China's slumbering financial cards industry shows signs of awakening

China's slumbering financial cards industry shows signs of awakening

In 2003, financial cards in China posted a whopping 34% growth in terms of the number of cards in circulation. Financial cards in China has been and remains fairly underdeveloped. This is despite the fact that financial cards were launched in China as early as 1986. Various obstacles have impeded the development of financial cards in the country, ranging from low levels of disposable income, lack of consumer sophistication, and the lack of a unified infrastructure, to name but a few.

It was only in 1993 that a concerted effort was made to rouse China's slumbering financial cards industry. That year, then-president Jiang Zemin launched the Golden Card Project with the objective of speeding up the construction and reformation of China's finance and trade through encouraging the increased usage of financial cards in general and credit cards specifically. Since then, banks, card operators and the relevant government authorities have worked in tandem to develop China's financial cards industry and this has been achieved to a large extent through the passing of regulations to ensure the development of a structured financial cards industry.
As at 2003, China has financial cards – debit, credit and charge – which can be used globally instead of being restricted to domestic use only. Chinese consumers also have the true option of having a revolving credit line and are able to settle their outstanding balances in either RMB, US$ or HK$. In the past, outstanding balances on cards typically could only be settled in foreign currencies.

China's accession into the World Trade Organisation in 2002 meant that the financial industry in the country truly had to open up and undergo reformation as part of the deal. In 2002, China UnionPay was set up by a group of financial institutions. Backed by the Chinese government, the organisation's aim is to unify the financial cards network in the country such that all cards can be used nationwide. China UnionPay has worked hard towards this ultimate goal. It is slated to be fully realised in 2004.

Debit cards dominate but credit cards most dynamic

In 2003, debit cards continued to account for the bulk of financial cards in China. Only a small proportion of cards in circulation are charge cards (i.e. what are known as quasi-credit cards in China) and credit cards. Debit cards in China incorporate the most basic ATM function. These cards can also be used at EFTPOS terminals to make purchases.

As a result of its well-established presence, it is hardly surprising that debit cards form the most dominant sector within financial cards. In addition, the lax qualifying criteria mean that most Chinese are able to obtain a debit card. Debit cards continued to demonstrate robust growth of 35% in terms of the number of cards in circulation in 2003. This strong growth was possible as there are still many in China who have yet to obtain a debit card.

Credit cards, on the other hand, have a small base in China. This is because in the past, the disposable income levels of most Chinese consumers would render them unable to qualify for credit cards. To the majority of Chinese, cash remains king as this is a payment mode that they are highly familiar with. Nevertheless, with the country's rapid development over the review period, such a mindset has shown signs of changing. Coupled with supportive policies from the government, credit cards posted a 75% increase in cards in circulation in 2003.

Greater foreign presence and increased competition in China's financial cards in future
China's accession into the WTO was not without its conditions. One of these included China's financial markets opening up after 2002. Towards the end of 2003, the financial cards industry in China was abuzz with murmurs that the country will finally be allowing foreign players to enter. Citibank Corp and Hong Kong and Shanghai Banking Corp (HSBC) were touted to be the ones most likely to be allowed greater flexibility pertaining to their financial cards operations in China come 2004.