China's shoppers stock up on cards
By Catherine Jiang
SHENZHEN - Chinese consumers, until now recognized as among the world's most
determined savers, are adding credit cards to their wallets in record numbers,
with the number of such cards in circulation almost doubled in the first
quarter from a year earlier.
The number of credit cards in circulation jumped 93% in the year ending March
31 to 104.7 million, the People's Bank of China said on its website this week.
The total number of bank cards, including debit cards, topped 1.58 billion by
March 31, up 29.1% over the year, the bank said.
The explosion in credit-card use follows determined marketing by
banks such as the Industrial and Commercial Bank of China (ICBC), the country's
largest state-controlled commercial lender. In cities such as Shenzhen,
Beijing, Shanghai and Dalian, pedestrians are assailed by uniformed bank
staffers exhorting them through bullhorns to stop and sign on the dotted line
in exchange for a card and some "gift" - usually a towel, pen set, clock or
restaurant discount card.
Such sales drives helped Shenzhen-based China Merchants Bank boost its card
issuance last year to 21 million, from 10 million in 2006. The total amount
charged on its cards was 130 billion yuan (US$20 billion). ICBC, the market
leader with a 30% share of this market, issued 22.2 million credit cards by end
of 2007, attracting 160 billion yuan in spending. China Construction Bank
issued 12.6 million by end of 2007 - the lender does not make available its
credit card spending data
The expansion in credit-card use is also in line with government goals.
Beijing, keen to encourage domestic spending and reduce the country's
dependence on exports to generate growth, wants 30% of retail sales to be made
through credit and debit cards in big cities by next year, from 10% at the end
of 2005, according to Bloomberg. At the same time, encouraging the use of bank
cards helps authorities to track merchants' business transactions and tax
payments while reducing the openings for money laundering.
Bank card-based transactions accounted for 25.6% of the country's total retail
sales in the first quarter, up from last year's 21.9%, according to a Shanghai
Daily report. The value of bank card transactions increased even faster, rising
58% year on year to 824.6 billion yuan, boosted by higher incomes as the
country's economy continues to grow at rates of about 10% a year.
The campaign by banks to have customers use credit cards comes at a price, with
various studies showing that the card business is generally losing money at
this stage. A China Merchants Bank spokesman said that in the West, banks make
profits out of credit cards by charging interest, while in China more than 90%
of card profit comes out of merchants' commissions.
China's shoppers are spending more as inflation picks up, with the consume
price index increasing more than 8% in the first five months this year from
4.8% for 2007; but they are also have more to spend, with urban disposable
incomes rising 11.5% in the first quarter from a year earlier, according to
Bloomberg. .
Banks are doing their best to boost consumer use of cards by adding
point-of-sale card terminals in shops and restaurants while increasing their
networks of automatic teller machines. Lenders are also adding overall
customers at a fast rate. The number of individual bank accounts in China rose
9.6% in the first quarter from a year earlier to more than 2.2 billion, the
People's Bank of China said on Wednesday.
That growth could help the credit-card market become the second most-lucrative
retail banking product after mortgages within five years, with total profit of
up to 13 billion yuan, or 22% of banks' total retail banking profits, according
to consultants McKinsey & Co.
At present, only about 31.8 million people actually hold credit cards,
according to Beijing-based researcher Analysys, with each holding on average
about three cards, leaving millions more potential customers for domestic banks
and potential overseas rivals such as Bank of East Asia and Standard Chartered
Bank to capture.
Fan Hua, 29, a software engineer in the southern city of Shenzhen, has so far
signed up for - and has to juggle - 10 different credit cards, including one
from China Construction Bank, after he applied for a loan and two unsolicited
co-branded cards. The others he applied for either to obtain incentive gifts
ranging from a towel to a subway card or to get restaurant or airline
discounts.
"I only use two of the cards," he says. "I really have to cancel some soon so
that I don't have to pay for the extra annual fee." Keeping track of 10 cards
is made more testing as payment deadlines vary.
The drive to win customers such as Fan has attracted the attention of
regulators, according to Xinhua news agency, with the Shanghai branch of the
China Banking Regulatory Commission urging improved system management by
lenders to avoid the same applicant getting credit from different banks,
stretching their ability to repay debts.
Fraud is also a concern. The number of prosecutions for credit card fraud
jumped 40% in the year to last October to 2,311, with the amount involved
increasing 24%.
The banks' struggle to generate profits from credit cards in a country where
they have been in use only since 1995 also reflects Chinese attitudes towards
savings and debt, with customers in the Middle Kingdom usually paying their
outstanding card balances in time, minimizing interest payments. That contrasts
with the high income generated in other countries where users keep cards close
to their spending limits, and incur interest as high as 22% a year.
China's savings rate as a proportion of gross domestic product is about 51%, up
from about 40% five years ago, Bloomberg reported, citing UBS. At the end of
2007, the outstanding balance of consumer credit on cards was about 75 billion
yuan, against a credit line exceeding 630 billion yuan, the People's Bank of
China said.
That cautious use of plastic cash is not preventing overseas interest in the
market. Bank of East Asia started issuing yuan-backed debit cards, by far the
dominant form of plastic spending, in May, to become the first overseas bank to
issue yuan-denominated bank cards in China. London-based HSBC Holdings and
Standard Chartered are awaiting regulatory approval for their own cards.
Catherine Jiang is a freelance journalist based in Shenzhen.
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