PLASTIC PAYMENT CARDS IN CHINA – THE PAST!, THE PRESENT! AND THE FUTURE?
Professor Steve Worthington
Monash University, Department of Marketing, Faculty of Business and Economics
PO Box 197, Caulfield East, Victoria 3145, Australia
Telephone: +61 3 9903 2754 Fax: +61 3 9903 1558
Email: [email protected]
ABERU Discussion Paper 5, 2004
ABSTRACT:
This paper discusses some of the cultural impediments that new entrants into the financial services
market in China, need to be aware of if they are to succeed. In particular it considers the credit
card product, as this can be a stand alone relationship between a consumer and a financial
services provider and thus a highly appropriate vehicle for a market entry strategy. The paper
however also highlights the historical and cultural factors which will make China a challenging
market to enter for those who seek to issue credit cards there.
PLASTIC PAYMENT CARDS IN CHINA – THE PAST!, THE PRESENT! AND THE FUTURE?
1.
INTRODUCTION
China’s accession to the World Trade Organisation (WTO) in November 2001 was meant to herald
an era of consumer choice, which amongst other things would facilitate the entry of non-Chinese
organisations into the market for financial services in that country. Under the WTO rules all
restrictions should be lifted by 2007, however in practice prospective foreign entrants into the
financial services market, chafe under numerous administrative and legal restrictions that make it
difficult to compete in China. So much so that in a report prepared for the European Commission,
it is claimed that the market share of foreign banks in China, has actually halved since China joined
the WTO and the number of representative offices has declined from 248 in 2000, to 211 in 2002,
as some foreign banks decide that China is just not worth the effort, The Financial Times
(September 8th 2003). This paper considers the evidence of how financial services have been
introduced into developing countries and in particular the story so far in China. It then examines
how successful foreign entrants have been with one particular financial services product, the credit
card. Attention is then paid to some of the historical, cultural and structural differences that make
the Chinese consumer’s view of credit unique. To enable this to be put in context, the paper
commences with a brief review of the macro situation in China.
2.
CHINA’S FINANCIAL SYSTEM
According to a recently published article, Da Costa and Foo (2002), the stated goal of the current
Chinese government is to achieve a ‘socialist market economy’ and hence there is in place series
of financial reforms to gradually transform a planned economy into a market economy. This
research discusses the previous two decades of reforms and concludes, “China’s financial system
is still inadequate to sustain a growing economy.” The article describes the lack of autonomy of
the central bank, the People’s Bank of China (PBOC) and the creation of the four specialist stateowned commercial banks, the People’s Construction Bank, the Agricultural Bank of China, the
Industrial and Commercial Bank of China and the Bank of China; the ‘big-four’ banks that still
dominate the financial services market in China today. There are a variety (88) of other
commercial banks, usually city based and over 4,000 rural credit co-operatives, as well as a
number of foreign banks, some with branches and others with only representative offices. The
researchers summarise that, “China has the characteristics of a government-permeated financial
system. The government owns most of the financial institutions and banks (state, provincial or
local) and bank lending is still under government control.” Previous research, Dornbusch and
Giavazzi (1999), reiterated the view of the World Bank that “China’s banking system is
dysfunctional and in need of urgent reform”, whilst another writer, Lardy (1999), cautions “that
unless China transforms its banking system…a domestic banking crisis could occur leading to a
sharp foreign direct investment withdrawal.”
These concerns have not however dissuaded non-Chinese financial institutions from seeking joint
ventures and alliances by which to enter the Chinese market. In late 2001 the Hong Kong and
Shanghai Banking Corporation (HSBC) took an 8 per cent stake in the Bank of Shanghai; a deal
which took it back to the city where it was founded in 1865. Furthermore in March 2002, Citibank
was given approval by the PBOC, to be the first international bank to be able to undertake foreign
currency dealings with Chinese citizens. However, foreign banks are still forbidden to offer
services in the local currency, Renminbi Yuan (RMB) to Chinese citizens, because of all the
sectors of the economy due to open to foreign competitors over the period 2002-2007, banking is
regarded as being the weakest and therefore will still be protected. An industry expert,Kynge
(2002), has encapsulated the present position by describing the ‘big four’ state-owned commercial
2
banks as “technically insolvent, riddled with corruption and lumbered with management systems
that still bear the imprint of socialist economic planning.”
