China to Tighten Rules on $43-Billion Pawn Shop Industry

With this rapid surge of China’s pawn shop industry, the country’s banking and insurance regulator is currently drafting new policies that will make oversight of the sector stricter, people privy to the matter said.

The move will focus on one of the corners of the $9 trillion shadow-banking sectors of the country, expanding a more than a two-year government effort to lower financial risk in the second largest economy.

The Chinese pawn shops have become major shadow-finance players in the industry – lending a total of $43 billion in 2017 usually to small businesses with higher interest rates than banks, a Straits Times report said.

Since 2010, the number of pawn shops in the country has also doubled to more than 8,500 while lending an average loan size of more than $26,000, which is way massive compared to $100 in the US.

The inclusive financing division of the China Banking and Insurance Regulatory Commission (CBIRC) is currently creating the new rules after it took over the jurisdiction of pawn shops from the Ministry of Commerce in 2018, the people said.

One of the rules may increase the minimum capital requirement for pawn shops from its current level of CNY3 million ($446,940), the people said. While CBIRC looks after the industry, local governments will handle day-to-day, routine supervision; they said, the approach the agency used for peer-to-peer lenders.

This move follows China’s attempt last year to slash funds to financial companies and banks linked to regional governments to put a stop on risky debt, disturbing the markets as institutions find ways to generate cash.