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Growth of China's Credit Card Market: Major Issues and Countermeasures


By Xia Bin, Zhang Chenghui & Lei Wei, Research Institute of Finance of Development Research Center of the State Council (DRC)

Research Report No 186, 2010

1. Status Quo of the Ever-increasing Credit Card Market in China

1. History of Development and market size

Credit cards (The credit card means the card-issuing bank provides the card holder with some line of credit) and the holder can consume or withdraw money in advance before paying back the amount within the limit of the credit line. The credit card offers consumption credit. The holder can use the credit line in a circulative way and can enjoy interest exemption if the amount is repaid in dull within the specified period of time, or he can choose the minimum amount of repayment) include quasi credit cards in China (The quasi credit card means the card holder must pay a certain amount of deposit as required by the bank. When the balance in the deposit account is not enough for the payment, the holder can overdraw the interest on the limit of specified credit line. The quasi credit card characterizes the debit card and the interest on the deposits will be paid as per stipulations). If the issuance of the fist quasi credit card by Zhuhai Branch of the Bank of China in 1985 is taken as the starting point, the credit card market has ever since developed in China for more than twenty years. In March 1995, the Guangdong Development Bank issued the first RMB VISA card in its real sense and in line with international standards and, at the same time, the bank put out the USD VISA cards. During more than a decade of years between 1985-2002, the credit cards issued were all international cards such as VISA cards and MasterCards and the number of cards issued was few and far between and only reached 430000 by the end of 2002. After China's accession to WTO, with the competition among banks aggravated, domestic banks began to increase input in intermediary business and particularly devoted major efforts to developing credit card business. The card-issuing banks set up credit card centers one after another to make credit card business independent and unveiled distinctive credit card products to strengthen propaganda and marketing. On the other hand, government departments concerned were also actively promoting the common use of credit cards online and ameliorated the environment for credit card handling. In the beginning of 2004, the People's Bank of China organized commercial banks to commence the building of the national basic database of personal credit information and put the database into use two years later. Marked by the "314" Project for credit card online use practiced in 2001 and the China Unionpay founded in 2002, the construction of infrastructure facilities on China's credit card market started on a large scale. In collaboration with the commercial banks, the China Unionpay introduced the market-oriented mechanisms during the construction of the credit card market and, through intensive and mass operation, effectively avoided cut-throat competition on the credit card market and developed the market rapidly and properly. By the end of 2009, the number of credit card clients, POS machines and ATMs had reached 1.57 million, 2.41 million and 210,00 respectively, being 8.5 times, 8.9 times and 4.4 times respectively over the end f 2002, thus initially satisfying the demand of card holders for card-use consumption and the need of clients for cashless settlement. Through the efforts made by relevant sectors, from 2003 onwards, the number of credit cards issued began to increase rapidly in China. In 2009, the number of issued credit cards reached 186 million in China, being 8 times that of 2002, of which the number of credit cards and quasi cards reached 164 million and 21.62 million respectively (Figure 1). The number of domestic card-issuing institutions reached 61, of which 16 were national institutions and 15 were credit card centers in official operation, with 14 institutions having issued as many as 5 million cards and above.

2. annual growth rate of the card-issuing numbers

By the end of 2009, use of credit cards had been popularized in 32 provinces, province-level municipalities and autonomous regions and the clients can use the cards to consume at about 1.5 million shops and 2.4 million POS machines nationwide. At present, the credit card has become the most common instrument of non-cash payment in China. According to statistics of China Unionpay, in 2009 the number of inter-bank credit card consumptions and the consumption amount reached 1.59 million and 1.65 trillion yuan respectively and the average number of annual inter-bank consumption and amount of transactions reached about 9.70 and 10,000 yuan (Figure 2 and Figure 3). During the same period, the number of card consumptions was 1.11 times or so that of debit card consumptions, suggesting that the credit card has become the instrument of non-cash payment most commonly used by Chinese residents.

At present, the consumption credit by credit card has become the main personal consumption credit among Chinese residents. At the end of 2009, the aggregate credit amount by credit card reached 1.36 trillion yuan and the outstanding credit balance reached 245.8 billion yuan (Figure 4), accounting for 38.5%of the one-year household consumption credit balance in financial institutions.

3. Features of the present credit card market

As the credit card market is taking shape initially, the credit card industry has developed by leaps and bounds. Even so, the credit card market and related industries in China remain in a starting period. The features are mainly as follows:

Firstly, the credit market is not ripe enough and the difference in regional development is large. Currently, the number of per capita credit card possession is only 0.14 in China, far lower than 4.88 in the United States. Even in Beijing and Shanghai, the number of the per capita card possession is only 1.55 and 0.87 respectively and the number in central and western regions is even lower, being mostly lower than 0.10. The difference in regional development is huge and the credit card consumption has been less popularized. In 2009, the outstanding credit card balance amounted to 245.8 billion yuan, being only equivalent to 1/24 of 866 billion dollars recorded during the same period in the United States; the average outstanding credit card balance amounted to 1,321 yuan, being approximately 0.36 of that in the United States.


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