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As China eases restrictions on its financial system, credit card companies have been eyeing the country's population of 1.3 billion as a lucrative, yet untapped market.
All of the three major credit card companies - Visa, MasterCard and American Express - have made inroads into the Chinese market, mostly through partnerships between
foreign and domestic lending institutions.
China’s credit card industry began by targeting high-end customers with strong business and political connections but by the time the 2008 summer Olympics rolled around,
there had been nearly 100 million credit cards issued in China and the market is only expected to grow.
Despite the opening of China to credit cards, strict government regulation and a lack of developed infrastructure are making it difficult for banks to expand their Chinese
credit card operations as quickly as they would like into a traditionally cash-based population that is largely inexperienced with credit. Many merchants outside of major
cities like Beijing don't accept credit cards.
China has yet to develop a national credit bureau similar to Equifax or TransUnion, and has no credit scoring model to assess a cardholder's risk. So Chinese banks often have
to process applications by hand and manually verify all customer information. Some banks tie their credit card offers to water and cable subscriptions as a way to verify a
customer's address when the credit is being extended.
As many as 70 per cent of Chinese credit cardholders pay their full balances every month. But for those that have defaulted, banks have taken to unusual tactics to
protect their investments.
China Unionpay keeps a "blacklist" of people who are barred from being issued credit cards, a list it shares with other banks. Other banks require customers who miss two
payments in a row to immediately pay off the full balance.
Some banks such as Guangdong Development Bank, for instance, print advertisements in local newspapers identifying customers who have defaulted on payments.
Some credit card customers who have missed payments have reported being driven to the bank by men dressed in black, only to be interrogated, fingerprinted and
forced to sign financial agreements to return the money.
The People's Bank of China has been working on a national credit bureau-style system, but until then the road to widespread credit card ownership in China remains rocky.
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