Small firms' last resort for financing

He admits that demand for private automobile pawn services normally goes up between November and February as it is the period when SME owners often need huge amounts of money quickly.

"The number of customers using car pawn services have increased 20 percent in 2012 compared with the numbers in 2011," Yang said.

"About 60 percent of my clients are regular customers who have private cars. Many of these high-end vehicles are often left in our pawnshops during various periods of the year for quick money purposes," he said.

At Huaxia Pawnshop, the monthly interest for a private car is 3.5 percent, the weekly interest is 1.8 percent, and the fifteen-day interest is 2.1 percent.

"I've noticed that more high-end cars are coming into the pawnshop and being traded for higher loan amounts this year."

The growth in use of pawnshops is not confined to Tianjin or Beijing but has spread across most Chinese cities. But it is in Wenzhou, the hub for small- and medium-sized businesses that this trend is most evident.

In the large car parking garage of an automobile trading center in Wenzhou, at least one-third of the used cars are vehicles that have been pawned at local pawnshops.

"Nearly 60 percent of the parking space at the center has been leased out to nearby pawnshops as they have regular clients with expensive vehicles," says Ji Xiao, sales manager of Wenzhou Outong automobile Co, a car company that sells new and second-hand cars at the center.

Ji says that expensive cars are normally redeemed within a week. Cars that have not been redeemed for more than a month are often sold at low prices in the center to local buyers.

The burgeoning demand for car pawn services has also triggered more problems for pawnshop owners due to the higher default risks.

When the redemption period passes, the goods often end up as "dead pawns", meaning the pawnshop has the right to sell them at a low price.

"Most of the owners redeem their cars on time before the redemption period ends, but if they fail to repay the interest and the amount of borrowed money, we have to sell the cars for cash," said Ye Zhitong, the manager of a Beijing-based pawnshop.

Ye added that it is not easy to sell the cars to second-hand buyers due to the stiff restrictions on purchase of personal cars in Beijing.

The run-up to the forthcoming Chinese New Year has been overwhelming for most of the pawnshops in China as the tight loan policies for SMEs have severely dented prospects for several businesses.

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