While most Americans can relate to their own experience with credit card debt, the third leading form of debt in the United States, Chinese consumers are on track towards a similar experience when it comes to credit card use and debt.
According to data released by Deutsche Bank and reported by Wall Street Journal, loans via credit cards in China are up big this year; in fact, the total sum reached nearly 4.7 trillion yuan which amounts to about 720 billion in U.S. dollars. This represents a 31 percent increase year over year from the second quarter 2016.
These trends stem from several financial motives and shifts in China. With China’s corporate sector in heavy debt, banks see a way to transition this burden onto the households of China due to their ability to handle consumer debt. The move should lead to greater revenue streams. So far, banks have made about 20 percent of their revenue through the interest and fees from heightened credit card use in China.
While it might sound like Chinese households are about to be steeped in unmanageable debt, this scenario isn’t as close as it seems. Despite the debt level exceeding $700 billion (U.S. currency) in China, credit card debt represents only 13 percent of the country’s debt according to Deutsche Bank. This is a testament to the size of the Chinese market which accommodated over 29 million new credit cards during just the second quarter.
At any rate, it will be interesting to see how the Chinese deal with spending on credit. So far this year, Chinese consumers are gaining confidence in their economy when it comes to job opportunities, consumer financial standing, and overall optimism for expansion. Whether consumers can maintain this confidence in the face of credit card debt remains to be seen.
Author: Andrew Rombach
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