2015to RMB35.2 thousand in 2019. In the future, the decreasing price trend of artworks will notbe changed in the next five years. The average unit price of Chinese painting is anticipatedto reach RMB26.6 thousand in 2024 with a CAGR of 1.0% from 2020 to 2024. The reasonaccounting for this downward trend is mainly attributed to the increasing popularity of theartworks platforms, on which contemporary Chinese painting is the major categories andgenerally tends to have lower price than ancient and modern Chinese paintings.

China Chinese Painting Price Trend, 2015–2024E

Source: Frost & Sullivan

OVERVIEW OF ARTWORKS PLATFORM MARKET IN CHINA

Definition and Classification

Artworks platforms are third-party platforms that provide artworks purchasers withmultiple resources for learning about and collecting artworks from artists, owners, galleries,auctions and so on. As intermediation between purchasers and owners, they also providewith artists or painting owners with different sales channels and promotions. Based onfunctions, artworks platforms can be mainly divided into artworks trading platforms andartworks information platforms. Based on channels, they can be mainly divided into onlineplatforms and offline platforms.

Basically, artworks trading platforms are artworks platforms that provide withartworks trading services. Some of them may also provide value-added services such asidentification, authentication, traceability and centralized custody services. Meanwhile,they may also assist artists or artworks owners in curations and promotions. Artworksinformation platform generally provides with art lovers information in artworks relatedareas.

Breakdown of Artworks Platform Market in China (By Functions)

By transaction value, the market size of China artworks platform rose fromRMB3,657.7 million in 2015 to RMB13,436.5 million in 2019, representing a CAGR of38.4%. Artworks trading platform witnessed the growth from RMB3,588.7 million in 2015to RMB13,247.5 million in 2019 with a CAGR of 38.6%. It is estimated that the transactionvalue of artworks trading platform in China will reach RMB30,722.7 million in 2024 with aCAGR of 18.4%, while the transaction value of artworks information platform will reachRMB393.4 million in 2024 with a CAGR of 16.2%. Driven by the demand from the

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increasingly professional and well-informed artworks purchasers, plus the advancedtechnologies, artworks platforms, which may provide value-added services, such asconfirmation, identification, valuation, verification, logistic, centralized custody andtraceability service, will remain a growing tendency.

China Artworks Platform Market Size Breakdown By Functions(In Terms of Transaction Value), 2015–2024E

Source: Frost & Sullivan

Breakdown of Artworks Platform Market in China (By Channels)

From 2015 to 2019, the total transaction value of offline-to-online artworks platformin China has demonstrated an overall upward trend from approximately RMB2,299.2million in 2015 to RMB8,597.9 million in 2019 with a CAGR of 39.1%, mainly due to theincrease of internet penetration rate as well as technology development. The transactionvalue of online platform increased from RMB1,332.3 million in 2015 to RMB4,781.9million in 2019 with a CAGR of 37.6%, while the transaction value of offline platformincrease from RMB26.2 million in 2015 to RMB56.7 million in 2019 with a CAGR of21.3%. In the future, the market size of offline-to-online platform is anticipated to expandbecause of the emerging new technologies such as blockchain, digital and internettechnologies. It is estimated that the total transaction value of offline-to-online platformwill reach RMB20,732.9 million in 2024, with a CAGR of 19.3% from 2020 to 2024.

China Artworks Platform Market Size Breakdown By Channels(In terms of Transaction Value), 2015–2024E

CAGR 2015-2019 2020E-2024ETotal 38.4% 18.4%

Online Platform 37.6% 16.7%Offline Platform 21.3% 9.4%

Offline-to-Online Platform 21.3% 19.3%

Source: Frost & Sullivan

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Breakdown of Artworks Platform Market in China (By Annual Income of Purchasers)

By buyers’ annual income, the market size of artworks platform generated by generalcustomer witnessed the fastest growth from RMB1,250.9 million in 2015 to RMB4,790.1million in terms of transaction value in 2019, representing a CAGR of 39.9%. Transactionvalue generated by middle income customers rose from RMB1,744.7 million in 2015 toRMB6,604.0 million in 2019 with a CAGR of 39.5%.

Driven by the rapid development of the Chinese economy in the past decade, Chinesepeople’s incomes have increased significantly, and a rising number of people go for spiritualfulfillment. The aggregation of personal assets and pursuit towards artworks culture drivemore people to buy artworks. It is estimated that the transaction value generated by generalcustomers in China will reach RMB11,481.8 million in 2024 with a CAGR of 19.2%, whilethe transaction value generated by middle income customers will reach RMB15,682.5million in 2024 with a CAGR of 19.0%.

