The pawnshops have submitted their proposal to the Ministry of Commerce and are awaiting final approval, said Zhang Liming, vice-director of the Shanghai Commercial Commission.

The shops include Hualian and its Yishan Road branch, Tianyuan and its Pudong branch, and Tianbao and its Nanjing Road branch.

Some pawnshops in other cities of the Yangtze Delta area are also showing interest in joining the chain, Zhang said.

If the merger gets the go-ahead, the shops will operate under the name of Hualian, testing the water for other pawnshops in the municipality, Zhang said.

The new group is expected to have registered capital of more than 100 million yuan (US$12 million).

Stronger capital strength will benefit the pawnshops because they will be able to meet the financing demands of clients, said Xie Bowei, general manager of Tianyuan, one of the six pawnshops planning to merge.

The chain store proposal is a sign that the industry will expand quickly, said Li Sha, an industry expert with the Beijing-based Huarong Tiancheng Pawn Research Center.

China's ailing pawnshops are poised for an upswing as many smaller businesses seek loans.

The pawnshops thrive mainly on the inadequacies of the banking sector in China, Li said.

Cash-strapped enterprises and individuals have to spend months submitting credit documents before they can obtain loans from banks.

Pawnshops were abolished when the People's Republic of China was founded in 1949, but reappeared in the 1980s as smaller operations under the control of China's central bank to serve individuals and private businesses.

In 2000, pawnshops in China were redefined as industrial and commercial enterprises under the control of the State Economic and Trade Commission, a change that heralded looser regulations and better taxation policies.

A new regulation released in late 2001, which allows the stores to set up branches in provincial capitals and municipalities, paved the way for pawnshops to expand as competition increases in the market, Li said.

It is estimated that the country has more than 1,000 pawnshops, mostly in provincial capitals and municipalities.

Pawnshops have long been regarded as institutions that exploit the poor in China, but now they are legitimate financing channels for individuals and small enterprises, Li said.

Gold makes up 40 percent of all pawned items, followed by automobiles at 25 percent, and real estate at 15 percent.

Household appliances, antiques, paintings and calligraphy together account for 20 percent.

Many investors are trying their luck in the field, lured by its potential for further development and good returns - six to eight times more than the interest rates offered by commercial banks.

The central government said earlier it will approve the establishment of about 200 new pawnshops nationwide this year.

(China Daily May 6, 2003)