A new report says China's appetite for using credit cards is poised to skyrocket. But, as Joseph Popiolkowski reports from Hong Kong, it is going to take dedicated investment by banks to feed the demand and make the system profitable in the long run.
For many Chinese, making electronic payments with a credit card and building personal debt are still new ways of spending.
A new report shows that of China's more than one billion active cards, most are debit cards, which draw funds directly from bank accounts. Only 50 million are credit cards. By comparison, the United States has 640 million active credit cards.
But that report, based on a survey of global bankers, suggests China's spending habits are likely to change soon. Bankers expect next summer's Olympics in Beijing and a growing middle class with a taste for consumption to fuel a robust demand for credit cards.
Editorial Director Charles Goddard, of The Economist Intelligence Unit that co-authored the study, cautions that the infrastructure needed to support widespread credit-card use in China is still in its infancy.
"Bankers in general, according to the survey, and retail bankers in particular, are generally quite optimistic about the payment card business going forward in China. But, at the same time, both foreign and local banks have got a great deal to do to develop the market," he said.
Goddard says banks need to convince merchants to allow electronic payments and work closely with government regulators. He says the prospect for short-term profits appear dim but banks should be able to recover their investment as credit card use takes off.
Nigel Lee is president of First Data International, Asia, a company that provides electronic payment systems, such as credit and debit cards. He says the industry needs to encourage people to not only apply for credit cards but use them as well. The average Chinese credit card holder makes one transaction a month.
"There needs to be a card-issuing mindset change and a debt usage mindset change. But again it becomes the responsibility not just of the government but of all the entities entering the market place," he said.
Lee says 80 percent of Chinese credit card holders pay off their entire balance right away and only 20 percent accumulate any long-standing debt. The opposite is true in Western countries.
Many economists have said that China needs to encourage more domestic spending, including consumer spending, to reduce its trade and fiscal imbalances. But because most people in China have no access to consumer credit or mortgage loans for housing, they have to save for purchases that many Westerners would make on credit - such as appliances and homes.
Economists have said increasing consumer credit could help promote consumption.