A blog on Chinese economy & society

Credit card bad debts soar in China

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The focus of Chinese NPLs is on its overheating property market and the related bad debts incurred by developers and local governments. Consumers, unlike those in the US, are largely seen as prudent and safe. To a large extent this is still true. Consumption is still mostly paid with cash. Mortgages require 20%-30% down payment. However, there’s a sub-sector within the consumer market that is seeing increasing risk of NPLs, that of credit cards.

Credit cards as an industry is still new in a country that traditionally issued only debit cards. But credit card issuance has been exploding in recent years. Couple this with stone age risk management practices in Chinese banks and the new consumption habit of the post-reform generation, the result is catastrophic. According to a spokesman from Shenzhen Development Bank, 2009 credit card NPLs totaled RMB7.7bn (USD1.1bn) nationwide which may sound peanuts, but in fact was 226% (!) that of 2008.

No the Chinese banking system will not collapse, one of the tiny winy benefits of having real savings instead of just printing press. But a major banking crisis is looming and China’s formidable foreign reserve has already been earmarked for the eventual cleanup.


Written by Cindy Luk

April 8, 2010 at 8:36 pm

One Response

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  1. “But a major banking crisis is looming and China’s formidable foreign reserve has already been earmarked for the eventual cleanup.”

    Foreign reserves cannot really be used this way. See

    “So the PBoC cannot give away the reserves without causing an increase in its net indebtedness. This is why I have often said, to the confusion of some of my readers, that Beijing cannot just recapitalize the banks with reserves. A substantial amount of NPLs will one way or another increase government debt. The only way Beijing can recapitalize the banks is by borrowing, or by raising direct (or hidden) taxes. Having the PBoC recapitalize the banks is just another way for the government to borrow, and since almost everyone would agree that losses in the banking system should be paid directly out of fiscal revenues, and not indirectly by the central bank, it would be a very inefficient way of doing so.”


    April 12, 2010 at 3:43 pm

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