A Study In The Nature Of Modern Pawnbroking Under Financial Repression In China

With the global financial crisis originated the U.S. since 2008, the pawnbroking business in the world is booming. However, Chinese pawnbroking enterprises had large-scale loss. Why? With the question, the author have undertaken a two-year survey of the pawnbroking, and found Chinese pawnbroking have some natures different from that of other countries. Pawn in America or in other countries is Consumption-based Pawn, but in China, it is Investment-based Pawn. The author then made a further investigation, and found that the SMEs, as the main customers of Chinese pawnbroking, are mature-technology enterprises (low-technical-barrier enterprises). Because of the lack of technical-entry-barrier, these SMEs prefer over the fast time in the financing needs, and have developed Chinese pawn into Investment-based Pawn.Using both firm survey and cross-country data, we find the pawnbroking industry in China is characterised by the fact that its demand is largely driven by the financing purpose of small and medium firms, which is distinct from other economies. Based on this finding, we construct and analyse a behavioural model of firm financing to try to find a key to the universe-loss puzzle. Our explanation is that the relaxed financial policies in China after the outbreak of the global financial crisis significantly reduced the cost of financing through banks as opposed to the cost of financing through pawning which basically remained rigid. As a reasonable response, firms are inclined to borrow from banks instead of pawn-brokers, causing a plummet in demand for pawnbroking.The empirical relationship between the directions of macro policies and the profitability of the pawn-broking industry positively supports our hypothesis.This paper has made some progress as following:Firstly, demonstates the unique natures of the pawnbroking industry in China. This paper argues that the pawnbroking industry before the founding of PRC and in other countries is Consumption-based Pawnbroking, and the modern pawnbroking which recovered in 1987 is Investment-based Pawnbroking. With detailed information and data, this paper has a comparative study between the two different types of pawnbroking in some important characteristics such as pawn-amount,customer and pawn-object.Secondly, there have been less studies of pawnbroking in economics field using data from the past one hundred years.it took nearly two years for author to undertake a large-scale site-survey on pawn enterprises in Zhejiang province. It is the first research on pawnbroking based on such scale survey. The research data and conclusions have a certain referenc value for similar studies in the future.Thirdly, this paper has a further in-depth anaysis in SMEs which constitutes the main customers of the modern pawnbroking in China. With the analysis and summary of research data, the author concludes that the SMEs as the main customers of pawnbroking, are mature-technology enterprises (low-technical-barriers enterprises). In environment of financial repression in China, the SMEs prefer the fast time in the financing needs, and have developed Chinese pawn into Investment-based Pawn.Fourthly, this paper creates a behavioral model of SME pawn financing in China, and with the model and the features of the supply of pawn, offers a possible explanation to the puzzle of universe loss in the pawn-broking industry in China in terms of firm financing cost and financing substitution. Finally, this paper analyzes the development trend of Chinese pawnbroking based on the regulation of the industry.