Ban on pawnshop stocks
( TA TA)
06/29/2001
The time is up for stock traders using their stocks as pledges to obtain personal loans, either from commercial banks or pawnshops. The writing was on the wall with the closure of the Shanghai Tianbao Pawnshop which ceased operations on June 11. Shanghai Tianbao Pawnshop in Pudong was the first of 11 pawnshops in Shanghai to declare at the end of May that it would extend loans to individuals with stocks as pledges. However, only 10 days later, the Shanghai Municipal Commercial Commission (SMCC), watchdog of commercial activities in Shanghai, issued a ban on such activities. Tianbao's case was one more failure after a series of similar failed efforts by banks and pawnshops since last year. Only securities companies headquartered in China can use stocks that those companies trade themselves as pledges to get loans from commercial banks. However, there is increasing demand for circulating capital for their businesses from enterprises and individuals whose capital has been blocked in the stock market. That is why many commercial banks took the risks in starting the businesses last year. After trials last November, Bank of China's branches in Guangdong and Sichuan provinces declared publicly that they were extending loans to individuals with their stocks as guarantees. However, in March 2001, People's Bank of China (PBOC), the central bank of the country, banned the business, stating that no loans from the bank should enter the stock market. The PBOC worries that the circulating capital is not actually used to fund those enterprises or individuals' businesses, but to be used to re-trade stocks, said Zhu Delin, a Shanghai financial researcher. Zhu said this would create bubbles in the stock market and make it hard to control risks. Large groups of people who hope to use their stocks as pledges to get loans hope to re-enter the stock market. That is why, after commercial banks were banned from doing so, pawnshops, which were deprived of the status of financial organizations last August, started low profile businesses in the hope of filling the vacuum left by commercial banks. Rongxin Pawnshop of Harbin, Yitong Pawnshop of Tianjin and Yucai Pawnshop of Chongqing got in first. They clearly listed stocks in the item of negotiable securities which could be used as pledges for capital from pawnshops. Yucai Pawnshop of Chongqing even joined hands with www.fayhoo.com, a well-known online securities trading website, to launch online pawning of stocks. Then came Tianbao Pawnshop of Shanghai.
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