According to the report "E-payment and the Chinese Economy" released by the Finance Institute of the China Academy of Social Sciences (CASS), banks are lumbered with about 2.1 billion yuan (about US$260 million) in unpaid credit card bills, up to 90 percent of which is a result of malicious overdraft from as far back as 1995.
Research for the report was conducted by the CASS, the People's Bank of China (PBC), and Industrial and Commercial Bank of China (ICBC).
A seminar was held in Beijing on November 21 to discuss the findings of the report. Representatives from the PBC, China Banking Regulatory Commission (CBRC), Ministry of Finance, National Development and Reform Commission (NDRC), domestic third-party payment system providers and international credit card organizations attended the seminar.
Li Yang, director of the Finance Institute of the CASS, said this is the first report that explains and analyzes the relationship between the forms of electronic or cashless payment and the Chinese economy. According to the report, China's credit card industry differs from the West's in three main ways: national coverage, usage, and overdrafts.
Individual consumer loans account for 2 to 3 percent of total credit loans given in China, while credit card loans generated by usage is even less.
"The establishment of an individual credit rating system is the prerequisite for the development of a credit card industry," a bank source told National Business Daily on November 21.
According to the report, the absence of a sound credit rating system results in a bank having to expend more resources investigating individuals, and insisting on guarantors with stable incomes. The sometimes cumbersome procedures ironically tend to attract those with low credit ratings, resulting in higher incidences of non-payments.
To avoid this, many banks have taken to issuing debit cards instead. Debit cards might present lower risks for banks, but they have also retarded the development of the credit card industry.
(China.org.cn by Zhang Yunxing November 28, 2005)
