The meteoric growth of credit cards in China has not come
without teething problems. With China cited as one of the most
promising credit card markets in the world, banks have rushed to
sign up new cardholders by offering an ever-increasing array of

But in their haste, some banks have neglected
to make sure that their customer service functions were up to
speed, and on top of that, a lack of formalised credit card
approval procedures and credit bureau infrastructure has led to a
rapid rise in overdue credit card debt.

Complaints about credit cards rose in the
third quarter of 2009 to become the largest source of complaints
about banking services, according to the Shanghai branch of the
China Banking Regulatory Commission.

Credit card complaints rose by 8.6 percent
from the second quarter, accounting for 28.2 percent of all banking

However, the number of complaints relating to
credit cards – 367 in Shanghai – is miniscule compared to the 150
million credit cardholders in China.

Overall, the regulator received 1,271 banking
complaints in the third quarter in Shanghai, up 9.4 percent from
the previous quarter.

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The most common credit card-related complaints
relate to ‘misleading’ marketing campaigns, charges on overdrafts
and late payment penalties if minimum payments are not made on
time, and the way that lenders approach the settlement of unpaid
bills, according to the banking watchdog.

“Poor credit card services are still the
biggest headache for banking services in Shanghai,” the regulator

Several of China’s smaller and medium-sized
banks have set up instant approval sales points, where an applicant
merely shows ID and fills out a form to obtain a credit card,
without their credit histories being checked.

In July this year, banks were told by the
China Banking Regulatory Commission not to offer gifts to new
credit cardholders, to set quotas for their sales staff, or to
issue cards to those under 18.

In September, the watchdog stated that banks
would no longer be allowed to outsource the signing up of new
cardholders, and has also warned banks against offering incentives
that reward sales forces on the basis of how many new cardholders
they recruit.

Credit card debt on the

China was not immune from the global
economic turbulence that has blighted the banking industry
worldwide over the last two years, and issuance growth rates have
slowed considerably in recent months as banks overhaul their
lending practices in response to economic pressures and regulatory
scrutiny. But this has not stopped overdue credit card debt rising
steeply in recent months.

Figures from the People’s Bank of China show
that credit card debt older than six months for the first half of
2009 more than doubled from 2008, and the risk is getting

Total credit card debt overdue for six months
or more reached CNY5.7 billion ($845.2 million), up 1.3 percent
from the same period in 2008.

This is an increase of CNY0.8 billion, up 16.2
percent over the first quarter of 2009.

Debts overdue six months or more accounted for
3.1 percent of the total outstanding credit card debt at the end of
June, an increase of 0.1 percent from the first quarter, or 0.7 of
a percentage point more than the same period last year.

According to Asia-Pacific market research
company RNCOS, China’s rate of card issuance is still going strong
– with over 40 million credit cards issued in 2008 alone, a growth
rate of 58 percent compared to 2007, bringing the total number of
credit cards in China to over 150 million as of the end of

“Our future industry analysis indicates that
factors such as low credit card penetration levels and an
anticipated improvement in consumer confidence by the end of 2009
will help the credit card market to overcome the impact of
recession in the long term. The industry is projected to grow at a
CAGR of 26 percent during 2010-2013,” the firm stated.

But RNCOS is predicting that there will be a
further deceleration in the credit card issuance growth rate, which
is likely to almost halve this year.

“As the impact of global economic recession
caught hold of China, consumer spending has been slowing down when
compared to previous years. This has led to increase in the credit
card delinquency rate in the country, which has risen by one to two
percentage points by mid-2009 as compared to a mere 1 percent or 2
percent in previous years,” the firm said.