In an attempt to protect the domestic Chinese banks, new regulations introduced in February 2002,
stipulate that foreign banks will be permitted to open only one new branch per year, severely
restricting their ability to penetrate the Chinese market by a branch centric strategy. The four
state-owned commercial banks have 130,000 branches between them, plus combined staff levels
of around 1.7 million employees, figures which help to explain their inefficiency, but which present
a formidable barrier to any foreign bank seeking to enter the Chinese market via a branch network
presence.
One way of circumventing this barrier would be to enter the Chinese market by a payment card
strategy, particularly via credit cards, which are not dependent on a branch network. These
payment cards can be based on ‘stand-alone’ relationships and they also offer a perfect
opportunity to gather data on customers, via the application process and the subsequent usage
and repayment behaviour, plus the opportunity to regularly communicate with these customers via
the mechanism of the monthly statement, with all the attendant cross-sell opportunities that this
offers. For a discussion of the ‘stand-alone’ nature of such relationships, see Worthington (1999).
3.
FINANCIAL SERVICES IN DEVELOPING COUNTRIES
In many developing countries, financial markets remain highly regulated and as an example,
interest rates are set by the government. Park, et al (2003) describe these as financially repressed
systems and report on their research into what would be the effect of the introduction of
competition into rural financial institutions in China. Their findings suggest the positive effects of
competition and suggest that the improvement comes “from providing a diversity of institutional
strengths that can better meet the needs of different demand groups and by putting greater
pressure on existing banks to innovate and reform.” They conclude that such incentives may be
particularly important for transition economies whose goal is to move to a modern financial system
and yet also point to the paradox that in China, anti competitive policies and restrictions on the
establishment of private banks, are motivated by the high priority placed by the Chinese
government over their continuing control of the financial system.
Other developing countries that have sought to become market orientated have acted under the
assumption that financial sector reforms have been at the heart of the broader program towards a
market economy. Lwiza and Nwankwo (2002) for example report on the successful market-driven
transformation of the banking sector in Tanzania, whilst Sureshchandar et al (2003) researched
customer perceptions of service quality in different types of banks in India, another developing
economy. They suggest that the advent of private sector and foreign banks has been instrumental
in providing greater benefits and new service options to Indian customers, but that the public sector
banks still lag behind with respect to the quality of services delivered by them. The authors state
that information technology (IT) plays a significant role in providing better customer service, but
that the diffusion of technology, such as electronic funds transfers at the point of sale (EFTPOS) is
slower in the public sector banks, when compared to private sector and foreign banks.
A reflection of how EFTPOS has been adopted in another developing country, Saudi Arabia, is to
be found in Abdul-Muhmin (1998), whilst other literature on financial services in developing
countries has considered the importance of the POS and ATM terminal infrastructure in Turkey
(Barker and Sekertaya 1992) and reflected on the close relationship between the spread of
payment card usage in a country and its stage of socio-economic development (Kaynak et al
1995). More recent research by Kaynak and Harcar (2001), reported on an empirical study to
investigate consumer attitudes and intentions towards credit card ownership in Turkey. Their
findings, that the age group between 36 and 45 is more likely to own credit cards than any other
3
group, show similarities with earlier research, Barker and Sekerkaya (1992), which suggested that
the middle age group is the most likely to hold and use credit cards. Recent research (Metwally
2003) has examined the attitudes of consumers in a developing country (the State of Qatar)
towards using credit cards in domestic transactions and the conclusion from this work is that the
probability of using credit cards more frequently would be higher, if there was a wider acceptance
of such cards at merchants POS.
