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IJBM
25,4 The adoption and usage of credit
cards by urban-affluent
consumers in China
238
Steve Worthington and David Stewart
Department of Marketing, Faculty of Business and Economics,
Monash University, Caulfield East, Australia, and
Xiongwen Lu
School of Management, Fudan University, Shanghai, China

Abstract
Purpose – The purpose of this paper is to present exploratory research into the holding and usage of
credit cards by a distinct segment of the Chinese population, who are “early adopters” of this product.
Design/methodology/approach – Primary data collection using survey methodology. A sample of
the urban-affluent population in China was utilized to gauge preferences and attitudes towards the use
of credit cards.
Findings – The respondents were comfortable with the holding and use of credit cards and
particularly recognised their value for spending on travel and entertainment. The research also
identified purchase trigger points, which indicated that the use of credit cards for purchases above
certain value was already prevalent with this sample of urban-affluent Chinese consumers.
Research limitations/implications – The sample was drawn from a narrower base than the
actual target population of urban-affluent market, but an available and valid respondent set, which
offers insights into the “early-adopters” of the credit card product in China.
Practical implications – Hitherto there has been a very limited amount of research into payment
cards in China and yet with the market for financial services opening up in China from 2007, this
research is timely both for domestic Chinese banks wishing to issue credit cards and for foreign
entrants, seeking to enter the Chinese market via their expertise in credit cards.
Originality/value – The paper presents focused research on the attitudes towards credit cards, with
the urban-affluent consumers, who are the most likely early-adopters of this product.
Keywords Credit cards, China, Consumer behaviour
Paper type Research paper

International Journal of Bank
Marketing
Vol. 25 No. 4, 2007
pp. 238-252
q Emerald Group Publishing Limited
0265-2323
DOI 10.1108/02652320710754024
Introduction
China is perceived by many to be the market opportunity for the early decades of the
twenty-first century. With a population of 1.3 billion, a rapidly growing economy and
events such as the Beijing Olympics in 2008, China is the focus of attention for all types
of product providers. This is particularly so for providers of financial services, who see
not only a large and relatively untapped market, but also domestic “players” who have
largely been sheltered from the developments in products, management and customer
orientation, that increasing competition has delivered in other markets. The recent
history and current structure of the Chinese banking system is well described by
DaCosta and Foo (2002), who suggest that despite two decades of gradual reforms,
“China’s financial system is still inadequate to sustain a growing economy”. They
argue that China has all the characteristics of a government permeated financial
system because the government owns most of the banks and other financial The adoption
institutions, and bank lending is still under government control. They conclude that and usage of
unless China undertakes serious and timely banking reforms, it will remain vulnerable
to a domestic banking crisis from the expanding non-performing loans to the mainly credit cards
state-owned enterprises and to increasing external competition following China’s
accession to the WTO.
A review of the wider marketing issues, impacts and implications of China’s entry 239
into the World Trade Organisation (WTO) in December 2001 is given by Agarwal and
Wu (2004). They claim that China’s institutions and laws were not fully compatible
with the rules and changes required for accession to the WTO, but that as part of the
accession package, China has pledged to reform its domestic policies and institutions.
However, US and European trade negotiators acknowledged that China’s financial
services were a “market in transition” and that some concessions to this special
situation needed to be made. Thus under the WTO agreement, the market for financial
services in China has remained protected from foreign competitors. This restriction
ended in December 2006, and now the foreign banks which operate in China are able to
undertake retail banking business with Chinese individuals in their local currency, the
renminbi (RMB).
One product area where foreign banks are already active in China and where much
activity is forecasted to be once the Chinese market is fully open, is in the plastic
payment card market, particularly with the credit card product. China is already ranked
second only to the USA in the number of plastic cards in issue, with figures from
ChinaUnionPay (CUP) for the end of 2005 revealing that there were 960 million payment
cards issued, 920 million of which were debit cards and the remaining 40 million credit
cards, of which only 12 million were revolving credit cards. (ChinaUnionPay, 2006) The
remaining 28 million credit cards were what is known in China as “quasi” credit cards, in
that they required a deposit from the cardholder to be held by the card issuer. These
would elsewhere be called “secured” credit cards, as there is a secured deposit required
from the cardholder that is then held against the card.
The central bank, the People’s Bank of China (PBC) is pushing for a much wider use
of plastic payment cards to meet the needs of the mainland’s developing economy,
according to China Daily (2006). In China the relative scarcity of electronic payments is
thought to have limited growth in consumer spending and this is a key concern for the
Chinese economic planners as they try to shift the country away from its previous
reliance on export-driven growth. According to Craig (2005), at the end of 2004, credit
cards accounted for 3 percent of consumer purchases in China, compared to some 20
percent in Hong Kong. This makes research into how Chinese consumers hold and use
their plastic payment cards all the more relevant, particularly given the unique cultural
identity of China. That culture and its impact on business in China is well described by
McGregor (2005), who comments on the current dilemma that China faces in how to
adopt and adapt to the ways of the “west” and global commerce, while still maintaining
the Chinese “essence”.