China Artworks Platform Market Size Breakdown By Purchasers’ Annual Income(In Terms of Transaction Value), 2015–2024E

Source: Frost & Sullivan

Breakdown of Artworks Platform Market in China (By Trading Regions)

In 2019, transaction value of artworks platform in North China contributed to thelargest proportion of the overall market, with the figure of 58.5%. Transaction value inEast China contributed to the second largest percentage of the whole market withapproximately 29.2%. Besides, South China took up 8.0% of the total market in terms oftransaction value, making itself the third largest artworks platform market in terms oftransaction value. In East China, driven by the favourable policies such as Measures forPromoting the Development of Shanghai Artworks Industry (《關於促進上海藝術品產業發展的實施辦法》) and Opinions on the Implementation of the Revitalization Plan of ChineseTraditional Arts and Crafts (《關於貫徹落實中國傳統工藝振興計劃實施意見》), Shanghaicontributed to the largest proportion of the artworks platform market with the figure of67.4% in East China. Moreover, the per capita consumption expenditure of Shanghai urbanresidents was RMB48,272.0 in 2019, representing a CAGR of 6.9% from 2015 to 2019.Jiangsu ranked the second largest district in East China, contributing to approximately23.5% of the East China market. Influenced by its historical accumulation and strongeconomic base, plus an increasing number of outstanding artists and stable clientsnetworks, Jiangsu plays an important role in artworks platform market in China. Driven bythe favourable policies in Jiangsu, such as Three-Year Action Plan to Build the Highland ofFine Works of Art (《構築文藝精品創作高地三年行動計劃 (2019–2021)》) and Key Work ofJiangsu Department of Culture and Tourism, 2020 (《江蘇省文化和旅遊廳2020年工作要點》), the influence and reputation of Jiangsu‘s literary and art creation are expected to beenhanced, which will bring opportunities for the artworks platform industry in Jiangsu.

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Market Size of Chinese Paintings Market in China(By Trading Region, In Terms of Transaction Value), 2015–2024E

By trading regions, Beijing took up 57.4% of the total artworks market in China in2019 with the figure of RMB7,709.8 million. While Shanghai, Jiangsu took up 18.9% and6.6% respectively of the total artworks market in China. Beijing is the origin of Chinesecontemporary art scene, being that it has always been a center of social and politicalmovements. Contemporary art started in Beijing as early as the mid-80s. Contemporary artstarted in Beijing as early as the mid-80s. 85 New Wave, an avant-garde art movement,marked the birth of Chinese contemporary art. Since then, Beijing has attracted muchinternational attention from collectors, curators, gallerists, and other members of the artindustry. While Shanghai has a unique background that provides for some distinctivefundamentals within the city’s contemporary art scene today. Since the most recent wave ofart museums in early 2000s, several public and private art museums have emerged and madetheir international debuts. Jiangsu, with the strength of locating near Shanghai and a keycomponent of Yangtze River Delta, has attracted much international attention fromcollectors, curators, gallerists, and other members of the artworks industry.

China Artworks Platform Market Size Breakdown By Trading Region(In Terms of Transaction Value), 2015–2024E

Source: Frost & Sullivan

Market Drivers of Artworks Platform Market in China

Advanced Technologies

In the past, the Chinese artworks industry was categorized based on geographicboundaries, without much interaction between different regions. In the recent years, therising penetration rate of internet and new technologies such as blockchain, AI, VRpromote transactions across geographical markets, as well as stimulate value-added servicessuch as traceability, valuation, identification, authentication and centralized custodyservices on the platform. Advanced technologies contribute to the standardization andintegration of artworks platforms, thus leading to the higher profitability in the overallmarket.

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More Informed and Professional Artworks purchasers

With the rising education level and popularity of artworks knowledge, artworkspurchasers nowadays have become more informed and professional, leading them to expecthigher quality of artworks and value-added services, such as confirmation, identification,valuation, verification, logistic, centralized custody and traceability service. To cater for thedemand from the artworks purchasers, artworks platforms in China consistently improvethe quality of their artworks and expand their businesses. For example, many are expectedto provide paintings created by the members of China Artists Association, which is anofficial national association of Chinese artists and indicates paintings of higher value.

Influx of Financial Capital

With the influx of financial capital from enterprises and HNWI, the securitization andfinancialization of artworks are getting increasingly popular, which will provideopportunities for artworks platform industry. Compared with financial investments suchas stocks, bonds and derivatives, artworks is relatively less sensitive to the change ofeconomic and political climate and therefore generating more predictable return. Combinedwith the spiritual satisfaction, there are increasingly investments in artworks.

Impact of COVID-19 to the development of artworks platform in China

Although China’s artworks platform industry has not been negative impacted by theCOVID-19 pandemic, primarily due to the mandated quarantine measure which resulted inpeople’s rising demands for purchasing online, its long-term development is subject to theuncertainties associated with the potential economy slowdown in China resulting from theCOVID-19 pandemic, depending on its duration and degree.

Enter Barriers of Artworks Platform Market in China

Collection of High Value Artworks

Preeminent Artworks is one of the primary reasons for purchasers to participate intransactions on artworks platforms. However, high value artworks are scarce which putspressure on artworks platforms’ channels when gathering the Artworks. For example, manyhigh value antiques and paintings are stored by individual collectors. Under this condition,an artworks platform’s relationship with dealers and the ability to collect high-end productsdetermine the amount of the high value artworks the platforms can collect and thus offer,which is one of the most major entry barriers for artworks platforms.

