(1) Current Status of the Pawn Industry in China

Limited financing channels and slow asset scale expansion. According to Article 28 of the 2017 revised 'Pawn Management Measures' formulated by the Ministry of Commerce, pawnshops are not allowed to finance from sources other than commercial banks, and the leverage cannot exceed 1.5 times.

Additionally, a pawnshop listed on the New Third Board, Dingrun Investment, was suspended in August 2017 due to regulatory policy reasons, and its financing business on the New Third Board was halted. For these reasons, most pawnshops still rely on their own funds for operation. Due to the constraints on liabilities, the overall business capacity of the pawn industry is difficult to grow, with the cumulative amount of pawned funds remaining below 350 billion yuan in recent years and declining year by year since 2014.

The national pawn industry regulatory information system shows that as of June 2017, the total assets of the national pawn industry remained flat compared to the previous year, with total liabilities and pawn amounts slightly decreasing, and profitability levels severely declining, with overall business risks for enterprises remaining at a relatively low level.

(2) Overall Operating Conditions

1. Total assets remained basically flat, while liability levels decreased.

As of the end of June 2017, there were 8,472 pawn enterprises nationwide, with 955 branches, registered capital of 170.45 billion yuan, and 48,000 employees. The total assets of enterprises were 164.1 billion yuan, remaining basically flat compared to the previous year. Total liabilities were 10.51 billion yuan, a year-on-year decrease of 5.1%.

2. Total pawn amounts decreased.

From January to June 2017, the entire industry achieved a total pawn amount of 169.03 billion yuan, a decrease of 12.85 billion yuan compared to the same period last year, with a decline rate of 7.1%.

3. Pawn balances slightly decreased.

As of the end of June 2017, the pawn balance was 88.59 billion yuan, a decrease of 1.78 billion yuan compared to the same period last year, a year-on-year decrease of 2.0%.

4. Business structure remained stable.

In terms of total pawn amounts, from January to June 2017, movable pawn business accounted for 33.07% of all business; real estate pawn business accounted for 51.17%; and property rights pawn business accounted for 15.76%.

(3) Future Development Trends of the Pawn Industry

1. Pawn operations will become more specialized.

In the past, pawnshops mostly adopted a diversified strategy, with pawned items involving gold, silver, jewelry, antiques, machinery, real estate, stocks, etc. As market risks increase, pawn operators are seeking to avoid risks and enhance market competitiveness. Pawnshops in various regions have begun to show a trend of focusing on one or several types of pawned items, such as real estate pawn in Liaoning, Heilongjiang, and Chongqing, while some pawnshops in Jiangsu mainly focus on valuable items like gold and diamond jewelry and luxury watches, and those in Anhui, Shandong, and Jiangxi mainly focus on property rights (such as stocks and business rights).

2. Small and medium-sized enterprises will dominate the pawn service targets.

Traditional pawnshops primarily served individual residents, often due to urgent family needs, but now, with the development of the market economy and changing perceptions, more people are starting businesses. The total number of private enterprises, partnership enterprises, and private enterprises has accounted for over 90% of the total number of enterprises in China. Many residents and individual business owners no longer approach pawnshops as individuals but as their enterprises. The service targets of pawnshops are showing a trend of shifting from individual residents to operational small and medium-sized enterprises, and in the future, the business primarily focused on individuals will shift to a secondary position, with small and medium-sized enterprises dominating the pawn service targets.

3. Operational pawning will become the dominant pawn business.

With the improvement of the market economy and the increasingly sound social financing system in China, both official and unofficial financing channels are becoming more abundant. Owners of small and medium-sized enterprises, private business owners, and individual industrial and commercial households have become the main clients of pawnshops. They tend to have relatively large financing scales and faster frequencies, which will replace consumer pawning and dominate the entire pawn business, while consumer pawning will take a secondary position. Therefore, in the long-term development, the types of pawning in China will show a trend of shifting from consumer pawning to operational pawning, determined by the social function of pawn financing under the current national conditions, although some pawnshops may still focus on individual residents and consumer pawning as their market positioning.

4. The pawn industry will develop towards rural areas.

The current layout of pawn enterprises in China is unbalanced and unevenly distributed, characterized by a high concentration in cities and a low presence in counties; more in the east and fewer in the west; many in large and medium-sized cities, while towns and rural areas are almost blank. Coupled with the reform of the rural financial system and the diverse funding needs in the development of the county economy, as well as the urgent need and reliance of farmers on production and operation funds, as the urban pawn industry approaches saturation, the market will inevitably guide pawn investors to shift towards the counties and rural areas with greater demand potential. China is a major agricultural country, and the development of the rural economy with Chinese characteristics cannot be separated from the financial support of various financing channels. Therefore, the future layout of the pawn industry in China will show a trend of gradually moving from large and medium-sized cities to counties, districts, and rural areas.

As an emerging old industry, the pawn industry once sparked a wave across the entire sector. However, facing an increasingly severe economic situation, the pawn industry is also encountering its own issues, such as an incomplete legal system, imperfect industry standards, unreasonable industry business structure, and unbalanced enterprise development. However, the development of all things follows its own laws and processes. As an emerging old industry, it must also go through the necessary stages of enterprise development. As a growing industry, it needs to continuously explore innovation and complete its transformation. I hope that future pawnshops can not only add value to enterprises but also provide timely assistance in difficult times!