Pawn shops cash in on China's credit problems: Cash-hungry Chinese have found a way around the clamp-down on credit by hocking goods, writes Teresa Poole in Peking

WHEN the going gets tough, the tough go shopping, and in Peking, when the shopping gets tough, there's always the pawn shop.

In one of the city's main shopping streets, Xidan Road, the first pawn shop to open in the capital since 1949 has done brisk business in its first year. According to Jiang Lianqing, manager of the Jinbao Pawn Shop: 'This is a new type of socialist pawn shop. Our aim of service is to serve society, support productivity and provide a convenience for people.'

In these more affluent days, this pawn shop's role is increasingly to solve any cash flow crisis for shoppers caught short just when they have spotted an irresistible purchase. 'The pawn shop these days is quite different from the old ones when people pawned their goods just for the money to buy one meal. These days the customers who come here are the rich class of society,' said Ms Jiang. 'They go to the shopping centre and want to buy something, pawn their things and then go and buy the goods.'

One man recently spotted a camera lens he had been searching for, did not have enough cash on him, pawned his camera to get the money, and then later redeemed it. 'One lady intended to buy a high- quality hi-fi, but the money she had brought was not enough, so she came here and pawned her jewellery,' said Ms Jiang.

Easy consumer credit is unknown in China, where credit cards can rarely be used outside hotels and shops catering for foreigners. Since last autumn's clamp- down on runaway credit, the government has been trying to channel funds into priority projects and it has been harder for anyone else to borrow money. Individual bank loans, even for would- be entrepreneurs, are hard to come by. Meanwhile, small state enterprises and private traders find bank managers offer no help when a short-term bridging loan is needed.

'People come here because they need money quickly, not because they are very poor. The pawn shop is a kind of non-banking financial organisation. Its main function is mortgage loans. Both enterprises and individuals can mortgage their things and get money,' said Ms Jiang. She estimates that there are about 500 pawn shops in China.

Factories and shops can mortgage raw materials, vehicles, stocks or goods or even idle machinery and buildings. Individuals mostly bring in jewellery, gold and silver goods, antiques, cameras and watches. Visitors who run out of money are common customers.

Meeting the gap in the market for short-term finance is a profitable business. Goods can be mortgaged for up to four months, and the interest is fixed at 5 per cent a month. About 10 per cent of the mortgaged goods are abandoned by their owners and sold by the shop.

In the Jinbao shop, men with abacuses sit at tables behind a long wooden counter ready to value goods. In the year since the shop opened in December 1992, with the approval of the Central People's Bank and the Peking Municipal Government, it lent 13.43m yuan ( pounds 1.1m) against 4,983 items. Loans to enterprises accounted for just over half of the total amount.

This time of year, the Chinese New Year, is busy. Factories and shops need extra working capital to manufacture and buy in items that they can sell quickly over the holiday period. When seasons change, the pawn business picks up. 'In the autumn, the factories pawn air-conditioners and refrigerators to get money to buy winter goods,' said Ms Jiang. 'One factory specialises in making blankets, a very seasonal product. So off-season they pawn the blankets and use the money to buy wool.'

(Photograph omitted)