The uniqueness of the Chinese consumer is demonstrated by the fact that despite China’s
development as an economy being well advanced, consumer’s usage of payment cards,
particularly credit cards is retarded. Thus in 2003 the Chinese economy is the seventh biggest in
the world, reported to be growing at 9 per cent a year and forecast to be second in size only to the
US by 2020 (Chen 2003). However, as reported in The Economist (2003), China “remains a
largely cash-centric society”, with payment cards only used for 2.7 per cent of retail purchases in
China in 2001, according to the PBOC. This compares to over 30 per cent in countries with mature
payment systems and The Economist concludes, “the obvious need is to build a national network
of ATM and POS terminals to accept all major cards.”
A competitive and technologically advanced financial services sector can be a key driver in a
transition economy, particularly as regards consumption. It can also be a strong factor in
encouraging savings, but here again there is uniqueness about the situation in China. Despite
centrally controlled and uniform interest rates and a fragmented ATM system for deposits, savings
in China increased by a large margin in 2002 and totalled 18,338.8 billion RMB, up 18.1 percent in
2001, according to the National Bureau of Statistics of China (2003). This trend can be attributed
to both cultural and technology reasons. Firstly saving is very much a part of the Chinese culture,
often reflected by the popular phrases “hardworking and thrifty” and “deposit first, consume later”.
However there has also been a huge growth in the number of plastic payment (bankcard) cards in
China (See Table 1).
Table 1: Basic Statistics of Bankcard Industry in China
Year
1995
1996
1997
1998
1999
2000
2001
2002
Number of Cards (mil)
14
42
72
116
180
277
383
500
Transaction Value (billion
RMB)
961
1,038
1,297
1,320
2,422
4,530
8,430
11,560
Cash Withdraw Points
76,983
95,315
107,784
114,402
123,643
130,000
na
na
ATM (unit)
7,051
9,941
18,346
20,634
26,424
38,000
na
na
POS (unit)
48,384
99,716
131,924
180,272
223,509
290,000
na
na
Source: PBOC
4
The number of bankcards on issue in 2000 is nearly 20 times that of 1995 and this has been
mainly driven by the growth of debit cards, rather than credit cards (for an in-depth analysis of
payment cards in China, see Worthington and Deng 2003) The success of the debit card can be
explained by both supply and demand factors. From the suppliers (the bank issuers) point of view,
debit cards pose little risk, as there is no line of credit attached to them and they facilitate both
cash withdrawal at the ATM and payment at the POS. For the Chinese consumer, the debit card
has a great appeal for saving (Mi 2003), as it has replaced paper deposit slips and allows
cardholders with otherwise very limited investment and savings channels, the use of their bank’s
branch network to deposit savings.
This culture of saving is in direct contrast to the borrowing culture, which in China is seen as a sign
that a person is incapable of making ends meet. Spending according to your income is an
ideology which is prevalent in China and people tend to pay in full (in cash) even for ‘big ticket’
items such as cars and housing. For example according to Yu and Li (2000), in 1999 only 30,000
of the 1.8 million cars sold that year were purchased via car loans. The Chinese people prefer to
borrow through informal channels such as family members, relatives and friends, often at very low
or even no interest rate.
This partly explains the very low penetration of revolving credit cards in China i.e. of the 277 million
bankcards on issue in China in 2000 (see Table 1), only 130,000 were true credit cards. However
there are some positive signs concerning borrowing and hence opportunities for credit card
issuers. A survey of 9872 urban residents in 22 Chinese cities in 2000 showed that 95 per cent of
respondents were aware of the concept of personal credit, with acceptance much higher among
young people and high income earners, according to the Beijing Mainland Information Company
(2001). Also recent data showed that 15 per cent of the new cars sold in 2002 were purchased
with car loans (Tian 2002). Furthermore with fee paying education replacing free education in
China and state subsidised housing and health no longer available in most cities, more Chinese
will be forced to borrow money to climb the ‘three mountains’ that dominate Chinese culture;
education of children; accommodation and medical care.
