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Simply a Matter of Time
When will mainlanders embrace credit cards?

Let's Talk Insurance:
It won't be easy to crack China's huge market

At one of Beijing's largest department stores, a cashier waits with a small clutch of posting machines to handle credit card purchases. In China, no single machine can handle the different Visa, MasterCard and other cards issued by various banks. However, few customers use any card at all. One man in his early 30s who calls himself only Mr. Yen approaches the counter to make a credit card purchase and explain: "I make a lot of money now so I don't dare to carry cash. But as a businessman I need to spend unexpectedly sometimes, so I need a credit card." Another woman only reluctantly gives her card to the cashier, as if she isn't quite used to handing over such a valuable piece of plastic to a stranger. She recalls that even the use of cash in China — forget about credit — is reasonably new. Before Deng Xiaoping's reforms began in 1979, most transactions were done on a barter basis.

Today, of course, Chinese know full well the value of a yuan. Can credit cards be far behind? The People's Bank of China, the mainland's central bank, estimates that 100 million credit and debit cards have been issued. So far, the vast majority are either debit cards that specifically draw down a bank account which already has money, or are credit cards that require security deposits that nearly match the credit limits on the cards. In other words, few cards are available in China that act like the credit cards most of the world is used to, which grant the holder a certain line of credit with no little or no deposit required.

Both Western and domestic banks and card companies are betting that will change with China's impending World Trade Organization entry and with the maturing of Chinese consumers. The central bank estimates the number of cards issued will triple in three years. Visa guesses at least 500 million people currently have bank accounts, which is one measure of the potential market. Today on the mainland, card purchases account for only 1% of consumer spending. In the U.S., the figure is 23%. Says Han Weiqiang, MasterCard's country manager for China: "A market economy is based on credit. China won't [develop] a mature economy without the concept of credit in place."

However, it is unlikely that credit cards will be embraced quickly. For one thing, as demonstrated by the department store clerk at the top of the story, there is little standardization in China. The same card might not be accepted from store to store in Beijing; and almost certainly won't be accepted from city to city. Government banking officials insist that a rudimentary national credit card could be up and running as early as Oct. 1. However, the prospect of a single card that will be accepted nationally remains two or three years off, says the government. Also, because credit is so new in China few consumers have anything like a credit history that could be checked before cards are handed out. That is why debit cards and large deposits for credit cards have been required up to now.

There is also a cultural impediment. Especially older mainlanders who lived through the poverty and upheaval of the Great Leap Forward and the Cultural Revolution in the 1960s and 1970s are unwilling to spend today on the expectation that they will be able to pay in the future — the essence of credit. Similarly, when cards were introduced in Taiwan 20 years ago, a cautious populace was slow to adopt them. Christian Murke, Chase Manhattan Bank's general manager for China, spent many years in Taiwan and saw what happened: "They were issued in large numbers but were paid off every month for years. Around 1994, however, the credit card balances increased sharply. Consumers got used to them. I [expect] China will be the same." In other words, don't throw away those untouched posting machines just yet.

— By Julanar Green and Jiang Xueqin/Beijing

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