A man surnamed Li pawned his 200-square-meter apartment worth
over one million yuan (US$128,592) near Beijing Capital Airport for
800,000 yuan (US$102,600) to invest in the stock market. He then
pawned his stocks for another 700,000 yuan and bought more
stocks.
High-risk investment or reckless gamble? Either way, this
strategy is becoming increasingly popular among the Chinese
capital's speculators.
"Our client, Mr. Li, had initially bought the apartment for
property investment but, without a suitable buyer, he turned to
stock investment," said Yang Jingkun, assistant manager of Beijing
Huaxia Pawnshop.
"Every month around 10 stock investors mortgage their apartments
for 600,000 yuan to 700,000 yuan in our pawnshop," said Yan
Xingnong, general manager of Minsheng Pawn Broking Co., in
Beijing.
"One of them pawned three luxury apartments for a total of three
million yuan," Yan said.
Beijingers pawned their apartments for a total of 1.5 billion
yuan (US$192 million) last year and most of the money was poured
into the stock market, according to China Securities
Journal.
Considering the size of the returns, the risk appears huge.
Pawnshops in Beijing offer loans worth 70 percent of the value of
an apartment and charge a monthly interest rate of 3.2 percent. If
an investor pawns an apartment worth one million yuan and his
stocks yield a 50-percent profit, then he or she will still only
earn 81,200 yuan a year.
But the Chinese mainland's bullish stock market is attracting
investors in their droves.
A BMW owner who twice pawned his car for 200,000 yuan, with a
monthly interest rate of 4.7 percent, in the Jinbao Pawnshop in
Beijing boasted that his stocks had yielded a 20-percent gain.
Another stock investor surnamed Zhang pawned the stocks he held
in Huaxia and invested the money in other stocks that he believed
would rise quickly. "The newly-purchased stocks have reached the
daily raise limit of 10 percent," he said proudly.
Pawnshops in the capital city give loans worth 70 percent to 80
percent of the market value of stocks and charge a monthly
management fee of around two percent. The loan may be as much as
100 percent of the market value when it comes to the lucrative blue
chip stocks.
"In the past stock investors running short of cash pawned their
stocks in the hope of making up losses, but now they do so in
pursuit of bigger profits," said an anonymous clerk with
Huaxia.
Beijingers are not alone. The number of speculators using pawn
shops was 30 percent higher than usual at the beginning of the year
in east China's cities of Shanghai, Hangzhou and Nanjing, forcing
pawnshops to reduce their loan offers.
For example, an apartment worth one million yuan could be pawned
for 750,000 yuan last year in Hangzhou, but now it can only fetch
600,000 yuan.
"Pawnshops attract a lot of stock investors because applying for
loans from pawnshops does not involve going through the complicated
and time-consuming formalities found in banks," said Guo Jinshan,
President of the Beijing Pawn Trade Association (BPTA).
Since the Chinese government took measures - including imposing
higher taxes on the transfer of housing ownership - to rein in
speculation on the property market last year, more and more
investors have turned to the bullish stock market.
The number of accounts in the mainland's two bourses rose
132,119 on January 9 to 789.23 million when the market value of the
Chinese stocks hit a record 10.25 trillion yuan.
"Although most of the investors who are pawning their apartments
have two or three properties, they are exposing themselves to high
risks in the pursuit of high returns," said Lu Xiaoping, an analyst
with Founder Securities Co. Ltd.
The bullish stock market has given pawnbrokers a wealth of
opportunities to rake in higher profits, but many remain wary of
the risks to which they themselves are exposed.
"When a stock investor who pawned his only apartment loses and
fails to repay the mortgage in the agreed time, the pawnshop also
runs into the trouble of trying to repossess his apartment," said
Hao Fengqin, BPTA secretary-general.
"In Shanghai, many pawnshops have refused to give loans to
people trying to pawn their apartments," she added.
"Stock investors should take a rational approach and be cautious
about investing their lifelong savings because it is so hard to
predict when stocks will depreciate in the risky market," she
said.
To equip the public with basic financial knowledge, China's
central bank has published a finance textbook.
The book, with its easy-to-understand language and
illustrations, could help Chinese people become more financially
sophisticated and therefore make wise market investments, according
to Su Ning, deputy governor of the People's Bank of
China.
The book explains various financial terms, including stock
option and futures, and also details the history and function of
the central bank.
"Enhancing the public's understanding and confidence in the
financial sector is conducive to the healthy development of the
industry," Su said.
(Xinhua News Agency January 21, 2007)