Chinese bet the house on share prices going through the roof
By Geoff Dyer in Shanghai
Published: February 3 2007 02:00 |
China’s stock market mania has reached the dowdy, two-room offices of the Tiancheng pawnshop in central Shanghai. At first sight the trade seems mundane: there are a few dusty cameras in a display cabinet and a middle-aged woman, talking loudly on a mobile phone, is pawning a necklace with a gold-plated heart.
But, unlike pawnshops in most countries, the real business is a steady stream of people putting their homes in hock. “This place is kept alive by people pawning their homes,” says Zeng Huiwen, the manager, brandishing the receipt for a Rmb500,000 ($64,000) loan she signed against an apartment.
When the pawnshops started accepting houses as collateral three years ago, most customers wanted quick cash to start a business. In recent months, however, they have started to borrow to invest in stocks.
After a five-year slump, China’s stockmarket surged 130 per cent in 2006 and caught the imagination of a new generation of investors. In January, 1.38m share trading accounts opened – 69,000 every working day.
According to a report in the official China Securities Journal, Beijing residents last year pawned houses valued at Rmb 1.5bn, much of it in order to buy shares.
Yet the new line of pawnshop business highlights the market’s vulnerability. Although the number of institutional investors has grown rapidly, the market is still driven by individual investors who tend to be more volatile. With few other investment options available, money flows from bank deposits into the stockmarket when confidence is high but can disappear quickly if optimism dips.
Moreover, the pawnshops underline a reckless streak in some investors. For all its extraordinary entrepreneurial energies, China is also developing an obsession with gambling. In the same year that the mainland stockmarket more than doubled, the casinos in Macao recorded higher revenues than the Las Vegas Strip.
Fearing the stockmarket might be overheating, the government has acted to damp speculation, while Cheng Siwei, vice-chairman of the National People’s Congress, warned the market was a “bubble”. As a result, the Shanghai composite index dropped 7.3 per cent this week, including a 4 per cent drop yesterday, erasing its gains for this year.
Most analysts think the falls have been a healthy correction that will permit a continued rally. However, the prospect of a new bout of panic selling by over-extended retail investors will alarm the authorities.
Not only would a slump scupper plans for companies to raise equity capital, it would expose the government to a political backlash from disgruntled investors who will point to its dominant role in the market – the state is the regulator, decides the supply of new shares, owns most brokerages and controls the majority of listed companies. It even owns most pawnshops.
Managers at three other pawnshops in Shanghai confirmed that business was now dominated by loans against apartments and that buying stocks was one of the main uses of the funds. One pawnshop has printed fliers detailing all the documents required of homeowners, including utility bills and title deeds: another has taken out advertising space on taxi windows.
“Whether they are buying shares or starting a business, we don’t care as long as they repay the money,” says Ms Zeng.
The pawnshops charge a monthly interest rate of 2.5-3 per cent for loans backed by apartments, which can be put up for auction if repayments are more than five days late.
“In reality it takes much longer,” says Ms Zeng, “and we have to find accommodation for the client. We do show some humanity.”
Copyright The Financial Times Limited 2007
http://www.ft.com/cms/s/733d1c7c-b32b-11db-99ca-0000779e2340.html
