Chinese regulators crack down on real estate-backed loans from pawn shops

The move comes amid more regulations on the country's shadow banking industry

Mar.March 17, 2019 09:00 AM

Pawn shops in China will often lend up to 40 percent of the value of an apartment pledged as collateral (Stock photo, credit: Getty)

Over the past few years, China has increasingly relied on real estate-backed loans from pawn stores.

Pawn shops in the country provided $43 billion worth of loans in 2017 while the number of these stores has doubled since 2010 to more than 8,500, Bloomberg reported. Crucially, more than half the loans in 2017 were backed by real estate.

Borrowers for these loans are not required to disclose how the money will be used, according to Bloomberg, and pawn shops in China will often lend up to 40 percent of the value of an apartment pledged as collateral. More than a third of China’s pawn shops had losses as of February 2018.

Now Chinese regulators are seeking to increase oversight of this segment of the market amid a widening crackdown on the country’s expansive shadow banking industry. Specifically, the government is looking to increase the capital requirements for pawn shops.

The move also comes as China’s real estate market is reportedly weakening, especially in rural parts of the country. [Bloomberg] — Keith Larsen

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