These examples reveal that understanding the culture of China and its impact upon consumers is
critical to those non-Chinese organizations seeking to enter the Chinese market. There has been
cross-cultural research into Chinese and North American consumers (Doran 2002) and the
conclusion was that it presents many challenges particularly when the cultures studied are so
different. The insights derived from this study did however point to the potential use of culture as a
determinant of consumer decision making. This paper now considers how and why non-Chinese
credit card issuers have sought to enter the financial services market in China, before returning to
reflect on some of the cultural dimensions which will either assist or impede their prospects for
success.
4.
CREDIT CARD ISSUERS IN CHINA
The first credit cards were introduced into China by the Bank of China (BOC) in 1979, acting as an
agent for other non-Chinese card issuers, such as HSBC and Chase Manhattan Bank and in its
capacity as the bank specializing in foreign exchange. Having gained some expertise in the area,
in June 1985 the Bank of China launched the first domestic ‘credit card’, originally called the Bank
of China Card, but later renamed the Great Wall Card. BOC joined both of the international credit
card associations of MasterCard and Visa in 1987 and subsequently issued its first internationally
usable Great Wall MasterCard in 1988. The example of BOC was rapidly followed by the other
three of the ‘big four’ Chinese banks, the Industrial and Commercial Bank of China (ICBC) issued
its Peony card in 1987; the China Construction Bank (CCB) its Dragon card in 1991, the same year
as the Agricultural Bank of China (ABC) launched its Jinsui card. Worthington (2003) describes in
5
detail the growth of the Chinese payment card market and in particular the development of the
credit card in China. He makes the point that whilst there were 330 million plastic payment cards
on issue in China by June 2001 (PBOC), the vast majority of these (300 million) were debit cards,
which allowed cardholders to pay for products at the POS in a ‘pay-now’ mode and to either
access their liquid assets through an ATM or pay money into their savings accounts over the
branch counter. Of the remaining 30 million cards, most of these were so called ‘quasi credit
cards’ in that whatever was spent on these cards had to be paid off in full at the end of each
account period (as per the charge cards usually associated with American Express and Diners
Club), whilst only some 150,000 were ‘revolving’ credit cards, as usually issued in Western
economies, where the cardholder can decide in a ‘pay later’ mode, at the end of each account
period, whether to pay off their debt in full or to ‘revolve’ the debt and pay interest on the credit
taken. Worthington also points out that whilst the total number of payment cards in China is
growing rapidly, the penetration of cards is still low, when compared with some developed western
countries. For example the United Kingdom (UK) by the end of 2001 had 100 million payment
cards in issue for its population of 60 million, whilst China had 330 million for a population of 1.3
billion and whilst plastic payment cards in the UK accounted for 47 per cent of retail sales by the
end of 2001, the corresponding figure in China was below 3 per cent.
However China’s nascent credit card market is forecast to grow rapidly according to industry
sources (Cards International 2002). A prediction of 1 million credit cards by the end of 2003 is
supported by the news that China Merchants Bank, the sixth largest commercial bank based in
Shenzhen, has been licensed by the People’s Bank of China to issue credit cards in the Chinese
market. These cards will be valid for use in China and overseas and there will no longer be a
requirement for a money guarantee or a guarantor for credit card applicants, a factor which has
constrained the market in the past. These cards can be used in China, without the deposit that has
been previously required to back the credit limit. However cardholders using their cards outside
China will still need to have a foreign currency deposit in their bank in China, not to guarantee the
credit limit, but to comply with foreign exchange control rules.
Also in March 2004 American Express followed the lead set by Citibank and HSBC and will begin
issuing their cards in China, via a ten-year partnership with China’s largest bank, the state-owned
Industrial and Commercial Bank of China (ICBC). These co-branded ICBC/American Express
cards will be denominated in both RMB and US Dollars and cardholders will be able to use the
cards in the ICBC’s 24,000 merchant network of EFTPOS terminals throughout China and in
American Express’s global merchant network. The lack of common standards applied to EFTPOS
terminals in China has proved to be a major impediment for domestic banks wishing to have
nationwide acceptance for their payment cards. Of the estimated 20 million merchants in China,
only approximately 414,000 accept payment cards and of these, just 150,000 accept foreign issued
cards. It is therefore unsurprising that China remains a cash-centric society, with payment card
spending less than 3 per cent of consumer spending in China, compared to more than 25 per cent
in, say Hong Kong.
