Chinese are Taking to the Card

BEIJING - Buying on credit may be new to Chinese, but they are taking to it like fish to water, and banks and credit card companies are cashing in on what they see as a burgeoning credit card market.

And the target of credit card companies is younger, better-educated, urban Chinese with better jobs and higher income, the new middle class with a more consumer-oriented lifestyle.

More and more of them are opting not to get married so soon, and even when they get married they opt not to have children, preferring an unencumbered lifestyle.

'The credit card blends in with their lifestyle; when they go out shopping or dining or when they go travelling, these are opportunities for using the credit card,' noted Dr Yuwa Hedrick-Wong, economic adviser to international credit card company MasterCard.

'They want to buy things today, they don't want to wait until they've saved up every penny to pay cash in full,' he added.

Falling into this profile is Mr Zhong Min, 30, a sales representative with Hewlett-Packard, who is married with no children and shares a car with his wife.

He applied for a credit card in 1999, shortly after he graduated from university.

'My salary was low then, and sometimes I would be short of cash. When I heard that I could have an overdraft with a credit card, I thought that would be convenient, and so I applied for one,' he said.

He uses his card mainly for shopping. He and his wife also eat out two to three times a week and travel twice a year.

'This is a brand-new phenomenon not seen 10 years ago,' said Dr Hedrick-Wong of the new lifestyle of younger people like Mr Zhong.

He added that the consumer market was a relatively new phenomenon in China that began to develop in the mid-1980s, in tandem with the development of the economy.

'Shopping became an interesting thing to do, people began to shop.' But buying was basically cash-based because there was no other option then.

Economist Wang Zhao of the State Council think-tank Development Research Centre added that spending on credit was something that began only about five years ago with the reform of the property market and the encouragement of people to buy their own homes with bank loans.

As people got used to the idea of spending on credit, the conditions were right for the development of the credit card market, he explained.

There are now 24 million credit card holders, of whom one million are international card holders.

Banks here require all card holders to keep a minimum balance in their savings account with them, but offer an overdraft facility.

With such a low number of credit card holders and a burgeoning middle class - defined as earning US$5,000 (S$8,800) and above per year and which is expected to grow from 60 million people last year and 160 million in 2010 - China represents for credit card companies a market with enormous potential.

Both MasterCard, which has cornered two-thirds of the credit card market, and Visa, which has 70 per cent of the international credit card market, conducted surveys in recent months to track the lifestyle and financial behaviour trends of young, urban high-income earners.

Foreign banks are also poised to jump into the market as the Chinese government starts to loosen regulations for their participation under World Trade Organisation agreements.

But there are constraints to credit card growth.

Outside of large cities, it is still difficult to use credit cards. Indeed, this was one of the reasons why senior consultant Amy Chen, 33, gave up her credit card.

Other major constraints include a less-than-complete national payment processing infrastructure and the lack of consumer credit data.

But these are being resolved very quickly, said Dr Hedrick-Wong, citing the setting up of a credit bureau in Shanghai last year. The key is that Chinese consumers are ready and want their piece of plastic, he added.