Literature
Previous research into credit card holders from a Chinese cultural perspective has been
carried out by Chan (1997), who studied the demographic and attitudinal differences
between active and inactive cardholders in Hong Kong. The relevance of this article
IJBM was that, at the time of the research, Hong Kong (as described by the researcher) had
25,4 evolved from a developed to a more developed economy and thus it provided an
opportunity to examine the adoption of credit cards in a newly-industrialised nation
and hence it provides a reference point for the study of the adoption of this product in
mainland China.
A wider view of customers’ adoption of banking channels in Hong Kong, including
240 the use of ATM’s, is given by Wan et al. (2005). Here, following some initial interviews
with Hong Kong bank managers about which channels customers might or might not
adopt in their day to day banking, customers were questioned as to whether or not they
acted rationally. The study examined over 300 banking customers in Hong Kong in
terms of their demographic background, including gender, age, income and education.
Respondents were asked how much they used the four banking channels of ATM’s,
Internet banking, branches and telephone banking to, among other services, pay their
credit card bills. In terms of overall usage the research found that the ATM’s were the
most popular, with 40 percent average usage across the four banking services (including
paying credit card bills), with the internet and branches together at just under 20 percent
and telephone banking very much in the minority. Obviously predicting customer
preferences for channels and for products is vital for bank marketers and what the Wan
et al. (2005) study showed is that while the adoption of ATM’s and internet banking can
be associated with a rational pattern of beliefs among customers, the choice behind the
usage of branches and telephone banking are much more complex. While this research
was carried out only in Hong Kong and therefore needs to take into account the cultural,
demographic and marketplace characteristics of that Special Administrative Region
(SAR) of mainland China, it does offer some thoughts on how banking customers adopt
and use new channels of distribution for financial services in a Chinese setting. The
research reported here looks at the adoption and subsequent usage of a new product in
China itself – that product being the revolving credit card.
Research on banking channels in China itself has been carried out by Laforet and Li
(2005), who comment on the current cash-centric culture of Chinese consumers. Their
research looked at the diffusion and adoption of online banking among Chinese
consumers and commented that hitherto much of this type of research had been
conducted in the western and developed world. The researchers here were interested in
finding out whether the culture of China affects the adoption of online banking. Based on
the culture analysis from previous studies (Chimezie et al., 1993; Muhlbracher et al., 1999)
it is claimed that Chinese consumers tend to have strong uncertainty avoidance and
hence the lack of regulation in China is inhibiting the adoption of online banking. Also as
Chinese consumers tend to be culturally more resistant to change, they might prefer and
keep on using the familiar branch banking services. The Chinese value system is highly
collectivist and hence group influences are very important. However there will always be
some individuals who are more inclined to adopt new ways of thinking and behaving. In
this context Chinese consumers can be categorised using Rogers (1995) five groups of
innovators, early adopters, early majority, late majority and laggards. The research
results of Laforet and Li showed that perceived risks were found to be the most
important factor that discouraged the adoption of online banking in China. The
researchers suggested that the tradition of carrying cash and the adherence to the age old
beliefs of personal financial management might have been the main causes why Chinese
consumers perceived that the risk of online banking was high.
 A more strategic view of investment in internet banking by Chinese banks, The adoption
subsequent to the accession by China to the WTO, is given by Lu et al. (2005). They and usage of
