Charge! Chinese Bulk Up On Cards
Vivian Wai-yin Kwok , 04.20.07, 12:50 AM ET
HONG KONG - In Beijing, Shanghai and Guangzhou, they now seem as comfortable paying with plastic as cash.
About 30% of consumer purchases were made with debit and credit cards last year in China’s biggest cities, according to the People’s Bank of China, demonstrating that China’s bank card payment system has reached the level of developed countries.
Amid robust economic growth, Chinese consumers doubled card spending in 2006 to 1.9 trillion yuan ($242.3 billion), representing 17% of last year's retail sales of consumer goods, up from 10% in 2005, the central bank said in a report.
Chinese banks issued 1.08 billion debit cards and 50 million credit cards in 2006.
Yet, there’s still a long way to go. Despite a 22% rise in the number of credit cards last year, debit cards still dominated 96% of the market.
A large number of Chinese credit card holders reportedly never use the cards after receiving them.
China Merchants Bank is believed to be the only commercial bank to actually turn a profit on credit cards as of yet.
Foreign banks particularly have found it difficult to expand their credit card business.
Bank of America (nyse: BAC - news - people ) and China Construction Bank announced plans to develop a co-branded credit card Monday, following the model of Citigroup (nyse: C - news - people ), tying up with Shanghai Pudong Development Bank and HSBC (nyse: HBC - news - people ) joining arm with Bank of Communications. (See: “ BoA To Deal Cards In China”)
Not a single foreign bank has successfully issued its own credit card in China.
According to a survey conducted by consultancy McKinsey & Co., 66% of Chinese cardholders prefer paying their credit card bills in cash at bank branches. That proclivity favors large domestic banks with extensive branch networks.
It also means that cooperating with local banks is the only effective way for foreign money lenders to get into the market quickly.
