There have been pawnbrokers and pawnshops in China for many hundreds of years and they have been praised and reviled at different times. At present business seems to be booming. According to the Shanghai Pawn Trade Association, the city had 201 pawn companies with 260 outlets at the end of 2011. They handled business worth 48.24 billion yuan ($7.65 billion) in the past year, a year-on-year increase of 41 percent. It was the fifth straight year that the pawn business in the city had recorded a significant growth.

For many Chinese the only contact with pawnshops comes from watching period dramas on television where they often feature. Zhou Xiaorong, manages the Putuo district branch of Shanghai Oriental Pawn, one of the leading pawnbroking companies in Shanghai.

"On television we see people pawning whatever they have, even quilts, in exchange for cash to buy food. That's a typical scene in one of these period pieces and this probably did happen in the past. But in this modern age, things are very different. Most of our customers are wealthy. One man came with a watch worth 5 million yuan to borrow 1 million yuan. People come to us mainly to solve short-term financing problems these days," Zhou told the Global Times.

With pawnbroking becoming more transparent, more people, including foreigners, were coming to their outlets. "Language can be a problem dealing with foreign customers. But they seem to know the rules very well. They can communicate easily with our staff with a calculator."

More people are resorting to modern pawnshops to solve their emergency or short-term cash flow problems. The precondition is, of course, that they have proper collateral, which can range from gold or silver, apartments and vehicles to luxury brand items or fine art.

Wedding woes

Ma Hui and his wife will have their wedding banquet next month and soon afterwards they'll set out for France for their honeymoon. Last week, the newlywed visited a pawnshop in Yangpu district with the title deed to their apartment.

"We have some problems with our cash flow," Ma told the Global Times. "But we didn't want to ask our parents for more as they've already given us whatever they had to purchase our apartment last year."

Ma and his wife don't want to miss out on a fancy wedding - a ceremony in a garden in the afternoon and a theme party in the evening. This, with the honeymoon, they've calculated will cost around 150,000 yuan. "But we're on a mortgage and need to pay the bank just over 8,000 yuan a month. We learned that a pawnshop could be the best way for us to ease our financial problems at the moment given one of our friends actually works in the business," Ma said.

With the 1.8 million yuan apartment as collateral, the couple got a loan of 100,000 yuan at 2.8 percent interest. Ma said that's completely acceptable because they'll probably pay back the total within a month after they collect all their hongbao (red envelope cash gifts) from their wedding guests.

"In the past it was rare for people to use their apartments or cars as collateral to get a loan for their weddings. But since the second half of last year, more and more people have been approaching us to do this, especially in September. Probably that's because October is a popular time for weddings in China," the manager on duty at Dazhong Pawn, a man surnamed Gao, told the Global Times.

Gao said that an 80-square-meter apartment could be pawned for 600,000 yuan, but the newlyweds would usually want a loan for no more than 200,000 yuan. Most pay the loan back within two months.

But cases like this where individuals need to borrow money for urgent personal needs, however, account for just around 10 percent of the city's entire pawn business, according to the Shanghai Financial News. Up to 70 percent of the business comes from financing small businesses. And the remaining 20 percent of their customers use pawnshops for personal financing.

Crooked dealings

The business has become a target for criminals. The Baoshan district police arrested four people in May this year for defrauding a pawnshop of more than 140,000 yuan by claiming necklaces plated with gold were fully gold. There was a similar case two years ago when, within a week, a gang of three successfully scammed seven pawnshops across the city out of 70,000 yuan also using necklaces plated with gold.

Shanghai's judicial authorities have asked the pawn industry to be wary of these frauds and to launch a blacklist to prevent them recurring. "Currently, we have a platform on QQ, on which our member companies can check a list of people who have been caught trying to defraud pawnshops," Wang Fuming, the deputy chairman of Shanghai Pawn Trade Association and owner of Shanghai Oriental Pawn, told the Global Times.

Wang said that the QQ blacklist started in 2006 but was accessible only to pawnshops who are members of the association. However there is also an identity checking system that every pawnshop in Shanghai has to install. "That system was developed in 2005. Pawnshops have to upload information about their customers onto this. Police also upload information that they believe might concern us. Pawnshops check there regularly," Wang said.

But Wang is unhappy that the People's Bank of China's online personal financial information system, which can be accessed by all the commercial banks in the country and some rural finance organizations, was still inaccessible for pawnshops. "This is discrimination. It's very important that we check personal financial records," Wang told the Global Times.

Wang said that the pawnshops were reluctant to talk about losses through fraud. "Very few want to talk about this. It would have a negative affect on their image. Many shops now don't accept items like gold and platinum, watches, emerald and jade, diamond and electronic products. Only the well-established pawnshops in the city continue to deal with these goods as they have a comparatively complete and reliable appraisal system, which can reduce the risks," said Wang.

At big pawnshops, there are always expert appraisers on hand to assess gems, jade and gold objects. "But when it comes to some specialist items like works of art, we work with organizations like the China Association of Collectors to get expert opinions. It's not one man's say in any appraisal," Wang said.

Constantly squeezed

Fake products are another headache for pawnbrokers. With the growing number of pawnshops, the demand for talented operators has grown fiercer.