discuss why and how Chinese banks have entered strategic alliances with foreign banks
to improve their competitiveness against both their domestic and potential foreign credit cards
entrant rivals. A further response has been to offer new services and products through
their nationwide branch networks, and these products include plastic payment cards.
Previous work by Gong (2003) had concentrated on the unique nature of the Chinese 241
cultural heritage and explored the impact of Chinese culture on each stage of the
Chinese consumers’ decision making process. This work emphasised the
collective-orientated characteristics of the relationships defined by the Confucian
doctrine, which underpins much of Chinese culture. It opens up the issue of “face”,
which is particularly salient for people of Confucian cultures, in which proper living,
social consciousness, moderation and moral self-control are stressed. Thus the Chinese
way of life centres on adoption and the passive acceptance of fate, by prizing stability
and seeking harmony and happiness within the given natural conditions. This, it is
claimed, means that Chinese consumers are reluctant to pioneer and are slow to accept
new products and services. Thrift is also highly advocated and has at its root the core
Confucian value of living properly, under which borrowing money is widely seen as a
shame, because it means living beyond one’s means. Gong claims that this deep-seated
value is also reflected in the aversion of the Chinese towards using credit and one of the
propositions put forward in the article is “the extent to which Chinese consumers will
use credit card payment to gain immediate gratification associated with a purchase, is
much less compared to Westerners”. This proposition was untested, but Gong
concludes by stating that while the Chinese cultural values have formed a clear and
consistent system for many generations, these value systems are however open to
change and that Western lifestyles are finding their way into China, via the process of
globalisation.
Even earlier research by Lowe and Corkindale (1998) focused on a cross cultural
study between Australian and mainland Chinese to examine their differences in
cultural values and the effect of these on response to marketing stimuli. They
commented on the collectivistic nature of China as reflected in the Chinese family and
kinship system (Hsu, 1970). Thus, to the Chinese, “family” means more than just the
immediate relatives, as opposed to the Australian view, which is much more the
“nuclear” family as represented by the father, mother and children. Lowe and
Corkindale claim that for the Chinese, “family” welfare is more important than for
individual welfare and that, if necessary, a Chinese would sacrifice their own
well-being for the benefit of the wider family group. Their research also hypothesized
that “social orientation” is more important to the Chinese than to Australians. Thus the
Chinese are claimed to be more disposed to social conformity, submission to social
expectations and to worry about external opinions, than are the Australians. Indeed
Yang (1989) argues that it is very important for Chinese to maintain harmony, face and
social acceptance and to avoid embarrassment, conflict, rejection, ridicule and
retaliation in a social situation. This produces a tendency for Chinese people to act in
accordance with external expectations or existing social norms. These cultural nuances
espoused by these articles have a profound impact on the adoption and usage of new
products in China and this is relevant to the credit card as a new product. Thus the rate
of adoption will be influenced by the concept of the “mean”, whereby the Chinese may
IJBM feel that adopting a new product may be seen as an extreme behaviour and therefore
25,4 not acceptable to the “group”.
Worthington (2003, 2005a) has researched the Chinese payment card market in
general and the case study of credit cards in China in particular. The first article gave a
historical view of the development of the market for payment cards in China and
commented on some primary research which highlighted the challenges that
242 cardholders then faced in using their payment cards in China. The second article used
the credit card as a case study of how some foreign entrants have tried to enter the
market for financial services in China. It commented on the strong historical, cultural
