When Chris, a 26-year-old white collar worker from Shanghai, first got her credit card two years ago, she used it extensively. “For lunch, dinner, shopping, everything,” she said. Now, concerned that her spending was getting out of hand, she voices some reservations about paying with plastic.
“I think credit cards are just a way of encouraging people to spend money,” she said.
Chris, who didn’t want to give her full name, is like many professionals in China’s major cities: increasingly willing to sign up for a credit card but slightly uncomfortable using it. Part of credit cards’ rise can be put down to convenience, but Chris notes there is also a prestige factor – the more cards, the better.
“Most [of my friends] have two credit cards. They think it’s awesome to have two cards,” she explained.
Credit cold feet
While credit cards may abound in Chris’s social circle, they are still not widely used in China as a whole. According to China UnionPay, which runs the country’s sole bankcard network, only 33 million UnionPay-linked credit cards were in circulation in 2007.
A source at the Agricultural Bank of China (ABC) says that those credit cards are mostly in the hands of white-collar workers in the country’s biggest cities, and among those, the level of credit card penetration “depends on each city’s level and speed of development.”
Even where credit cards are prevalent, Chinese consumers tend to be much more conservative than their counterparts in other countries.
“People don’t have a debt-oriented mentality here,” said Charlene Chu, an analyst at Fitch Ratings in Beijing. “Most people who have these credit cards pay them off each month, which means the banks don’t earn any interest at all. It’s just a different type of market than a traditional credit card market.”
However, Chu notes that 10 years ago there was hardly any consumer lending at all. “You couldn’t take out a loan for anything – a house or a car, or a credit card. It’s obviously changing, but it does take a while.”
The ABC source agrees that the credit card market is undergoing changes and notes that different consumers use their cards in different ways. “There are all kinds of credit card users in China. There’s no usual way [these cards are used]. It depends on the individual situation.”
While consumer adoption of credit cards is increasing rapidly – according to UnionPay, the number of cards went up 43% between 2006 and 2007 – there remain significant obstacles to widespread adoption. Chu notes that, because China’s per capita GDP has remained very low, “the extent to which [credit card use] is really going to penetrate the real, broader population – won’t happen for quite some time.”
Other problems also exist. For some consumers, a poorly integrated banking system means that credit cards can be less convenient than they first appear. Because her primary bank doesn’t issue its own credit cards, Chris is forced to use a card from another bank. She says it can be quite inconvenient to transfer money between banks when she needs to pay her bills.
In addition, a fixed 18% interest rate for credit cards, set by the central government, means that banks are unable to use competitive interest rates to lure customers. And with credit card lending a small – if rapidly growing – part of banks’ portfolios, Chu says few large banks see any reason to change from their corporate-lending orientation.
Still, for consumers like Chris and her friends, credit cards remain attractive. “Most people think they need one card at least because it’s easier to get money if you need it,” she said.
What’s more, as retailers encourage people to buy big-ticket items with credit cards – which often means holding balances on cards – consumers are becoming used to the idea of debt.
“Most of my friends pay the bank at the end of the month,” said Chris. “But some don’t have money and don’t pay off the balance.”