"It takes time for a person to accumulate the experience to become a quality appraiser. There are just a limited number of these people in the marketplace. It's the same with valuers and other management staff. With companies competing fiercely for these people, the wage bills naturally begin to soar," Wang said.

He said that survival was not a problem for pawnshops but the profit margins were being constantly squeezed taking into consideration the growing burdens of increased rents and taxes.

In 2011, the average interest rate for the city's pawn businesses was 2.46 percent. But some shops were offering less than 2 percent.

Wei Jingtao is the director of the Pawn Industry Research Institute at the Renmin University of China. "The pawn industry is a very risky one. With the rapid expansion of small loan companies and other similar businesses, the pawn industry must develop chain stores to guarantee its share of the market. With chain stores around the country, a company can better regulate its internal management and build its image more efficiently," Wei told the Shanghai Financial News.

Han Hanjun, the director of the Pawn Research Center with the Institute of Economic Research at the Shanghai Academy of Social Sciences, agreed. Han said: "In the US, pawn companies and small loan companies have around 15,000 outlets. The top three own nearly 3,000 outlets. But in China the business is lagging. Only with more outlets can businesses efficiently serve the needs of their customers."

Bargains for sure

While pawnshops fight to win a place in the market, ordinary people are finding they are good places for bargain shopping. "We have a fixed pool of visitors and buyers. Most of them are quite young. They're very smart and know what is a real bargain," Zhou Xiaorong with Shanghai Oriental Pawn told the Global Times.

Zhou was talking about the items that have been pawned but not redeemed. People who take items to pawnshops have a set time to redeem the items before they can be sold to others. "But there are not many items like this. Most of our customers redeem the items they pawn. That earns them credibility and makes it easier for them to return and get another short-term loan."

At her Putuo outlet, diamond rings, jade ornaments, luxury watches and emerald bracelets are displayed in the counters. "They cost about half the amount as the same items in shopping malls. These are secondhand goods but we clean and polish them and make them as good as new," Zhou said. She cited a special bargain in designer handbags. The pawnshop bags cost a lot less even than the bags offered at popular secondhand designer bags shops like Milan Station.

Zhou said that details of the items on sale were usually available on websites and experienced pawnshop shoppers often surfed the Internet to make comparisons before they visited the shop. "Young people are more amenable about buying secondhand stuff at a pawnshop compared with middle-aged or older people."

According to Wu Xianda, the general manager of the Shanghai Hualian Pawn Corporation, sales of unredeemed goods began in 1988 when pawnshops first emerged in Shanghai after being closed in 1949. But those days they attracted little attention. "Apart from a conceptual change, today's boom has been achieved with the improved services that pawnshops offer. With expert assessment teams, the quality of the items is guaranteed. Gold and silver ornaments, for example, are professionally cleaned before being put out on display. Diamonds weighing more than 0.2 carat come with a certificate."

A brief history of loans

According to the Encyclopedia Britannica, the pawn industry in China emerged up to 3,000 years ago. The Encyclopedia Americana also said that the pawn industry in China could date back to the Western Zhou Dynasty (1046-771BC).

But Western experts believed that China's pawn industry originated from the Western Zhou Dynasty because in the book The Rites of Zhou, the concept of an "agent" was mentioned. Westerners interpreted this "agent" as a pawnbroker. Actually it referred to people who charged fees for the management of markets.

In China, it is commonly accepted that the pawn industry originated during the Northern and Southern Dynasties (386-589), but there were pawnshop activities during the Han Dynasty (206BC-220AD).

In olden China the status of pawnshops was only second to qianzhuang, or local banks. In a traditional pawnshop, the counter was set high so that customers had to reach up to place their items on it. Some shops had wooden screens so that the pawnbroker would not be able to identify customers. Today's pawnshops look more like banks. The symbol of a pawnshop is the traditional bat (signifying fortune) holding a coin (signifying benefits). In the West, pawnshops are traditionally identified by the three ball symbol.

Before 1949 the pawn business in China was thriving. When the People's Republic of China was founded however, pawnbroking was stopped as authorities regarded this activity as one that exploited people and involved officials colluding with merchants.

Nearly 40 years later in 1987, the first pawnshop on the Chinese mainland after the founding of the People's Republic of China opened in Chengdu, Sichuan Province. Over the following year, pawnshops started to emerge in Liaoning, Shanxi, Guangdong and Shanghai. By 1993, more than 4,000 pawnshops had been registered.

The sudden boom in the industry brought some problems and State authorities introduced regulations to control the industry. By 2000, there were 890 licensed pawn companies. The approval system for mainland pawnshops became more open after 2002 and now the country has more than 5,000 licensed pawn companies.

The first legal pawnshop in Hong Kong was built in 1926. Pawnshops flourished in Hong Kong after WWII and there are now about 250 pawnshops in the city.

In Macao, pawnshops are regarded as an indispensable part of the city and its culture. Pawnshops date back more than 450 years in Macao. Local authorities introduced regulations to control the business in 1903.

The pawn industry has always been closely related to the casino business in Macao. Pawnshops can be easily found there especially in the business centers and near the casinos. Since casinos in Macao run around the clock, quite a few pawnshops there also open 24 hours a day. In 2003 the Pawnshop Museum opened in Macao.