Customer and Business Partners Networks

Establishing and maintaining good and stable relationship with customers andbusiness partners (especially Artworks interested parties, including artists and artworkscollectors) is crucial for artworks platforms providers. These parties form not only animportant customer base, but may also provide technical support in artworksauthentication and appraisal, which may help to provide value-added services on theartworks platforms. New industry entrants generally lack such long-term and stablerelationships with customers and business partners.

Key Success Factors of Artworks Platform Market in China

Comprehensive Value-Added Services

Providing comprehensive value-added services is one of the key success factors forArtworks platforms. Value-added services, such as authentication, valuation andcentralized custody services, are crucial to the determination of authenticity, legitimacyand fair price of the Artworks, which may further contribute to the transactions ofArtworks. Therefore, the ability to ensure authenticity and offer accurate and fair value ofthe Artworks is an important factor for the success of an Artworks platform.

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Application of Advanced Technologies

Competitive artworks platform providers widely apply advanced technologies, such asblockchain technologies, big data, AI, VR and AR, into platform services. For example,leading companies in the artworks platform industry make significant use of big data andthe analytics it enables, based on which they test hypotheses and predict customerbehaviors. By applying advanced technologies, the efficiency of artworks platforms can beimproved.

Sound Reputation

Reputation is one of the most valuable assets in artworks platforms, determining theperformance and standing of Artworks platforms in the long run. However, theestablishment of a sound reputation requires a relatively long time, which may be hardfor a new player to build at first.

Future Trends of China Artworks Platform Market

Improvements in Value Added Services

In the future, growing demand from artworks purchasers is estimated to further drivethe qualitative improvements of the artworks platforms, which include the value-addedservices such as identification, authentication, traceability, centralized custody service.Moreover, with increasing professional participants such as the experienced artworkscollectors and appreciators involved in the artworks market, the artworks platform isanticipated to pursuit innovation and professionalism in trading and risk managementsystems, enhancing further growth of the Chinese artworks platform market.

Increasing Combination with Technologies

New technologies such as blockchain, VR and AI are increasingly widely used inArtworks platforms, promoting value-added services such as traceability, identification,and authentication services. Especially, blockchain technology is forecast to applied intothe uses for title registries, the use of cryptocurrencies in the trading of Artworks, thefacilitation of fractionalized ownership of works of Artworks, and the use of smartcontracts for artists. VR technology offers a 360-degree view of artworks, reachingpurchasers who are unable to visit galleries and exhibitions but remain reluctant to buyfrom a flat image.

Artworks Wealth Management Platform

The combination of artworks and wealth management is estimated to grow as theChinese government has adopted a proactive role in creating closer cooperation between thefinancial and cultural sectors. Moreover, compared with financial investments such asstock, bonds and derivatives, which are highly susceptible to the change of economic andpolitical climate, artworks are relatively less sensitive to these changes and therefore returnfrom investment is more predictable. Thus, an increasing number of wealthy people preferto invest in artworks to optimize their asset.

COMPETITIVE LANDSCAPE OF ARTWORKS PLATFORM MARKET IN CHINA

Ranking of Trading Entities In Terms Of Chinese Paintings Transaction Value

In terms of the overall contemporary Chinese paintings trading entities, the top 10companies in China witnessed relatively high market concentration, taking up a total shareof 38.3% in 2019. Most of the players are national suppliers which offer various artworksincluding contemporary Chinese paintings, traditional Chinese paintings, antiques,porcelain, etc. Company A ranked No.1 in the contemporary Chinese painting market in

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China, with transaction value of RMB1,221.8 million, taking up 8.2% in the total marketshare. Company B and Company C occupied 6.9% and 6.6% of the total marketrespectively. Our Group was the fourth largest contemporary Chinese paintings tradingentities in China in terms of transaction value, accounting for a market share of 4.3%.

*Notes: (i) Trading Entities include auction houses, art galleries, artworks platforms, etc. (ii) Frost &Sullivan ranked the trading entities based on collectible data in the open channels.

Source: Frost & Sullivan

Ranking of Artworks Trading Platforms In Terms Of Transaction Value Of ContemporaryChinese Paintings

In terms of artworks trading platforms (in terms of transaction value of contemporaryChinese paintings) in China, the market was moderately concentrated with top 10companies occupying a market share of 45.0% in 2019. Company C ranked No.1 interms of transaction value with the figure of RMB985.4 million, taking up 41.3% in thetotal market. Our Group accounted for a proportion of 13.7%, with transaction value ofRMB635.6 million in 2019, making itself the second largest contemporary Chinese paintingplatform in China. Company J ranked No.3 with transaction value of RMB106.3 million,accounting for 2.3% of the total market. Company K and Company L ranked No.4 andNo.5 in terms of transaction value with the figure of RMB73.5 million and RMB22.6million respectively.

*Notes: (i) Chinese painting platform is one of the components of Chinese painting trading entities. (ii)Frost & Sullivan ranked the Chinese Paintings Platforms based on collectible data in theopen channels.

Source: Frost & Sullivan

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