and structural impediments that confront those seeking to introduce the revolving
credit card product into China and on the creation of ChinaUnionPay (CUP) as an
alternative to the existing international acceptance marques of MasterCard and Visa.
Willis and Worthington (2006) have researched the degree to which credit cards should
be adapted or standardised to meet the needs of Chinese consumers. This was based on
the conceptual idea that products and services of high status and value need to be
delivered in China in an unadapted manner, so as to preserve their international status
and image. The conclusion drawn by the researchers was that foreign credit cards
should be kept as original and authentic as possible, in order to sustain their sense of
status, value and international brand equity. This obviously offers all credit card
issuers in China a challenge, as they must both be aware of CUP’s ambitions as a
potential rival to MasterCard and Visa, and yet they must deal with the reality of the
international acceptance and brand power of MasterCard and Visa.
Lu (2004) has researched the segmentation of credit cardholders in the urban areas
of China and concluded that there were significant differences existing between card
holders, which were then characterised as elite, fundamental, emerging and laggards.
This research also showed that the frequency and average amount of purchase by card
holders had grown significantly in the two years prior to the research and that the
higher the income and education level of the card holder, the more inclined they were to
use credit cards.
Sun and Wu (2004) examined the contrasts between urban and rural consumers. Their
paper argues against any presumption of China as a homogeneous market and that
researchers have frequently pointed out the fact that there exists uneven levels of
economic development between coastal and inland China, rural and urban China (e.g. Yao,
1999). Furthermore they argue against dividing China into regional markets, as others
(Cui, 1999; Cui and Liu, 2000) have attempted to do. Instead they claim that the most
efficient and clear-cut market segments in China should be rural versus urban regions,
because the level of economic development and consumer consciousness are more sharply
divided along the urban-rural line, than the regional markets that others have attempted
to define. The new research reported here is very much located in an urban setting and,
what is more, it focuses on the affluent consumers within the major city of Shanghai.
Research by Pitsilis et al. (2004) of McKinsey and Company described the then
situation for retail banking in China and, in particular, the prospects for the credit card.
Their emphasis was on entry strategies for foreign banks looking to get into the
Chinese market and the structuring of alliances and partnerships. Subsequent research
by Farrell et al. (2006) of McKinsey and Company has reported on the value of China’s
emerging middle class, in particular the urban-affluent segment who earn more than
100,000 RMB per year and it is claimed command 500 billion RMB (nearly 10 percent)
of urban disposable income, despite accounting for just 1 percent of the total The adoption
population. It should be noted that when accounting for purchasing power parity, a and usage of
household income of 100,000 RMB, is equivalent to a household earning US$ 50,000.
They estimate that by 2025 the urban-affluent segment will comprise 40 million people credit cards
in China, accounting for just 11 percent of all urban dwellers. However the
urban-affluent will be a critical market for some product suppliers and in particular
Farrell et al. (2006) claim “their importance to banks and other financial services firms 243
will increase” because these Chinese households are the one’s most likely to use
consumer credit facilities to buy consumer goods.
While there is some further unpublished commercial research (MasterCard, 2003)
into the different ways that consumers in major Chinese cities use credit cards, there
has however so far been no research into the perceptions of these urban-affluent
consumers about the credit card product and what triggers them both to apply for and
then subsequently use their credit cards. The research reported here is an attempt to fill
that gap in knowledge.

