China's payment card market continued to grow at dazzling speed from an already sizable base over the past two years.


By September 30, 2008, there were 1.73 billion credit and debit cards in circulation, up 18.8% from a year earlier.  By the end of 2008 the number should reach over 1.8 billion, making China by far the largest card market in the world by card numbers.

Even though payment cards' share of China's consumer spending still lags behind major developed card markets such as the U.S. and the U.K., there is tremendous upside potential for payment cards in China with the improving card acceptance environment and the growing consumer spending.

There are important changes in the industry in 2008; however, as the impacts of global economic recession caught up with China, consumer spending has slowed down. Sales and marketing costs have stayed high, the debit card market is quickly approaching saturation and growth has significantly slowed down. The credit card delinquency rate has risen sharply and could double in 2009. Regulators have issued alerts on the rising risks, and issuers are starting to adopt a more cautious approach towards new card issuing and to look at their existing card accounts more carefully. It appears that many credit card issuers might delay, change, or cancel their aggressive market expansion plans and put more focus on improving the performance of existing accounts than they used to.

This may not be a bad thing after all. Terry Xie, Director of Mercator Advisory Group's International Advisory Service and principal analyst on the report, comments,"The economic slowdown might be a disguised blessing to the development of China's credit card industry. There is little question that it would further delay the whole industry from breaking even. Nonetheless it provides an opportunity for Chinese credit card issuers to slow down their pace and re-examine their developments and possibly rethink their growth strategies before the problem becomes too big."

The latest report from Mercator's International Advisory Service provides an overview on the latest developments in China's payment card market. Market growth in card issuing, card acceptance, credit card receivables, and purchase transactions are discussed. Key strategic developments, including the slowing market expansion, changes in issuer strategies, increasing credit risks and card frauds, increasing roles of the Big Four, and the entry of foreign banks such as the Bank of East Asia, HSBC, Standard Chartered, and Citibank in the domestic card markets are also discussed.

Highlights from this report include:

After several years of explosive growth, China's payment card market is moving into a new development stage, in which risk control, profitability and controlled growth become key themes over the next two years.

China's card market continued to grow significantly over the past two years, and the growth is expected to continue through the next two upcoming years, though the pace will slow down.

Issuers will need to better control the increasing credit risks, even at the expense of slowing down their expansion plans.

Card fraud in China is still relatively low thanks to the fact that PIN's are required for all POS/ATM transactions on domestic cards. But ID theft, fraudulent cash advances, and counterfeit international cards are rising.

The Big Four state-owned banks will become dominating players in the credit card market, just as they have been in the debit card market.

Foreign banks will seek to play a more important role in the competition in the domestic market. But they will need to find their niche market segments and they still have a long way to go.

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