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Chinese 100 yuan notes are counted at a bank in Shanghai.

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KAI RYSSDAL: If you watched some of those television shots of the Olympics real closely, you probably noticed all the ads and billboards in the backgrounds. They weren't just for show. China's in the middle of a huge boom in consumer spending. That would would seem to be good news for credit card companies. The chance to finance those new cars and flat screen TVs. But it misses the way most of those transactions are actually happening.

Lisa Chow reports from Beijing.


LISA CHOW: First, let me give you a basis of comparison. In the U.S., when people buy stuff, they use cash one-third of the time. The rest of the time, they use personal checks, debit and credit cards, or they pay online. In China, people use cash 95 percent of the time. They'll buy plane tickets in cash. They'll pay their rent in cash.

When you go to a bank in China, cash counting machines are a familiar sound. Out of 100 transactions, only one will be done by credit card. It seems surprising in a country known for its growing consumer culture.

Kuan Tseng is CEO of the Shanghai Pudong Development Bank's credit card center. The bank is working with U.S.-based Citibank to issue credit cards in China.

KUAN TSENG: My biggest competitor is cash. I'm fighting against the consumer behavior.

Part of what's driving this behavior, Tseng says, is a lack of trust in the system. Think about it. Every time you hand over your credit card in the U.S., let's say to pay a restaurant bill, someone could be copying down your number.

On top of that, the only thing that verifies that you've used your card is your signature. Tseng says consumers in China insist on a PIN number.

TSENG: People didn't trust, they don't think signatures will represent you.

And so most credit cards in China work more like debit cards. There's also lack of trust between banks and consumers. In China, if you lose your credit card, and someone else uses it, banks will hold you responsible for those charges, because who's to say you didn't secretly give the card to a friend to buy a bunch of stuff for you?
But the big obstacle for banks issuing credit cards is people in China don't like debt.

In a main shopping district in Shanghai, Rong Zhao Long talks about his most recent big purchase. The retired engineer took out the equivalent of $430 in cash from his bank and walked directly to the store to buy a DVD player.

Rong Zhao Long: We have this traditional thinking. We don't like to spend more than what we have.

Not far away, 36-year-old Peng Jian is at a bank, checking her account details. Peng follows Chinese tradition, in that she doesn't have any loans and she saves about one-third of her salary. She does have two credit cards, and she uses them a lot. But she never racks up interest charges.

Peng Jian: Every month, I pay off the entire balance. I've never carried a balance on my credit card. I think this is the biggest difference in the consumer behavior of Chinese and Americans.

And so I asked the bank executive: If people are always paying off their balances, how do you make money?

TSENG: To be honest with you, very difficult.

Tseng says only one in three credit-card holders in China carry month-to-month balances. That's far less than developed Asian markets like Hong Kong, Singapore and Taiwan, where more than 70 percent of consumers carry balances. And that's the bright spot in the credit-card business.

Tseng says China's habits are bound to change, just give it a little time.

In Shanghai, I'm Lisa Chow, for Marketplace.

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