Research objectives
The objectives of this research into the adoption and usage of credit cards by the
urban-affluent in China are to examine to what extent they are early adopters of the
credit card product; what type of cards (acceptance marques) they hold and what is
their current payment and repayment behaviour. A series of questions were also asked
as to their perceptions of the credit card in comparison to cash; in terms of the product’s
utilities as regards travel, convenience and security and whether or not there were any
inhibiting factors which might delay the wider adoption of this product.

Methodology and data collection

Fudan University in Shanghai was chosen as the point of data collection because of its
reputation in research into plastic payment cards in China, and hence contact was made
with the researchers there and an agreement reached on a joint research project. This
was to be the development and testing of a questionnaire which would seek to identify
urban-affluent Chinese consumers’ attitudes towards the adoption of new products in
general and the usage and repayment behaviour of existing credit card holders in
particular. The questionnaire was based on previous research carried out into the
adoption of credit cards in Saudi Arabia (Ezzi, 2005), which had also examined belief
systems within Saudi society. The relevant sections of the questionnaire were translated
into Chinese at Fudan University and subsequently piloted with 46 MBA students from
the School of Management at Fudan. Lessons learnt from the pilot exercise were then
incorporated into the final questionnaire, which was then administered to a total of 212
Executive MBA and MBA students at Fudan University in September 2005. Of the
respondents, 16 returned incomplete questionnaires, particularly as regards reporting
their annual income and hence there were 196 valid responses to the questionnaire.
The practicalities of administering this questionnaire in China necessitated
sampling from an accessible and valid group of urban-affluents. It was also important
to secure respondents who might have some knowledge/experience of the credit card
product (which is still a very immature financial services product in China). Given
these requirements the sample was drawn from students studying the MBA programs
at Fudan.
IJBM Sample profile
25,4 Of the 196 respondents, nearly three-quarters (73.8 percent) were male and four-fifths
(80.6 percent) were married. Overall, nearly half of all respondents (47.1 percent) were
married with children, though this may be an under-estimate due to the high
proportion of refusals to the question regarding family composition. The median age
was 33 years and over 80 percent (83.4 percent) were aged 40 years or less and all were
244 studying for a post-graduate management qualification. Over three-quarters (86.2
percent) of the sample were already managers of some seniority and their median
annual income was 200,000 RMB, which puts them firmly in the urban-affluent
category, as defined by the McKinsey study reported on earlier.
With the credit card still being a relatively new product in China, it was necessary to
begin with a definition of the credit card product. The questionnaire then proceeded by
establishing whether or not the respondents had a credit card and if so, how often they
used it, as shown in Table I.
Given the employment status of the respondents and their MBA studies at a
prestigious university such as Fudan, it should come as no surprise that the vast
majority both held and had experience of using credit cards. Nevertheless the vast
majority of plastic payment cards issued in China by the end of 2005 were debit cards
and of these 920 million, ChinaUnionPay (CUP) estimates that over 720 million are
what they call “sleeping cards”, that is they are never used by their holders. Of the 200
million “active” cards, CUP statistics (ChinaUnionPay, 2006) reveal that 87 percent are
debit cards and 13 percent credit cards. Thus it would appear that proportionately
more credit cards are deemed to be “active” than are debit cards.
CUP was created in 2002 by the Chinese government to improve both the issuance
and acceptance of payment cards in China and to be the only national electronic
payment and interchange network operator in China. CUP has subsequently created its
own acceptance marque, the YinLian, to differentiate it from the major global card
acceptance marques of MasterCard and Visa. CUP has also helped to develop a
national payment network for China and is charged with making China more
card-centric and less cash-centric in payments. It has set itself the target of achieving a
merchant acceptance of payment (both credit and debit) cards of 30 percent in Beijing,
by the time of the 2008 Olympics, a dramatic increase from the current acceptance rate,
which as reported by Craig (2005) is 3 percent. By the end of 2005 more than 99 percent
of point of sale (POS) terminals and ATM’s in China were part of the CUP network,
which meant that all of the then 600 million Chinese issued payment cards that carry
the CUP YinLian acceptance marque were able to be used in all of these POS and ATM

