Cash OnlyWalking down the streets of China’s major cities, finding an ATM is less than no problem; it’s easy in fact. But finding a local restaurant or a shop outside of a mall that takes credit cards for payment definitely isn’t. One would think that logically if there are so many ATMs around the city, lots of people must have and use credit cards. So why is it so difficult to use them to purchase things?
Chinese ATMs do a brisk business because people withdraw cash to buy things. By and large, this is what the Chinese use their cards for, not actual purchasing. One of the reasons is that Chinese people simply like to pay with cash. Whether they’re buying a meal or a car, Chinese people want to pay in cash and in full. To some extent this love for full-cash payment is a cultural aversion to debt it’s true, but that’s not the whole of it.
The idea of making purchases on credit has been around in the West for a long time, as has the necessary infrastructure. Credit reporting agencies have been around since the late 19th century, and the credit card has been around almost as long. The first ones were used in the 1920’s in the US, though the idea would take about 40 years to spread to the UK, and even longer to the rest of the world (1). Even in the US though, credit cards didn’t really become really widely used until the 1990’s. In 1970 just 16% of US households had a credit card; in 1998 that figure was 68% (2). In contrast, today only 2.5% of the Chinese population has a credit card (3).
Still, there are 45 million credit cards currently in use in China - mostly in the big cities of Shanghai, Beijing and Guanzhou - a number that only looks small when compared with China’s actual population. But there’s a problem with the figures: a square piece of plastic with a string of twelve numbers, your name and an expiration date on it does not a credit card make. Up to half of the “credit” cards in China are actually pseudo-credit cards. To get one you must go to the bank and put down a deposit before they will issue it to you, no credit history required (3).
The reason Chinese banks prefer to issue pseudo-credit cards over true ones is simple lack of infrastructure. China’s National Credit Bureau is only a few years old and most Chinese consumers simply have no credit history at all. That means no credit cards, and very stringent requirements for loans as well. In the West, some 70% of cars are bought on credit. In 2004 in China, that figure was less than 20% (4).
As China’s National Credit Bureau establishes itself and as the middle class continues to grow and purchase things it cannot afford without credit, China’s cash culture will probably change. Some one-third of the credit cards in use in China are owned by people in the 25-34 age group, and they expect to continue and even increase their usage of their credit cards (5). China’s love for cash and it’s cultural aversion to debt looks to disappear in the younger generations.
Reference:
1) wikipedia.org
2) answers.com
3) cnn.com
4) cfoasia.com
5) acnielsen.com
