China Banking: I Have Two Words For You.
A year or so ago, I was talking with a good friend of mine who has a fairly high level position with one of the big American banks that has spent huge money buying into Chinese banks. I was saying I could not understand why American banks were so willing to put so much into China's banks, particularly when it would be impossible to achieve any sort of clarity regarding their bad loan risks. (Please note this was before the sub-prime mess and so I at that point actually viewed banks as generally somewhat conservative with their money).
His response was, "Dan, I have two words for you: credit cards."
Yes, I thought.
The Shanghai Daily reports that the number of credit cards in China has nearly doubled in the past year. Nearly doubled.
Had my friend been a bit more literary and succinct, he would have said, "Dan, I have one word for you: plastic. [video]"
Comments
China's little emperors addicted to credit..oh we're in for a roller coaster ride:)
Posted by: dezza | June 25, 2008 4:59 AM
Different US banks have radically different China strategies, so much so that I know which bank your friend works for. There is only one major US bank that is trying to get into the retail credit card business in China.
Retail banking is a tough, tough business especially when you are dealing with a different culture. Just because an area is booming doesn't mean that foreign banks have a competitive advantage. People are very, very sensitive about money, and people in different cultures will do things differently. This article for example....
http://www.iht.com/articles/2006/04/06/bloomberg/bxcredit.php
The things that the article describes are only a "puzzle" to people who don't understand Chinese culture. People don't like to use credit cards for debt purchases in the way that Americans do. However, having a credit card is a luxury status symbol in the PRC, so people like having one in their wallet that they can show their friends. If you understand the culture, you can market things accordingly, and from that article you can see that the bank that is doing really well is the Chinese one.
I was at a public talk by the CEO of Chinese bank, and he said that one reason for their success at credit cards was that they understood the culture and the foreign companies just didn't. He also mentioned that second they heard that a major US bank was coming into mainland China doing credit cards, they hired the person that was able to fight and win the credit card battle on Taiwan.
Posted by: Twofish | June 25, 2008 12:13 PM
Not direct comment about this topic, but when my wife and I were in China in Feb., changing money at the hotels were fairly easy. Just copy of passport, sign and paper, and get your money. I went to Bank of China to change money once, and boy what a hassle. Must have taken at least 30 minutes to do this. Lot of waiting in line, giving passport, watched passport sit (with dollars) on table that no one was working at, watched passport and money by moved to a different table, etc. What a fuss.
Posted by: Doug | June 25, 2008 12:31 PM
If only the ability to issue credit cards was granted fairly and transparently... There are still only a few banks (all big SOCBs) who can do this, making it something of a monopoly business - albeit with degree of competition.
Posted by: Duncan | June 25, 2008 9:15 PM
To Duncan: This isn't true.
The largest credit card issuer in China is China Merchants Bank which isn't a big state owned commercial bank and who takes particular pride in *NOT* being a big SOCB. Also, all of the joint stock commercial banks (Minsheng) have credit card units. Citigroup bought a stake into Shanghai Pudong (which is a JSCB and not a SOCB) to get into the credit card market in China.
The talk that the CEO of China Merchants gave to the Chinese Financial Association he specifically mentioned that one of their advantages is that since they have never been state-owned, they have cared about customer service from the beginning, and have done simple things (like offering snacks at their branches) that the big SOCB's have trouble doing.
Posted by: Twofish | June 26, 2008 4:42 AM
It's really a difficult thing to predict it's good or bad, but one thing is definitely true, if you don't involved in China's economy developing, you can get nothing via this biggist market in the world, not only credit cards, but the potencial chances.
Posted by: Michael | June 26, 2008 6:48 PM
I think several years ago the situation with plastic in Russia was the same.
Posted by: Eugene | July 4, 2008 3:22 AM