Percent

I use a credit card regularly 67.9

I occasionally use a credit card 15.8
I rarely use a credit card 9.7
I have never had a credit card 2.6
I had a credit card but cancelled it 2.0
Table I. I am thinking of applying for a new credit card 1.5
Credit card holding and I am planning to get a credit card within the next six months 0.5
usage 100.0
locations. The remaining 400 million cards issued in China have yet to be converted by The adoption
their bank issuers into CUP branded cards. A more detailed review of the background and usage of
to the formation of CUP and the challenges that it faces in moving China towards a
more card centric payments climate, is reported by Worthington (2005b). credit cards
To discover what acceptance marques were on the cards held by the respondents
they were asked in a multi choice question, if they did hold a credit card, which one did
they have (i.e. which acceptance marques were on their card/s). The responses are 245
presented in Table II.
As many of the respondents have employment positions that require travel (both
domestic and international) and entertainment, again it is perhaps of no surprise that
the majority of them hold either a Visa or MasterCard, co-branded with the YinLian
acceptance marque. This enables their card to be accepted in the maximum number of
merchants both domestically (under the YinLian marque) and internationally (under
the Visa or MasterCard marques). Some obviously hold separate cards under the Visa,
MasterCard, American Express or Diners Club marques that are particularly
appropriate when travelling internationally.
Respondents were also asked about their behaviour when it came to paying off the
debt that they had incurred on their credit cards. The revolving credit card product can
either be paid off in full at the end of a particular account period; the minimum amount
required can be paid or an amount between the minimum and the total amount due. The
overwhelming majority (84.5 percent) claimed that they paid the total amount due. Again
given the employment status of the respondents and their relatively high earnings within
China, it is not surprising that the vast majority claim to re-pay the total amount due, of
the debt that they have accumulated through the use of their credit card. The
profitability of the revolving credit card does rely in part on its holders using the credit
facility to revolve their debt and hence pay interest. Certainly those credit card issuers
looking to enter or expand in the Chinese market will be hoping that their Chinese card
holders eventually do take and use the credit facility that these cards will offer.
The questionnaire continued by asking respondents to what extent they agreed or
disagreed with a range of statements, concerning their attitudes towards payment and
using credit. A five-point Likert scale was used, ranging from strongly agree, agree,
neutral, disagree and strongly disagree, which for the purposes of analysis have been
coded from 5 to 1 respectively, so that a higher score represents a greater level of
agreement. The results of some of the key questions are described below. For the
purposes of analysis, the respondents were categorised into two groups; those who
claimed to always pay off their credit card debt in full at the end of every account

Percent

YinLian þ Visa 71.4

YinLian þ MasterCard 41.8
YinLian only 23.0
Visa only 9.2
American Express 8.2
MasterCard only 5.1 Table II.
Diners Club 0.5 What type of credit card
Japan Credit Bureau (JCB) 0.0 is held
IJBM period, from this sample 84.5 percent, and those who took advantage of the revolving
25,4 element of the credit card by taking credit and paying off only a part of their debt
balance, from this sample 15.5 percent. Those credit card holders who pay off all of
their balance, at the end of each account period, are known as “transactors”, because
they only make transactions on their card. Those credit card holders who do not pay
off in full, do therefore pay interest on the balance that they revolve and hence they are
246 know as “revolvers”. Table III summarises the statistical results for the key questions.
In an attempt to tease out from the respondents their views on the payment
options that they faced, they were asked to respond to the statement that “There are
more advantages with credit card payments, than with cash.” Table III shows the
mean responses on a 1-5 level of agreement scale categorised by those who either
pay off all their debt and those who make only a minimum or part payment of their
balance.

Pay off Minimum

all the or part Std. error
debt: payment: Mean of the
Attitudinal statements mean mean difference difference t p-value

