The Chinese Like Their Credit Cards Too

A recent article from Reuters seems to imply that American's obsessive love affair with credit cards might not be a problem only the U.S. grapples with. Even the savings-minded Chinese are beginning to see just how much fun it can be to run up credit card bills that you can't pay. Reuters explains:

Credit cards gained popularity among Chinese as the middle class expanded and living standards rose, and as the government tried to encourage the use of such 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 now tightening up the credit card industry.

China is responding by ordering credit card companies to reduce promotions and slow down the issuance of new cards. After all, they don't want to end up like the United States. The government is also demanding that companies not issue cards to anyone under the age of 18.

But is it too late? Reuters writes:

In fact, the number of credit cards issued in China has nearly tripled to 142 million in 2008 compared to 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.

That's a lot of credit cards. Still, most of China's population appears to be doing okay. The Chinese tend to be far more fiscally conservative than Americans when it comes to spending. Reuters also reports:

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

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

What I find most interesting is that this article implies that a generational gap could be forming in China when it comes to spending. The statistics Reuters provides shows that 20-somethings are not nearly as conservative about spending as their parents:

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

11% seems like a pretty high number to me. One parent among that proportion tells Reuters:

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

If China's younger generation does end up acting more American in its spending habits, that doesn't mean too much change for China in the near term. For now, China's credit card abuse is still a far cry from what we're used to here in the U.S. Reuters notes:

Guo Tianyong, a professor at Beijing-based Central University of Finance and Economics, predicted China's credit card bad loan ratio would rise to 3 percent this year, from 2.4 percent at the end of 2008. In the United States, it's about 10 percent.