Banking & Finance

Not such big savers, after all

Authorities worry that credit cards are creating young ‘shopaholics’

Please approve my credit card

Rebecca Bloomwood is used to having her credit card declined. The hapless protogonist of the novel (and later film) Confessions of a Shopaholic has a lifestyle that has long since maxed out her plastic.

It seems that the fictional Rebecca has a real-life counterpart in China. Last week the Xinmin Evening News reported on the case of Li Fang, a shopaholic from Songjiang (near Shanghai).

After getting through seven credit cards of her own, Li then borrowed those of her friends. She even approached loan sharks to apply for more credit.

In a three year shopping binge she ran up Rmb1 million ($146,000) of debt – spread over 100 credit cards.

At this stage Li had to come clean, and tell her shocked parents. They used all their savings, borrowed from friends and sold their home to pay off the debt. As the Xinmin Evening News moralises: “Their happy life has now gone thanks to the daughter dissipating the family fortune.”

Li is an extreme case, but she is not alone in her love for shopping. Young urban Chinese are the nation’s new shopaholics, says Pascal Nouvellon of COFIDIS, the European consumer finance firm. In an interview with CMR Business Quarterly he points out that while the overall Chinese savings rate may be 40%, for urban Chinese under 30 the saving rate is “effectively zero”. That is to say, they are spending all they earn – and more.

They are being helped by an explosion in credit card usage. Nouvellon predicts there will be 150 million cards in China by year-end. That’s an astonishing figure when you consider there were only 13 million in 2005.

Last week the government tried to impose some restrictions. The China Banking Regulatory Commission (CBRC) prohibited offers of cards to under-18s. It also took steps to rein in issuance to university students. The Beijing News reports that the bank regulator has ordered that no cards can be

issued to students without written parental consent.

Guo Tianyong reckons the measure – like an increasing number of the country’s credit cards – is well overdue. A director for the Bank Research Centre at the Central University of Finance and Economics, Guo points out that students have been targeted by the banks. This isn’t just about capturing their current spending. Their better job prospects make them more appealing long term customers too.

But Guo says this thinking led the banks to “over-exploit” the student market. And thanks to what he terms “excessive competition” the non-performing ratio on college student credit cards has climbed to 4%.

Of course, excessive credit card issuance is not confined to university campuses. The CBRC’s first quarter data shows that Rmb4.97 billion of credit card debt is more than six months overdue – up 133.1% year-on-year.

Other administrative measures are being used to slow this trend. For example, the CBRC has instructed banks to stop using card issuance volumes as performance indicators in staff appraisals. This practice motivated sales staff to issue large numbers of cards regardless of applicant quality, says the Beijing News.

That may well explain how Ms Li managed to get hold of so many cards. The CBRC will be hoping that shopaholics like her will find it a lot tougher in future.


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