There are more advantages with

credit card payments, than with
cash 4.238 3.828 0.410 0.154 2.661 0.008
It is more convenient to use credit
card payment, rather than cash 4.184 3.833 0.351 0.181 1.937 0.054
Using a credit card means that you
do not have to worry about taking
too much cash with you 4.497 4.233 0.264 0.127 2.068 0.040
It is necessary to have a credit card
with you when you travel overseas 4.463 4.133 0.330 0.155 2.136 0.034
It is safer to use credit cards
payment compared to cash payment 3.559 3.567 2 0.008 0.191 20.040 0.968
It is easier to control my expenditure
when I use cash 3.323 3.467 2 0.143 0.221 20.650 0.516
The usage of a credit card would
encourage people to buy things
beyond their budget 3.311 3.600 2 0.289 0.199 21.454 0.148
People come across difficulties
frequently when they use credit
cards 3.080 3.033 0.047 0.181 0.260 0.795
It is too complicated to use a credit
card 2.302 2.333 2 0.031 0.162 20.190 0.849
The reason why most people adopt
the credit card is that it makes them
feel cool and fashionable 2.671 2.767 2 0.096 0.158 20.607 0.544
Table III.
Comparison of means for Paying by credit card makes people
transactors and revolvers feel important and wealthy 2.939 3.000 2 0.061 0.170 20.358 0.721
The respondents as MBA students are relatively sophisticated consumers in China and The adoption
as they already hold credit cards both transactors and revolvers appear to be well and usage of
aware of some of the advantages of paying by credit card, rather than by cash. There is
however a statistically significant difference between the means of the two groups credit cards
( p-value of 0.008), with transactors exhibiting a higher level of agreement than that
given by revolvers.
The next statement that was offered to the respondents was “It is more convenient 247
to use credit card payment, rather than cash”. There is some moderate evidence that
transactors are on average more in agreement than revolvers ( p-value of 0.054).
When asked specifically about some of these advantages, the responses were even
more pronounced. For example, the statement “Using a credit card means that you do
not have to worry about taking too much cash with you”, was recognised by nearly all
respondents as an advantage, despite China still being a very cash centric country.
Once again, on average the transactors were significantly more in agreement ( p-value
of 0.040). The vast majority of cardholders agreed with the statement that “It is
necessary to have a credit card with you when you travel overseas.” As employees in
fairly senior positions in their Chinese organisations, it is highly likely that many of the
respondents will have already travelled outside of China and thus they will have
appreciated the usefulness of the credit card in their travels. Once again, on average the
transactors were significantly more in agreement ( p-value of 0.034).
The responses to the statement that “It is safer to use credit cards payment
compared to cash payment”, reveal an awareness of some of the security issues which
still bedevil the credit card product. There is no statistically significant difference
evident between the means of transactors and revolvers ( p-value of 0.968). It would
therefore appear that both groups have similar perceptions as to the safety of the credit
card as a payment mechanism.
The responses to the statement that “It is easier to control my expenditure when I
use cash” resulted in nearly half of transactors and three-fifths of revolvers agree or
strongly agree with the statement, while a substantial percentage are either neutral or
disagree or strongly disagree with this statement (50.6 percent of transactors and 40.0
percent of revolvers – a difference which is not significant; x2 ¼ 1:142, df ¼ 1,
one-sided p-value of 0.192). Possibly they are the more sophisticated credit card holders
as they would recognise that control of expenditure can just as easily be achieved with
a plastic payment card as with cash. There was no statistically significant difference
evident between the means of the two groups ( p-value 0.516).?
Similar responses were found with the statement “The usage of a credit card would
encourage people to buy things beyond their budget”. Here again there is a substantial
percentage who are either neutral or who disagree at some level with this statement
(52.4 percent of transactors and 40.0 percent of revolvers). While it might be tempting
to hypothesise that revolvers are more likely to agree with the statement as they are
more aware of the risk and cost of overspending, the data does not support this
hypothesis ðx2 ¼ 1:570, df ¼ 1, one-sided p-value of 0.146). In addition, there is no
statistically significant difference between the means of the two groups ( p-value of
0.148).
According to CUP, China had at the end of 2005, 610,000 point of sale (POS)
machines that accepted plastic payment cards. This is proportionately a very small
number for a country with a population of 1.3 billion people and thus in order to see if
IJBM the holders of credit cards in China found this to be a problem the following statement
25,4 was posed: “People come across difficulties frequently when they use credit cards”.
These difficulties could be, for example, either the unavailability of POS machines from
which to make a card transaction or the inability of the POS machine to accept a
particular payment card, because ubiquity of acceptance is something that CUP is still
working towards. The actual sample distributions for transactors and revolvers were
