Regulations tighten pawnshop supervision
By Zhang Lu (China Daily)
Updated: 2004-07-12 09:10

The government is to introduce a new set of regulations to strengthen supervision of pawnshops.

The third draft of the new regulations is now under discussion. Officials from the Ministry of Commerce say the new regulations are expected to be released this quarter.

The Ministry of Commerce supervises the development of the sector.

"This is an important move to further standardize pawnshop operations," said Wu Xianda, secretary-general of the National Pawnshop Committee of the China Association of Resale Goods Industry.

Wu, also general manager of Shanghai Huanlian Pawn Co, said that stricter administration and supervision on the pawnshop sector is necessary, as there are some non-standard operations in existence.

The new regulation will lift requirements on operation of pawnshops in fields such as registered capital and operation capital.

For example, according to the draft, registered capital for setting up pawnshops must be at least 5 million yuan (US$603,800), higher than the currently regulated 3 million yuan (US$362,300).

For pawnshops qualified to receive property rights or real estate as pawned items, the minimum registered capital must be 10 million yuan (US$1.2 million), compared with the present 5 million yuan (US$600,000).

The registered capital of pawnshops which have branches could not be lower than 20 million yuan (US$2.4 million). The current requirement is 10 million yuan (US$1.2 million).

The draft also lifts the operation capital for each branch of a pawnshop to 5 million yuan (US$600,000) from 3 million yuan (US$360,000).

With higher registered capital, pawnshops will be faced with lower risks, Wu said.

But businesses in the industry still voiced different views against such requirements of the draft regulation, Wu said.

"It is improper to have nationally unified requirements, as economic situations in every province are different," he said.

Some problems will occur, if unified terms on registered capital are imposed, he said.

Another point-rousing argument is the draft says that the monthly rate for a pawnshop would not be higher than 3.6 per cent of the money it lends to customers.

"The regulator should set a lowest limit of service rate, rather than the upper, to prevent unfair competition in the industry," Wu said.

He told China Daily that the industry has submitted their responses to the draft regulation to the Ministry of Commerce, and he believes the government will make revisions and the new regulation will promote the sector's healthy development.

Meng Xiangkai, general manager of Beijing Jinzheng Yuantong Pawn Co said the new regulation should strengthen government's supervision on the industry as well as provide an active business environment for pawnshops.

"The launch of the new regulation is a big event for the pawnshop industry, but the most important thing is its strict implementation in the future," Meng said.

Pawnshops have long been regarded as institutions that exploit the poor in China and were abolished when the People's Republic of China was founded in 1949.

The sector reappeared in the 1980s as smaller operations under the control of China's central bank to serve individuals and private enterprises. In 2000, pawnshops in China were redefined as industrial and commercial enterprises under the control of the State Economic and Trade Commission, which released a regulation on the sector in late 2001.

The still effective regulation, having rather loose requirements on pawnshops, enabled the industry to grow rather rapidly.

The country now has 1,375 pawnshops, mostly in provincial capitals and municipalities.

According to Wu Xianda, about one third of the total pawnshops enjoy good business, another one third just have a so-so performance, and the remaining one third run poorly.