LMAO! »China Curtails Credit Cards as Late Payments Increase: NYT Link

Green shits in China!

»China Curtails Credit Cards as Late Payments Increase: NYT Link

China Cracking Down on Credit Card Issuers

http://www.nytimes.com/2009/08/14/business/global/14card.html?_r=1&partner=rss&emc=rss

By MICHAEL WEI and KIRBY CHIEN
Published: August 13, 2009

BEIJING (Reuters) — Yuan Yizhong, a retiree in Beijing, cut up his son’s seven credit cards with scissors in a frenzy of fury when he discovered that the 29-year-old had racked up huge debts he could not afford to pay.

Mr. Yuan then used most of his life savings to pay those bills, which amounted to 200,000 yuan, or $29,280. He managed to eliminate about half.

“My son will get my house after I die, but I’m afraid it might not be enough,” Mr. Yuan said.

Stories like Mr. Yuan’s have led the Beijing government and banks to scale back a credit card policy that expanded too far, too fast in a country with little history of or experience with personal debt.

Credit cards gained popularity among Chinese as the middle class expanded and living standards rose and as the government tried to encourage use of the cards to stimulate domestic consumption.

But rising debt, especially among young Chinese who were poor candidates for credit cards in the first place, has put a strain on some families, and the government is putting restrictions on the credit card industry.

“In the past two years, banks have blindly issued credit cards,” said Nie Junfeng, an expert on personal debt at Citic Bank, a major lender in China. “The bubble has started to form, and the risks rooted in false application information and low-income customers are beginning to emerge.”

The China Banking Regulatory Commission told banks in July not to offer gifts to new credit card holders, set quotas for their sales staff or, perhaps most important, issue cards to people younger than 18.

The regulator’s admonition followed the disclosure by the People’s Bank of China that credit card payments totaling 4.97 billion yuan were at least 60 days late in the first six months of 2009, a jump of 133.1 percent from a year earlier.

Policy makers are eager to ensure that if credit cards do take off in China, there is no repeat of the sort of uncontrolled issuance that took place earlier this decade in South Korea, which left as many as four million Koreans unable to pay their card debts.

A government-owned entity, China UnionPay, controls the credit card system as well as A.T.M.’s across the country. It has joined partnerships with companies like Visa and MasterCard and with local banks to issue credit cards.

In fact, the number of credit cards issued in China nearly tripled to 142 million in 2008 from 2006, with total transaction volume hitting 3.5 trillion yuan, the country’s central bank said in a report in April.

About 1.9 billion credit cards are believed to have been issued in China since 1985.

Cash is still king in China, but plastic is becoming popular. People joke that there are more A.T.M.’s than public toilets. Nearly all shops and restaurants in major Chinese cities accept credit cards.

About a third of credit card payments, or 1.1 trillion yuan, was generated from consumption spending in 2008. Credit cards accounted for almost 15 percent of retail sales of consumer goods in 2008, up sharply from 4.8 percent in 2006.

Nevertheless, the total amount of credit card debt is still tiny, compared with national household deposits of 25.7 trillion yuan as of the end of June.

The savings rate in China, founded on a culture of frugality growing out of decades of deprivation, is one of the highest in the world, at about 39.7 percent of household disposable income. By comparison, 3.2 percent of household disposable income is saved in the United States, according to research by the National Bureau of Economic Research, based in Massachusetts.

Credit cards offer China some potential benefits. They may help people feel comfortable spending more, assisting Beijing in its efforts to increase domestic consumption to stabilize the Chinese economy and protect it from external downturns.

“Using credit cards will certainly help boost consumption, because at least some people would not perceive credit card purchases as affecting their bank balance,” said Joe Lu, an analyst at Bocom International in Beijing.

Young people who can ill afford to acquire huge debts, including students, are more likely to embrace credit cards. But as with Mr. Yuan, the result is sometimes devastating in a country where the law does not allow people to expunge their credit card debts by declaring bankruptcy.

Unlike many of their Western counterparts, most Chinese parents believe it is their obligation to pay their children’s debts if the children are unable to do so.

About 11 percent of Chinese parents have paid credit card debts for children 22 to 27 years old, a group that has become accustomed to the good life but has found it difficult to pay for, according to a survey by the Beijing Youth Daily newspaper.

“With credit cards, young people will quickly empty their parents’ pockets,” Mr. Lu, of Bocom, said.

Guo Tianyong, a professor at the Central University of Finance and Economics, in Beijing, predicted that China’s bad loan ratio in connection with credit cards would rise to 3 percent this year from 2.4 percent at the end of 2008. In the United States, the figure is about 10 percent.

“A few years ago, the ratio was only 1 percent, but this year it will undoubtedly rise, as people’s incomes fall amid the global financial crisis,” Mr. Guo said.

Banks have started to take action. Citic Bank suspended its college student card in February. Soon afterward, China Merchants Bank halted its Young Card, a credit card specifically designed for college students.

The Industrial & Commercial Bank of China now offers student credit cards only to graduate students and to undergraduates studying at renowned universities, because the latter are considered more likely than undergraduates at standard universities all to obtain good jobs after graduation.

Several banks have set up special collection teams for bad loans. They used to send reminder text messages or call the debtors, but now they go directly to customers’ homes.

The recent efforts to curb credit card use have come too late for Mr. Yuan and his son. Collection agents visited Mr. Yuan’s home 10 times in June to demand that he pay his son’s debts. They threatened to put his son in jail if the bills went unpaid.

“Isn’t this a trap by issuing credit cards to students?” Mr. Yuan asked. “Students do not have any income. It is their parents who must repay their bills at the end of the day. It is immoral for banks to do this just to get bigger market shares.

“I am from the old generation, and I spend what I earn,” he said. “I really have no idea about this way of consumption.”