Business Tianjin Magazine

After knocking on several doors, Wu Xiang finally raised the money required for urgent business expenses

from a pawnshop in Tianjin by pledging his more than CNY2 million Porsche Panamera as collateral for a

cash loan.

Though the monthly interest of 4 percent on the CNY1.5 million loan is steep, Wu, the 34-year old owner

of a small trading company in Tianjin, says he has no regrets in pledging his prized car as "profit margins

are shrinking and there are virtually no other financing avenues."

Wu, is not alone in his predicament as several small and medium-sized businesses in China are struggling

to find alternate financing options to stay afloat especially in the November-December period.

Like Wu, many of the small and medium business owners are now increasingly turning to pawnshops, so

much so that they have become an integral part of China's modern financial landscape.

"I urgently needed CNY1.5 million to make the balance payments to my business partners, pay a final loan

amount to the bank and for the salaries of my employees before the end of the month," Wu said.

Having said that, Wu adds that he would redeem the prized car as soon as he gets alternate financing

from a bank. He says that this is not the first time that he has had to trade in his belongings for short-term

funds as he had earlier pledged his apartment for a two-month loan of four million yuan in 2011.

Unlike the loan procedures in financial institutions, which normally take up to a month for approval,

pawnshops often offer instant money. The process usually consists of pledging the assets along with the

related documents at a pawnshop.

"I needed to solve my financial problems within two weeks, and pawning the car was the quickest and

easiest way to raise funds," said Wu.

Traditionally, people pawned clothes, antiques and valuables like gold, silver or jade at pawnshops.

However, in recent times Chinese pawnshops have become much more diverse and seen assets like real

estate, private cars and equity shares being pledged for quick money.

"Efficiency, convenience, flexibility and customized service often make pawnshops the most preferred

financial channel for individuals and enterprises," said Yang Yong, the manager of the automobile business

department at the Huaxia Pawnshop in Beijing.

Huaxia has grown to become one of China's biggest pawnshops since its launch in 1993 and currently has

over 20 branches in Beijing.

"People are no longer going to pawnshops for survival, but consider it a viable option to deal with

emergencies," Yang said.

He admits that demand for private automobile pawn services normally goes up between November and

February as it is the period when SME owners often need huge amounts of money quickly.

"The number of customers using car pawn services have increased 20 percent in 2012 compared with the

numbers in 2011," Yang said.

"About 60 percent of my clients are regular customers who have private cars. Many of these high-end

vehicles are often left in our pawnshops during various periods of the year for quick money purposes," he

said.

At Huaxia Pawnshop, the monthly interest for a private car is 3.5 percent, the weekly interest is 1.8

percent, and the fifteen-day interest is 2.1 percent.

"I've noticed that more high-end cars are coming into the pawnshop and being traded for higher loan

amounts this year."

The growth in use of pawnshops is not confined to Tianjin or Beijing but has spread across most Chinese

cities. But it is in Wenzhou, the hub for small- and medium-sized businesses that this trend is most evident.

In the large car parking garage of an automobile trading center in Wenzhou, at least one-third of the used

cars are vehicles that have been pawned at local pawnshops.

"Nearly 60 percent of the parking space at the center has been leased out to nearby pawnshops as they

have regular clients with expensive vehicles," says Ji Xiao, sales manager of Wenzhou Outong automobile

Co, a car company that sells new and second-hand cars at the center.

Ji says that expensive cars are normally redeemed within a week. Cars that have not been redeemed for

more than a month are often sold at low prices in the center to local buyers.

The burgeoning demand for car pawn services has also triggered more problems for pawnshop owners

due to the higher default risks.

When the redemption period passes, the goods often end up as "dead pawns", meaning the pawnshop has

the right to sell them at a low price.

"Most of the owners redeem their cars on time before the redemption period ends, but if they fail to repay

the interest and the amount of borrowed money, we have to sell the cars for cash," said Ye Zhitong, the

manager of a Beijing-based pawnshop.

Ye added that it is not easy to sell the cars to second-hand buyers due to the stiff restrictions on purchase

of personal cars in Beijing.

The run-up to the forthcoming Chinese New Year has been overwhelming for most of the pawnshops in

China as the tight loan policies for SMEs have severely dented prospects for several businesses.

Non-performing loans at the 16 listed banks in China have exceeded CNY387 billion, CNY18 billion more

than the beginning of the year, payment service provider China UnionPay Co said in a recent report.

With most of the banks looking to trim their lending risks by limiting the loans to small- and medium-sized

businesses, it has been the small-loan companies that have actually benefited, the report said.

According to data published by the China Microfinance Institution Association, the more than 6,000 small-

loan companies in China had by the end of 2012 disbursed loans worth more than CNY600 billion, 52

percent higher than the previous year.

Last year, 26 small-loan companies were authorized, while 31 new companies opened their doors for

business in Wenzhou, Zhejiang province.

"The targeted customers of these companies are mostly owners of local SMEs, who have failed to meet

the requirements set by financial lenders," said Zhuang Zhonghua, the general manager of Wenzhou

Yizhao Small-Sum Loan Corp Ltd, which was launched in March 2010 with a registered capital of

CNY200 million.

Of the 400,000 privately owned enterprises in Wenzhou, nearly 30 percent are not qualified to seek

financial assistance from State-owned banks and hence need to borrow money from loan companies.

"Properties and personal belongings such as cars are also accepted as collateral for short-term loans

especially during the year-ending period, when cash becomes really tight," said Zhuang.

The registered capital of Wenzhou Yizhao Small-Sum Loan Corp Ltd, comprising of 12 shareholders was

increased to CNY400 million in 2011.

The total amount of money available for loan lending in the company is CNY500 million including CNY1

million loan from a financial institution. The maximum amount of loans that an individual can avail from

the firm is CNY1 million with a monthly interest rate of 1.7 percent, about three times higher than the

interest rate charged by State-owned banks.

"We want to help small and micro-enterprises with more accessible loans. But we also have to control

risks and so we have to increase the interest rate," said Zhuang.

Set as favorite

Bookmark

Email This

Comments (0) Add Comment

Write comment

< Prev		Next >