Visa International estimates that around half of the credit cards in issue in China are domestic
credit cards, for use in China only, the other half being usable internationally. They also anticipate
that the market in China will grow between 75 to 100 per cent over the next three years, spurred by
the desire to anticipate usage during the 2008 Olympics and by the threat of foreign competition in
2007, under the WTO rules. There is also increased demand from Chinese citizens to travel
abroad and who in 2002 numbered 12 million and spent around US$12 billion.
As part of China’s commitments to the WTO, foreign institutions will be able to issue international,
foreign currency credit cards directly to Chinese customers in 2004 and compete on a level playing
field with local credit card issuers in 2007. In anticipation of this Citibank, the largest credit card
issuer in the US has entered the Chinese credit card market, with a deal to invest in the Shanghai
Pudong Development Bank (SPDB). Citibank invested 600 million RMB (US$72 million) in
December 2002 to secure a 5 per cent share in SPDB and in April 2003, announced that it would
invest in another 5 per cent share, every year, until it controls almost a quarter (24.9 per cent) of
6
the bank by April 2008. SPDB is the ninth largest commercial bank in China and Citibank is its first
foreign stakeholder.
The two banks have also won approval from the People’s Bank of China to set up a joint credit
card centre based in Shanghai, which is widely expected to evolve into a joint credit card company.
Under this scenario Citibank’s expertise in risk management, credit scoring, collection of bad debt
and marketing of credit cards, would be matched with SPDB’s knowledge of the Chinese market,
its existing customer base and its access to funding. The deal establishes Citibank as the first
foreign investor to potentially own more than 10 per cent of a mainland lending bank and will give
Citibank “a significant head start over its foreign rivals, under the WTO regulations” (Cards
International 2003).
Given the complexities of the Chinese financial services market and the issues associated with the
transition of economies from centralized state planning to private enterprise, the Citibank
approach, as described above, may well be the most appropriate model for a foreign institution to
enter the Chinese market. The use of the credit card product to initiate this market entry is partly a
reflection of the ‘stand-alone’ relationships effected by credit cards and as also a response to the
barriers already erected to a branch centric penetration of the market. There are however many
structural and cultural impediments to the adoption of credit cards by consumers in China, that will
need to be overcome, before there is any significant advancement in the issuance and usage of
credit cards in China and this paper now goes on to discuss these in depth.
5.
THE INFRASTRUCTURE
As Table 1 demonstrates there has been a rapid increase in both the number of POS terminals
and ATM’s in China over the period 1995-2000 and this has been one of the factors that has
contributed to the increase in the number of bankcards, a categorization that includes debit, ‘quasi
credit cards’ and credit cards. However the interoperability of all types of bankcard is poor, as a
card from one bank cannot often be used in a POS or ATM operated by another bank and indeed
in some cases, cards issued by one bank in say Beijing, cannot even be used in the same bank’s
machines in, say Shanghai. Worthington (2003) describes this situation in detail and explains the
historical reasons why card interoperability does not exist in China, as it does in the rest of the
developed world. This structural imperfection in the Chinese market has resulted in a ‘chicken and
egg’ conundrum in China, where merchants will not agree to install POS terminals in their outlets,
unless sufficient consumers carry and use payment cards; whilst consumers will not carry and use
payment cards, unless sufficient merchants accept them at the POS. To break this conundrum,
requires either incentives to merchants to install payment card acceptance terminals at their POS,
or attractions to consumers to convert their payment behaviour from cash to cards.
The Chinese government has sought to break the conundrum by establishing a national
organization, China UnionPay (CUP), to drive through the interoperability of payment cards in
China and to establish a domestic only acceptance marque, the ‘yinglian ka’, which it is anticipated
will both increase the penetration of payment cards in China and help the Chinese card issuers
resist the temptation to adopt the international acceptance marques of MasterCard and Visa for
their Chinese cards.
