For years, 99 percent of all bank loans in China were granted to enterprises and institutions. However, during the first half of this year, the proportion of consumer credit loans targeting individuals rose remarkably.

In Beijing, Shanghai and other financially developed areas, the proportion of individual loans approached 10 percent of the entire banking business. All this is an indication that China’s consumer credit market will soon bloom.

Sogo Strategy

The Beijing Sogo department store was the first to launch a consumer credit card in Beijing. The Sogo credit card, which is valid for one year and requires no collateral, no initial payment and no interest payment, each month deducts from designated bank accounts one-twelfth of the actual payment for goods purchased by the cardholders in the department store. The Sogo credit card, launched in February last year, has been gaining popularity because of the simplified procedure for obtaining the card and no restrictions over what a consumer purchases—items as small as a tube of lipstick or a pair of gloves may be bought with the credit card. What has made the card especially attractive is that Sogo pays the interest for all consumer loans made by customers.

Zhang Peiji, a Sogo credit cardholder, said: “I spend money and the department store pays the interest on my loans. In addition, I don’t have to carry cash around. This is really great. I use the credit card for whatever I buy here.”

Sogo’s bold pledge to pay the interest for consumers implies huge risks for the department store. Before the card’s official launch, Sogo was prepared to pay 400,000 yuan worth of interest and suffer bad debts from three out of 1,000 customers during the first year. This past February, however, Sogo announced that consumer credit transactions in the department store had surpassed 50 million yuan and there was no bad debt at all. Such huge returns are the envy of other retailers in the city.

The Borrowing Trend

The National Bureau of Statistics and Mastercard International have so far conducted three surveys on China’s credit consumption. The latest two surveys reveal a significant increase in people’s awareness of consumer credit, with the awareness rate reaching 95.2 percent. However, the acceptance rate is merely 29.4 percent. In addition, different consumer groups and different cities also vary in terms of consumption concept and level of credit consumption.

The surveys, conducted among residents of the seven major cities of Beijing, Shanghai, Guangzhou, Wuhan, Zhengzhou, Chengdu and Xi’an, showed that during the fourth quarter of last year the per-capita consumer credit volume was the biggest in Beijing, followed by Chengdu, Guangzhou, Wuhan, Zhengzhou and Xi’an. The volume was the smallest in Shanghai. However, the proportion of people using consumer credit during the same period of time was the highest in Shanghai.

The surveys also showed that housing, cars and education were considered most suitable for consumer credit.

The survey in the first quarter of this year revealed that more men than women used consumer credit, people with more education used it, as well as middle- and high-income groups with a monthly income of 1,500 yuan. And, people between the ages of 24 and 35 used consumer credit more than any other age group.

In Beijing, most consumer loans are between 5,000 yuan and 80,000 yuan and 26.5 percent of the loans exceed 100,000 yuan. Among the seven cities, the proportion of people using consumer credit out of the total population is the lowest in Beijing. That proportion in Shanghai is 29 percent, and the highest among these cities. Consumer credit is used mainly in such areas as housing, education, traveling, cell phones, computers and office communication facilities. During the past six months, consumer loans under 10,000 yuan made up 89.6 percent of the total in Shanghai.

The Biggest Loan

Along with housing reform, the majority of people have made housing their first choice in consumer credit, thereby offering the housing loan market a broad space for growth. Sensing this opportunity, the Industrial and Commercial Bank of China (ICBC) has decided to readjust its credit loan structure by shifting the emphasis to housing loans, especially individual housing loans.

Statistics provided by the ICBC indicate that the individual housing loan market has entered a fast growth period. By May 20 of this year, individual housing loans, which have only recently been made available, reached 26 billion yuan, or 2.4 times as many in the same period last year, and the number of people taking out loans reached 1.2 million. Today, individual housing loans have become the most popular and fastest growing type of consumer credit in the bank.

According to Liu Zigang, general manager of the Home Loan Department of ICBC, the bank will focus on exploring the individual housing loan market in large and medium-sized cities this year. Liu estimated that 155 billion yuan worth of housing loans will be extended by the bank this year, 80 billion yuan of which will go to individuals.

According to industry analysts, this fast development of the individual housing loan business in the ICBC illustrates that the individual housing loan business is becoming a stable source of revenue and a growth point for all commercial banks in China.

(Beijing Review 08/17/2001)