When it comes to the use of credit cards in China, Beijing is stuck between a rock and a hard place. On the one hand, the government wants to see a new generation of Chinese consumers go out and spend, which is seen as a key element to delivering sustainable long-term economic growth. On the other, there is always the risk that credit card spending could get out of hand.
Chinese banks issued 175 million credit cards in the first nine months of 2009 alone, while consumer debt stands at US$1 billion. In trying to replace China’s saving culture with a spending one, has Beijing created a monster?
Regulatory action suggests mounting government concern. As early as July, banks were told to stop offering gifts to new credit card holders or to set quotas for their sales staff. A ban was also imposed on issuing cards to people under the age of 18. More recently, consumers have been warned that irresponsible spending will not be tolerated. Debtors who rack up bills with malicious intent – for example, those who spend far more than they could ever pay back relative to their salaries – could even face jail time.
Many observers say banks and consumers have a lax attitude towards credit. Nie Junfeng, an expert on personal debt at CITIC Bank, told state media that banks had been "blindly issuing credit cards," while independent economist Andy Xie warned in December that debt had reached "dangerous levels."
Others draw parallels with South Korea, where ballooning credit card issuance in the years following the Asian financial crisis resulted in nearly 10% of the entire working population falling behind on their bills by 2003. Personal bankruptcies hit 123,691 in 2006.
While consumer credit in China should be kept in check, some perspective would not go amiss. In the US, for example, two credit cards are in circulation for every man, woman and child in the country, and consumer debt stands at almost US$1 trillion. It would take several years – and a marked shift in consumer habits – for China to match this.
But Beijing must ensure that those tasked with policing the system have enough information and power to act when necessary – and in this respect locking up self-destructive consumers might be a good thing. A toothless watchdog is no use at all.