The China UnionPay Corporation was officially incorporated in Shanghai on March 26th 2002, with
a share capital of 1.65 billion RMB, contributed by 84 domestic Chinese financial institutions. Its
major task is to enable all Chinese payment cardholders to be able to use their card at any ATM or
POS terminal in China and to achieve this CUP has implemented the ‘314 project’. This will
attempt to connect the payment card network within the state owned commercial banks in more
than 300 cities to achieve inter-regional interoperability in the bank’s own network; to ensure inter-
7
bank usage of all cards in more than 100 cities and to promote the CUP acceptance marque, with
inter-bank and inter-region usage in 40 cities (Zhou 2003).
The CUP’s objectives are to fend off the impending increased competitive pressure from foreign
banks under the WTO agreement and timetable, and to restructure the payment card business by
establishing ‘card centres’, where expertise can be centralised and in particular the credit card
product be better controlled and marketed. This is particularly important, for in their race to issue
cards and to win market share the Chinese banks, especially the ‘big-four’, initially authorized their
branch networks to issue cards. This produced a wasteful duplication of investment, with each
branch having its own authorization and card personalization facility, equipped with the relevant
hardware, software and personnel. This has resulted in weak risk management, poor customer
service and many technical problems and these factors have hindered the development of the
credit card product in China. The domestic banks in China can now see the potential profit from
the credit card and they are consequently restructuring their operations and establishing ‘centres of
excellence’, particularly in the city of Shanghai, which is promoting itself as a financial services
centre.
6.
THE CULTURAL ENVIRONMENT
China is a country of paradoxes. It is pursuing a market economy and is awash with foreign
investment and yet 75 per cent of investment is still by state-run enterprises. Urban household
incomes are growing at well over 10 per cent a year, yet household spending is subdued as people
save rather than spend; the household savings rate is almost 40 per cent, compared with minus 1
per cent in Australia. Households are behaving in a thrifty manner because rapid social change in
China has left them uncertain about their long-term welfare and because banks are reluctant to
lend to small business, forcing entrepreneurs to use their own and their families and friends
savings.
These paradoxes also resonate in the market for financial services and in particular that for loans
and credit cards. Thus although the reforms since the late 1970’s have enabled China’s economy
to grow at a rate of around 10 per cent, per annum, some of the attitudes towards funding
consumption have remained very traditional. For example while in the early 1990’s most Chinese
people could only dream about owning a private car, by 2000 urban residents owned 114 private
cars per 10,000 people (Yi 2001) and car ownership is increasingly a reality for many Chinese.
However in terms of financing the purchase of these cars, the volume of car loans only account for
20 per cent of automobile sales, compared with 70 per cent in more mature markets (The Financial
Times October 5 2003). So how do Chinese consumers finance their purchases?
In general the Chinese tradition is ‘spend according to your income’ and thus borrowing is
perceived as a sign that a person is incapable of making ends meet. To finance their consumption,
they often seek help from informal channels, such as family members and friends as well as using
their guanxi personal relationships. This has resulted in there being a very underdeveloped
tradition of credit in China, with banks seen as mainly a place for savings and consequently there
is a lack of personal credit information, which will hinder the development of credit cards as a retail
banking product.
It is also not easy in China to build profiles on individual’s credit worthiness from sources other
than the banks. For example in China most utility companies do not deal directly with individuals,
they collect the bills from the property management companies of the residences where people live
and hence there are very limited records on individuals bill payment patterns. Without this credit
reference information, credit card issuers will find it difficult to evaluate an application for a line of
credit and to determine what level of credit to offer.
8
Another cultural nuance to take into account is the ‘face’ issue. It is the worst thing imaginable for
Chinese people to lose face in front of other people, particularly those whom they know. This
impacts strongly on attitudes towards using cash or credit cards. As long as there exists a risk that
a credit card payment cannot be accepted or processed, because of the lack of or failure of the
POS terminal, then the Chinese will always carry enough cash with them to avoid losing face if
their card is rejected. Carrying cash negates the need for a credit card and helps preserve the
current ‘cash centric’ nature of consumption in China.
