Chinese get more flexible about plastic

Scott Tong Nov 19, 2007

Chinese get more flexible about plastic

Scott Tong Nov 19, 2007


KAI RYSSDAL: While the American economy sorts its way through the liquidity squeeze, China’s got exactly the opposite problem — too much money floating around. Beijing has increased what’s called the “reserve requirement” nine times this year. That is, the government’s ordered banks to take money out of circulation as a way to cool that red-hot economy just a little bit. Chinese consumers aren’t necessarily playing along. Our China correspondent Scott Tong is here to tell us they’ve discovered the joys of plastic. Hi Scott.

SCOTT TONG: Hi Kai. How are you?

RYSSDAL: I’m all right. So listen. What are we learning about Chinese consumers and credit cards?

TONG: We’re learning that the younger generation in China is getting used to the concept of having a credit card in their wallet. The people who are under 24 in China are … a lot of people call them the “Little Emperors.” It’s because they are only-children, and they get a whole lot of attention from their parents and grandparents. And they’ve grown up in this new age of disposable income in China. And what’s showing up in some of these polls is that this is going to be the big-spender generation in China.

RYSSDAL: What about the role of cash in that economy, though? I mean, when I was living there, if you wanted to buy, like, an airplane ticket, right, you had to get $800 worth — 800 American dollars worth — of Chinese currency, which is a whole wad of cash, and go down and do that transaction in person, in cash, at the airline office. Has that changed at all?

TONG: Ah, no. When we have to buy an airline ticket we call the travel agent and we say we want to charge it to the company credit card, and the travel agent groans because she hates it. She has to pay this merchant fee that merchants in China are not used to, and so we have to negotiate that. And not only that, then she has to send over this guy in the motorcycle with the little credit-card swiping machine and then I have to sign it and send it back to her. So credit is pretty new in China. Let me just throw one statistic at you. Eighty-five percent of cars are bought in cash. So that tells you, you know, credit is an exciting concept, but it’s still pretty new here.

RYSSDAL: What about the people who stand to make money off of those transactions. Not the merchants, but the big Western banks. They’ve got to be just chomping at the bid here to get into that market.

TONG: They are. They’ve been lining up. And the way they’ve been trying to get into this, is to invest in the big Chinese banks. And what they want to do is a few things. First of all, get the credit cards into people’s pockets. And that’s starting to happen. Step number two is, get the people to use them, which isn’t always happening. One market researcher told me that a lot of young people like to get a credit card, but they never use it. They just want the free toaster that comes with the credit card. And of course, the last step is not only to use it, but to carry a balance. Right? The good old American 21 percent interest, and to keep carrying that. Well, the vast majority of people who use credit cards in China, they pay it off at the end of the month. You know, so if you’re a bank, what’s the point?

RYSSDAL: That of course speaks to the fact that the national savings rate over there is something like 45 or 50 percent. What would an increased use of credit in the economy mean for the Chinese economy? I mean it’s not like they need it to grow anymore over there.

TONG: Well, they need to, what economists describe as kind of “rebalancing the economy.” The Chinese economy is too dependent on the state investing in large infrastructure projects, too dependent on exporting stuff, and so the long-term plan is to have more of the economy leaning on domestic consumption. So consumer credit and credit cards are seen as hopefully part of that solution in China.

RYSSDAL: So we tracked you down on the road, Scott, which leads me to this question: How are you paying for your hotel room tonight?

TONG: Well I hope I’m paying it on the company credit card, but just in case I’ve always got the cash backup. So I’m carrying around like, oh, $1,000 in my bag, just in case I need it.

RYSSDAL: Oh, $1,000 just in case. Scott Tong on the road someplace in China. Thank you Scott.

TONG: All right, Kai.

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