Editorial Policy

Credit Card Use Catching On in China

Marcia Frellick

September 4, 2012

Credit card use in China has been slow to take off, but signs say that’s rapidly changing.

The Wall Street Journal recently reported that China had about 268 million credit cards circulating by September 2011, more than five times the number at the end of 2006.

Now, researchers at the University of Missouri (MU) have found that 30 percent of Chinese urban households own at least one credit card and that the card adoption rate grew 40 percent each year between 2004 and 2009.

For comparison, 68 percent of households in the U.S. had a credit card in 2010, according to June 2012 numbers from the Federal Reserve.

Reforms paved way for growth
Some drastic reforms have helped to reshape the Chinese economy. One of them was allowing foreign banks to offer credit cards to Chinese citizens. In August, Citigroup Inc. became the first U.S. bank to offer a credit card to the Chinese without co-branding with a local issuer.

But hurdles remain, including the tightly controlled payment system dominated by one company, China UnionPay Co. In July, the World Trade Organization ruled that the state-owned enterprise had a monopoly on the Chinese payment card market — and that Beijing had discriminated against U.S. payment card suppliers to preserve that monopoly. China has yet to announce how it plans to respond to that ruling.

There’s also some philosophical wrestling at play here: Credit cards and the concept of debt run counter to the teachings of Confucianism (which encourages thrift and frugality), said Rui Yao, an assistant professor of personal financial planning at MU, in a press release. That may help explain why new Chinese credit card holders tend to be younger — 58 percent are younger than 35, and only 3 percent are older than 50, says Yao, who studied data from the 2008 Survey of Chinese Consumer Finance and Investor Education.

Potential to overtake U.S. use
Though use of credit cards has been low, the potential is enormous, as China is home to 20 percent of the world’s population. MasterCard has predicted that China will overtake the U.S. as the world’s largest credit card market by number of cards by 2020. MasterCard estimates that the number of credit cards in China will rise to 1.1 billion in 2025 and that spending on those cards will reach $2.5 trillion.

Yao says that while that’s good news for economic empowerment (and consumers’ buying power), there’s also a dangerous lack of education that needs to be addressed. More than 90 percent of non-credit card users in China were unaware of the safety issues that come with credit card use, Yao said. More than 60 percent had limited awareness of the consequences of credit card default.

“This lack of knowledge could create problems as credit card ownership is expected to grow at a rate of 11 percent a year,” Yao said.

The solution? Yao suggests financial education about responsible credit usage that’s consistent with traditional Chinese values.