Finally under this section of culture, those organizations seeking to successfully enter the Chinese
market need to better understand the variety of cultures in China. The market of 1.3 billion
Chinese is not homogeneous; there are stark differences between urban and rural consumers and
wide disparities between the various regions and cities of China. Research into the regional
market segments of China (Cui and Liu 2000) suggests that consumers from various regions are
significantly different from one another in terms of purchasing power, attitudes, lifestyles, media
use and consumption patterns. The executive summary that accompanies this article concludes
with the advice that “investing in China is a long game, not a way to quick profits” and recommends
that “the most sensible approach is to see the Chinese market as a number of distinct
opportunities, rather than as a whole market”.
To illustrate this cultural diversity MasterCard International recently conducted some research that
showed great differences in the ways the consumers in major Chinese cities currently use credit
cards (MasterCard 2003). The study compared cardholder activity and profiles across Shanghai,
Guangzhou, Shenyang, Deyang and Hangzhou. The findings included a correlation between
employment backgrounds and spending patterns and for example in Shanghai and Guangzhou
nearly half of credit cardholders work in the private sector and joint ventures, as opposed to
Shenyang, where most credit cardholders work in state-owned enterprises. The study also
revealed that cardholders from the private sector use their credit cards far more frequently than
cardholders who work for government organizations.
The research concludes that the
predisposition of cardholders to both hold and use credit cards is however linked as much to the
development of the payment card infrastructure in a city, as it is to income levels. In this context it
is of interest that Shanghai appears to be positioning itself as the city where the payments card
infrastructure is most advanced and where such support activities as credit reference agencies and
data processing providers are most likely to be based.
The MasterCard research also confirms that the major Chinese cities are already the location of
most of the ATM’s and POS terminals in China and of the vast majority of cardholders. It is
therefore of paramount importance to understand these urban consumers and recent research, Cui
and Liu (2001), into emerging market segments in a transitional economy such as China, does
throw some light on the adoption of credit cards by particular consumer groups. A national survey
of Chinese consumers conducted in 1997, identified four segments for China’s urban households.
These were classified as ‘working poor’; ‘salary class’; ‘little rich’ and ‘yuppies’ and the research
also investigated consumption patterns in selected products and identified that 40 per cent of
urban ‘yuppies’ owned ‘credit cards’, ten times the rate amongst the working poor. The conclusion
offered about this research, was that the Chinese market will become increasingly fragmented and
consumers will demand more choice to meet their diverging needs and aspirations.
7.
CONCLUSION AND DISCUSSION
The objective of this paper was to use the example of one particular retail-banking product, the
credit card, to help better understand the Chinese consumer’s view of credit and to demonstrate
both the opportunities and challenges for those foreign organizations who are seeking to enter the
market for financial services in China. There is obviously a ‘Chinese way’ of opening up their
financial system to more competition that will make the experience of China different from that of
other ‘developing countries’, who have deregulated and liberalised their financial system.
9
The credit card offers a particularly alluring prospect for new entrants as relationships with
cardholders can be established, maintained and enhanced, outside of any other banking
relationships and this is why a number of the aspiring foreign entrants have chosen to use this
product to implement their entry strategies. However there are strong historical, structural and
cultural impediments to the introduction of the credit card in China, and these need to be
understood by those seeking to play in this market space.
There are also many gaps in our knowledge about consumers in China, their regional differences;
their personal relationships; their attitudes towards consumption and in particular how they finance
their spending. These knowledge gaps are particularly wide for financial services marketers, who
wish to be effective in China, a country which has a strong and unique indigenous culture and
which is emerging in its own way into a free trade and free market era. Hopefully this paper will
add some knowledge to the existing literature, particularly as regards a mechanism for value
exchange, the credit card, which is rapidly replacing cash in many developed economies.
10
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