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Big rise in credit cards brings increase in debt

By Wu Yiyao  (China Daily)

13:50, October 22, 2012

Shao Xiaowei was excited to see the weblink of his micro blog accounts inscribed on his new credit card, the fourth credit card he applied for in the past three months.

"It's trendy, isn't it? I need to get another wallet with more card slots - another two more cards are on their way," said Shao, a 20-year-old college student.

Every co-branded card in Shao's wallet works to "up-grade my lifestyle and helps save money", Shao said.

A card personalized with his horoscope sign gives him discounts at duty-free shops; another card provides free upgrading of cup size at Starbucks; yet another enables "buy one get one free" movie tickets at certain cinemas; the final one with the micro blog account link offers free food vouchers at some restaurants.

It's easy to apply for the cards: at college gates, at exits of subway stations, at shopping malls or just click your mouse.

In taxis, subway stations and even in supermarkets, residents in Shanghai are drawn by many advertisements for a dizzying variety of credit cards.

Since 2001 many Chinese banks and some foreign banks have gone to great lengths to promote their consumer credit card businesses. Consumer credit yields high interest at relatively low risk. A bad loan ratio, hovering around 1 per-cent for consumer lending, is considered pretty low by global standards. The high interest rates easily justify the low risks.

Launching co-branded cards may significantly help card-issuing banks to conduct data mining and increases the number of clients, said Sullivan Chan, a data analyst with Citi Bank Shanghai.

A sales pitch for co-branded cards, especially those between banks and airlines or department stores, may target and easily appeal to certain groups of customers who are loyal enough to take frequent advantage of them - very often application terms and conditions have been designed to select people with purchasing power and loyalty to certain products or services and have screened random buyers, according to Chan.

Shao's six cards are among the approximate 3.35 billion cards issued on the Chinese mainland since 1985. In the first half of 2012 alone, customers in China signed up for 400 million newly issued credit cards, a 17 percent year-on-year increase, according to a recent report by the People's Bank of China, the central bank.

Average per capita spending using a bank card in 2011 was 3,619 yuan ($570), the report said.

A recent report by China Union Pay said, in 2011, about 1 yuan out of every 5 yuan spent in China was spent using a credit card. The total, 2.85 billion transactions, amounted to 7.56 trillion yuan.

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