A detail of Peace Reigns over the River by Zhang Zeduan (eleventh–twelfth century), showing pawnshops, taverns, restaurants, and shops in a bustling city. Pawnshops first appeared in China in the fifth century.
Pawnshops in China, in existence since the fifth century, operate as small financial institutions. Their general function is to supply fast cash in exchange for goods held in collateral; interest rates, fees, and terms of repayment vary. Pawnshops were forbidden by law from the mid-1950s through the 1970s, but have revived in China since the late 1980s.
The concept of the pawnshop originated in China as early as 420 CE when Buddhist monasteries, having garnered an abundance of assets through donations and land rents, were able to make loans to those in need of financial aid.
A pawnshop was called zhi ku from the Tang (618–907 CE) through the Song dynasties (960–1279), jie ku or jie dian pu in the Yuan dynasty (1279–1368), and dian dang or dang pu in the Ming dynasty (1368–1644). In the Qing dynasty (1644–1912) pawnshops were divided into types according to their capital and business size: ya, ang, dang.
Ya was a smaller type of pawnshop that offered higher interest rates and required a lower value of the collateral. The period of redemption of a pawned item was between four months and one year. Ya pawnshops required little working capital and usually operated in rural or small-town areas. The pawnshop operator received clothes and jewelry from poor pawners as collateral for lending cash to them. Sometimes the pawnshop operator could repawn these items to large dang pu to generate profit or new capital to receive other collateral.
Ang was a midsized pawnshop that offered midrange interest rates and a longer period of redemption—between one and two years. Ang also could repawn their collateral to large dang pu for profit or currency liquidation.
Dang was the largest type of pawnshop. It offered lower interest rates and a longer redemption period—up to three years. Dang pawnshops could receive gold, jewelry, fine art, antiques, and even the deed to a house or land. Gold was the most welcome item because it could be resold in bulk to a smelter to be sold for scrap gold. These pawnshops had a large capital circulation, usually collected from rich Chinese businessmen, landlords, and high-ranking officials. These pawnshops existed in large cities and areas with promising economic prospects.
In the Ming and Qing dynasties large pawnshops were mostly in Anhui and Shanxi provinces. Therefore, they generated a specialized professional business. In 1685 China had 15,080 registered large pawnshops, and this number increased to 22,781 during the Qian Long period.
The pawner had to pay an interest rate as high as 3–10 percent per month to the pawnshop. Dang piao was a receipt of the collateral goods issued by the pawnshop operator. The receipt indicated the name of the collateral goods, how much they were worth, and the period of redemption. The amount of the pawn loan was much lower than the value of the collateral and carried a high interest rate. After a certain period the interest would be higher than the value of the collateral, so some pawners would rather lose than redeem the collateral. Then the pawnshop operator could sell or auction the collateral to the public or to other pawnshops.
China’s pawnshops were very active in the early twentieth century. Local and central governments issued several pawn laws to regulate the business. The government even set up gong dian and gong dang (public pawnshops) under the supervision of local police departments. Several local pawning laws were passed in Jiangsu in 1927, in Anhui in 1929, in Beijing and Shanghai in 1930, in Zhejiang in 1931, and in Tianjin in 1932. The central government also began nationwide regulation of pawnshops (diandang guanli guizhe) in 1945.
Pawnshops were described as “bloodsuckers” after the founding of the People’s Republic of China in 1949 because they took items from poor people at extremely low prices and sold them to the rich at higher prices. Poor people were exploited by rich people, according to the theory of Marxism. Therefore, the pawn business was wiped out after the socialist transformation in 1956.
With China’s economic reform millions of private businesses have reemerged and demanded working capital and loans. Because state-owned banks and big commercial banks could not grant loans to small businesses, the old type of pawnshop was revived as an alternative financial institution. Since the pawnshop revival in Sichuan Chengdu in 1987, several thousand pawnshops have been founded.
Pawnshops are convenient because a getting a loan from them requires no credit check and no guarantors, although the interest rate is high. The combination of fees and interest rate could range from 3.6 to 4.5 percent per month. A pawner can get cash immediately by pawning items such as jewelry, stocks, home appliances, houses, cars, cameras, and computers. Recent statistics show that about 90 percent of customers of pawnshops are small-business owners and low-income persons. With their simple procedures pawnshops are considered a type of microfinance institution.
The pawnshop revival in China has depended to a large degree on the pawnshop’s business culture over fifteen hundred years. Many Chinese choose pawning as an easy way of financing without having to go through a complex loan procedure in banks or having to lose face by borrowing money from friends. Consequently pawnshops will continue to be a unique alternative financial institution in China.
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Crows everywhere are equally black.
Tiān xià wū yā yì bān hēi
Source: Ji, Zhaojin. (2009). Pawnshops. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 1724–1726. Great Barrington, MA: Berkshire Publishing.
Pawnshops (Diǎndàngháng 典当行)|Diǎndàngháng 典当行 (Pawnshops)