Once-Banned Pawn Shops Back in China

From a gilt-decorated office enclosed in heavy red drapes, Li Rongming, 38, runs what he says is China’s biggest pawn shop.

He sits behind a 10-foot desk carved with fire-breathing dragons and, working a gold-plated telephone with white plastic handles, takes advantage of the comeback in the once-reviled pawn shop business.

The Chinese Communists slammed the door on pawn shops soon after taking power in 1949, calling them a tool of capitalist exploitation of the masses.

Today, the doors are creaking open again, especially in the special economic zones in China’s south, where the government allows capitalist attitudes to fuel growth.

Li’s Hainan Province Mortgage Auction General Co. was started with state funds and is--at least in theory--still state-owned. It is a government attempt to compete against a score of private pawn shops that have sprung up on the tropical island, China’s biggest special economic zone. Said Li: “In a special economic zone, the state has less planning--and the less planning you have, the more volatile the economy. You need pawn shops to relieve the pressure.”

Li’s inventory of pawned appliances, motorcycles, factory goods, cars, trucks--even acres of real estate and blocks of apartments--is testimony to the ups and downs of the island’s economy.

In 1984 and early 1985, when Hainan’s special privileges were new, officials spent more than $1 billion on an orgy of duty-free shopping, aiming to make money for the island--and themselves--by reselling the goods on the strictly controlled and heavily taxed mainland.

Cars, motorcycles, televisions and video recorders poured into the island before the government slammed on the brakes. Pawn shops came into their own in the resulting squeeze, intensified when the whole country was forced into an austerity program in 1988 that became a devastating clamp on spending after the 1989 crushing of democracy protests.

Now that Hainan’s economy is picking up, as is smuggling to the mainland, business for pawn shops is better than ever.

Li’s services are not cheap--for short-term loans of 10 days to six months, he charges interest of 5% a month. If the money is not repaid at the end of the loan period, Li can sell the pawned item. The government takes a share of the profit.

Even government factories come to Li. On his suburban warehouse lot--pawned by a bankrupt electronics firm--workers sporting gold watches show off some of the 240 refrigerators pawned by a strapped state company. Another pawned 164 air conditioners, and a state-owned brewery mortgaged 400 boxes of liquor.