February 11:Credit Risk - Faster Growth for China's Bank Card Sector
Author: Ellen J. Silverman
Date: 2005-02-11
China aims to accelerate the development of its fledgling bank card industry in the coming few years in a bid to promote the use of plastic cards to help improve efficiency of the economy, enhance the transparency of transactions and increase spending.
China aims to accelerate the development of its fledgling bank card industry in the coming few years in a bid to promote the use of plastic cards to help improve efficiency of the economy, enhance the transparency of transactions and increase spending.
The People's Bank of China said this week that the nation's robust economic growth is providing a favorable environment for an acceleration of the industry, while the wide application of information technology in the financial sector at a local level has laid a solid technical basis. The anticipated foreign rivalry at the end of 2006, when foreign banks will be allowed into renminbi bank card business as part of China 's World Trade Organization commitments, also makes a faster development of the industry an urgent task.
The central bank is stepping up work on drafting a new bank card regulation which will require approval from the State Council to provide legal backup for the industry's healthy growth. The central bank is working with other government agencies to draw up a blueprint and formulate favorable policies for the bank card industry and is studying ways to better co-ordinate the interests of card issuers, cardholders, merchants and third-party intermediaries.
Since the Bank of China issued the country's first bank card in 1985, the industry has witnessed a rapid growth, making China one of the most promising markets for the global bank card business. A total of 762 million cards had been issued last year, more than 100 million up from a year earlier, while it took 13 years for Chinese banks to bring issuance up to 100 million, central bank statistics indicated.
After linking up all cities in 2003, the national bank card network extended further last year to take in some economically developed counties. Subsequently, bank cards have been playing a greater role in the economy, with sales through bank cards accounting for some 5% of total retail sales last year, up from 2.1% in 2001. The percentage has topped 20% in some more developed cities such as Beijing , Shanghai and Guangzhou and Shenzhen in southern China 's Guangdong Province , according to the central bank.
The growing popularity of plastic will provide more growth momentum for the Chinese economy, which is has been driven more by investments than consumption in recent years. It has been estimated that every 10 percentage point increase in the proportion of card consumption in total spending will bring an additional half a percentage point of economic growth. Credit card issuance witnessed explosive growth last year, surging 263% from 2003 to 980 million. The major reason for the unexpectedly fast growth last year is the improvement in the banks' technical preparations last year that helped release the depressed demand for credit cards. There were less than 400 million credit cards at the end of 2003.