Pawning and banking in China
On the same day that The Maui News reported that China opened bidding for the first five private banks in the country, online news source Quartz reported on the boom in pawn shops there.
China is considered the birthplace of the pawn business, maybe 3,000 years ago, but the Communists suppressed pawnbrokers and today there are only about 7,000 pawnshops, half as many as in the United States.
Do I look like a teddy bear?
But as Quartz reporter Nona Tepper explains, an American pawn shop is about as different from a Chinese pawn shop as a teddy bear from a panda bear.
While our Maui pawn shop, like most of the 13,000 others in the Unitd States, deals in gold chains and TVs and lends a couple hundred dollars or less to most customers, in China pawnshops deal in astronomically priced apartments and serve to finance business. That’s because China’s state-run banking sector is famously dysfunctional.
At Huaxia, apartments are the most commonly pawned item, luxury vehicles the second, and jade, expensive stones and watches make a close third. Compared to America, where individuals pawning jewelry and electronics worth about $150 are brokers’ most common customers, Huaxia looks more like a luxury department store gleaming with Cartier and rare jade statues.
Huaxia upscale Peking pawn shop
(from Quartz news story)
Tepper then goes into some commentary on China’s “shadow banking” business. In the absence of established markets for commercial paper or most of the other numerous sources of business capital in the western world, especially short-term capital, businesses raise money on personal assets – largely residential real estate that is widely viewed (from outside China, anyway) as a bubble.
Should the long-expected crash in apartments come, the effects on China’s businesses would likely be disastrous.
American small business owners occasionally pawn Rolexes to meet a payroll, but this is not a way of life like it has become for China’s small (and not so small) businesses.
“There’s certain risks in regards to the shadow banking industry,” said Ismael Pili, head of financial analytics Asia at Macquarie Group. “1) It’s not well regulated, 2) There’s still opacity with regards to what’s going on and 3) It’s become a sizable portion of the economy.”
So the spirit of unregulated borrowing and lending continues. Today, shadow lending is the fastest-growing part of China’s financial sector, and JP Morgan Chase estimated that it accounted for 69% of China’s GDP—or 36 trillion yuan ($5.9 trillion)—in 2012.