Abstract

Pawnbrokers in China, like those in many other countries, not only provide financial intermediation services to individuals and households to finance the shortfall between consumption and income in the short term, but also serve as a supplementary financing channel for private entrepreneurs and small- and medium-sized enterprises (SMEs) that face difficulty in obtaining formal credit. This article uses first-hand 2008–2009 survey data from Zhejiang province—one of the pioneering regions in China to develop the pawnbroking business—to study the special characteristics of the pawnbroking industry and explain why it has become a viable and useful financing instrument in transitional China. It also examines the puzzle of widespread losses and serious setbacks in the industry during the 2008–2009 global financial crisis, to which the authors attributed the increased default rate of export-oriented SMEs that reduced their demand for pawnbroking loans. The pawnbroking industry’s strict regulations and low litigation efficiency in China also increased pawnshops’ operation costs of handling defaults, leading to a temporary setback of an otherwise rapidly growing pawnbroking business during the 2008–2009 crisis. However, the pawnbroking industry will continue to play an important role in financing SMEs in China in the foreseeable future.

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Additional Information

ISSN
0219-8614
Print ISSN
0219-7472
Pages
pp. 128-144
Launched on MUSE
2017-09-06
Open Access
No
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