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China's new credit card users drowning in debt


Publication Date : 26-04-2012


Wei Kai, a bartender, racked up a total of 30,000 yuan (US$4,700) on six different credit cards in the space of two months last year.

"It's the first time I am in debt. I did not know there was such a thing as late fees," said the 27-year-old who moonlights as a musician in Beijing.

Wei, like many first-time credit card users in China, are learning the hard way that easy credit can come with sky-high charges.

As the first generation of their country to carry plastic, numerous young Chinese are struggling to understand the concept of overdue payments, compound interest and credit card debts.

A teacher in southern Guangzhou, for instance, did not bother to pay 60 fen, or 0.60 yuan, on his credit card bill. He was stunned when he was slapped with an interest of about 100 yuan, the local media reported last month.

"What an expensive lesson for such a small amount," said a microblog user with the username hyz.

Wei, from north-eastern Heilongjiang province, did not bother to pay his 12,000 yuan ($1,900) bill by the due date. He had no clue he would incur late charges. "I thought I would just wait until the wages from my gig came in before paying," he said.

The next month, his bill shot up to about 18,000 yuan ($2,800). Fresh spending made up about 2,000 yuan ($316) - the rest of it was late charges and interest.

Debit card users are also unaware that they will end up in debt when banks continue to approve their expenditures even after they have no money in their accounts.

Make-up artist Jiang Qingyun, 24, from Beijing, is one such example.

"I was shocked when the bank sent me letters warning me to pay my debt immediately. I did not even know I was in debt," she said.

Such problems are likely to get worse because China's increasingly affluent middle class is taking up more cards than ever.

The first credit card was issued in China in 1985. Chinese banks dominate the market, as foreign banks are allowed to issue credit cards only in collaboration with local companies.

At least 268 million credit cards were issued last year, up 20 per cent compared with the year before and five times the number in 2006, according to central bank data.

This number is set to increase, as Citibank, one of the world's biggest issuers of credit cards, was allowed last month to issue personal and commercial credit cards to the increasingly mobile Chinese from later this year.

China is set to overtake the United States as the world's largest credit card market by 2020, reported international payment network MasterCard Worldwide.

This charge card-toting population, which has been dubbed the yue guang zu, or "tribe with no savings at the end of every month", is known for spending beyond its means.

About 11 per cent of Chinese parents have paid credit card debts for their children, who are 22 to 27 years old, according to a survey by the Beijing Youth Daily in 2008.

The total amount of credit card debts that were overdue for at least six months was 10.65 billion yuan ($1.69 billion) by the end of September last year, with the amount owed up about 7 per cent from three months ago, said the central bank.

Banks have set up special collection teams for bad loans, and have been showing up at debtors' homes and offices to demand payment.

A bank in Guangzhou even took out newspaper advertisements publishing the identities of delinquent borrowers, hoping to shame them into paying.

But with the Chinese government actively encouraging domestic consumption to offset the country's reliance on exports, credit cards are likely to become more, and not less, accessible.

Competition between banks is also expected to heat up this year, making it easier for ill-qualified candidates to obtain credit. As Wei shared: "I did not apply for some of those cards. They just came in the mail."


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