Chinese prefer paying with cash
China is in the middle of a huge boom in consumer spending, which would seem to be good news for credit card companies. But the Chinese haven't warmed to the idea of paying with plastic. Lisa Chow reports.
Chinese 100 yuan notes are counted at a bank in Shanghai. (Mark Ralston / AFP / Getty Images)
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TEXT OF STORY
KAI RYSSDAL: If you watched some of those television shots of the Olympics real closely, you probably noticed all the ads and billboards in the backgrounds. They weren't just for show. China's in the middle of a huge boom in consumer spending. That would would seem to be good news for credit card companies. The chance to finance those new cars and flat screen TVs. But it misses the way most of those transactions are actually happening.
Lisa Chow reports from Beijing.
LISA CHOW: First, let me give you a basis of comparison. In the U.S., when people buy stuff, they use cash one-third of the time. The rest of the time, they use personal checks, debit and credit cards, or they pay online. In China, people use cash 95 percent of the time. They'll buy plane tickets in cash. They'll pay their rent in cash.
When you go to a bank in China, cash counting machines are a familiar sound. Out of 100 transactions, only one will be done by credit card. It seems surprising in a country known for its growing consumer culture.
Kuan Tseng is CEO of the Shanghai Pudong Development Bank's credit card center. The bank is working with U.S.-based Citibank to issue credit cards in China.
KUAN TSENG: My biggest competitor is cash. I'm fighting against the consumer behavior.
Part of what's driving this behavior, Tseng says, is a lack of trust in the system. Think about it. Every time you hand over your credit card in the U.S., let's say to pay a restaurant bill, someone could be copying down your number.
On top of that, the only thing that verifies that you've used your card is your signature. Tseng says consumers in China insist on a PIN number.
TSENG: People didn't trust, they don't think signatures will represent you.
And so most credit cards in China work more like debit cards. There's also lack of trust between banks and consumers. In China, if you lose your credit card, and someone else uses it, banks will hold you responsible for those charges, because who's to say you didn't secretly give the card to a friend to buy a bunch of stuff for you? But the big obstacle for banks issuing credit cards is people in China don't like debt.
In a main shopping district in Shanghai, Rong Zhao Long talks about his most recent big purchase. The retired engineer took out the equivalent of $430 in cash from his bank and walked directly to the store to buy a DVD player.
Rong Zhao Long: We have this traditional thinking. We don't like to spend more than what we have.
Not far away, 36-year-old Peng Jian is at a bank, checking her account details. Peng follows Chinese tradition, in that she doesn't have any loans and she saves about one-third of her salary. She does have two credit cards, and she uses them a lot. But she never racks up interest charges.
Peng Jian: Every month, I pay off the entire balance. I've never carried a balance on my credit card. I think this is the biggest difference in the consumer behavior of Chinese and Americans.
And so I asked the bank executive: If people are always paying off their balances, how do you make money?
TSENG: To be honest with you, very difficult.
Tseng says only one in three credit-card holders in China carry month-to-month balances. That's far less than developed Asian markets like Hong Kong, Singapore and Taiwan, where more than 70 percent of consumers carry balances. And that's the bright spot in the credit-card business.
Tseng says China's habits are bound to change, just give it a little time.
In Shanghai, I'm Lisa Chow, for Marketplace.
Comments
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From Beijing, MA, 11/23/2008
I agree that Chinese consumers tend use cash much more frequently than credit cards. However, I feel that when looking at this trend one must look at who are the ones using credit cards in China. In a recent survey conducted by the China Market Research Group, 80% of respondents, all ages 18-32, reported that they made an online purchase within the past six months. In the same survey 70% of respondents said that they would use a credit card if they had one. While older Chinese consumers are still paying cash, Gen Y consumers will be using plastic for their purchases.
My Blog; www.thechinaobserver.com
From Orlando, FL, 09/05/2008
I enjoyed thinking that the Chinese do take that much pride in having money and saving money. I think America should try and re-learn this from them.
But, it is statements like Tseng's that just make credit card companies appear more like vultures.
I agree that credit card companies need to make a profit; but I also agree with the other comments here that they do make a lot of money on transaction fees too.
If people have no choice; but to hold a balance, then that is fine. Although, it should not be the prerogative of the companies to make sure everyone stays in debt.
I can at least thank you Marketplace, for letting that be said. I hope more people got that significance of those statements.
From San Francisco, CA, 09/05/2008
The reporter asked a bank executive: "If people are always paying off their balances, how do you make money?"
That makes me wonder if she knows much (as a journalist should) about the industry and how it works.
Credit card banks get the lion's share of their revenue from the merchants.
The "discount rate" that businesses are charged in the US ranges from 1% to 4% and typically is about 2.5% -- on each credit card purchase. If EVERY cardholder paid their bill in full each month, the credit card company could lend the same pot of money out each month and it would come right back and refill the pot in 30 days or even faster. So each dollar (or yuan) can be lent out 12 times or even more each year and thus earn about 30% per year.
Of course they have to pay out part of that in network fees, pay about a tenth of a percent per month to the CD account holders providing the cash, and other expenses, but the revenue they get from the interest rates they charge cardholders, is gravy.
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