248 very close, and exhibited the same bimodal behaviour, with nearly four-fifths of all
respondents either agreeing (41.1 percent) or disagreeing (34.9 percent) with the
statement.
If the POS machines are available however, there appears to be confidence that the
plastic payment card is easy to use when making a purchase. The response to the
statement “It is too complicated to use a credit card”, provided a very strong majority
of respondents who disagree or strongly disagree with this statement (69.8 percent),
very evenly split between transactors and revolvers. There is no statistically
significant difference between the means of the two groups ( p-value of 0.849). Hence we
can presume that the process of using the payment card is understood and accepted.
Whether there is sufficient opportunity to use the payment card at the POS is another
matter and this is still causing some concern in China. Indeed, it was reported in April
2006, that the Chinese central bank, the People’s Bank of China (PBC), is considering
preferential tax plans to encourage merchants to buy POS machines, as a means of
trying to achieve the target of 30 percent of retail sales being paid for by payment
cards, by the year 2008. (Shanghai Daily, 2006)
There are however signs of maturity among the existing credit card holders in
China. In response to the statement that “The reason why most people adopt the credit
card is that it makes them feel cool and fashionable”, over two-fifths of all respondents
disagreed or strongly disagreed (45.4 percent) and a similar percentage (38.1 percent)
were neutral. Again, there was no evidence of any statistically significant difference
between the means of transactors and revolvers ( p-value of 0.544). Thus it would
appear that credit cards are beyond a fashion statement is this segment of the Chinese
market.
To reinforce this view, the responses to the statement “Using a credit card makes
people feel important and wealthy”, were evenly distributed. Most respondents were
neutral on this (42.3 percent), with those who agreed or disagreed being comparatively
evenly split. One interpretation of this is that the functionality of the credit card in
China has become more important than its symbolism as a sign of wealth. Again, there
was no evidence of any statistically significant difference between the means of
transactors and revolvers ( p-value of 0.721).
Finally, in an attempt to explore what payment methods are used, both at certain
purchase value trigger points and in certain geographical locations, respondents were
asked “When you go shopping, either in China or overseas, which payment method do
you prefer to use?” A table was devised which offered respondents the choice of
payment method between credit card, debit card and cash and for shopping in China
whether the single expenditure was above or below 100 RMB. This spending amount
was chosen because it was thought by the researchers to be a possible value trigger
point at which consumers decide between the three different payment options that
were offered to them. Also a 100RMB note is the largest denomination printed in China
and it is believed that if the amount purchased is over 100RMB then it is considered to
be an expensive item and hence more likely that the payment method will be by plastic The adoption
payment card. Similarly respondents were also asked to indicate which payment and usage of
method that they would choose if their spending was done overseas (this included
Hong Kong, Macao and Taiwan) and for ease of currency conversion, here the value credit cards
trigger point was chosen as US $30.
Table IV shows the responses to the question. For domestic transaction under the
value of 100 RMB the majority (over 79 percent) would still pay by cash, with only 15.5 249
percent indicating that they would pay for their consumption by using a credit card.
This result is to be expected given the background of the respondents as urban-affluent
consumers, because to them 100 RMB is a very small amount and it would be quite
normal for them to pay by cash. Nevertheless this result still substantiates the
assertion that China remains a very cash-centric society, particularly for transactions
of this value. Interestingly the situation is reversed for transactions over the value of
100 RMB, with over 72 percent indicating that they would pay with a credit card and
under 10 percent saying that they would pay with cash. That the other 18 percent said
that they would use a debit card in this situation, only adds to the evidence that for
larger value purchases there is a propensity to pay with a plastic payment card.
When the responses to the question about overseas consumption are considered, the
story is similar. For purchases under US $30, over 60 percent would pay in cash, with
over 38 percent paying by credit card. For purchases over US $30 the results are
markedly pronounced, with over 83 percent paying with a credit card and just under 12
percent paying with cash. The figures for the debit card are very small in comparison,
reflecting the fact that most of the debit cards issued in China are only usable within
mainland China, although CUP does have ambitions to extend the acceptance of their
Yin-Lian marque, outside of China.
From the evidence emerging from this research however, it would appear that these
respondents, when they do travel outside of mainland China, use their credit cards
extensively and in particular for higher value purchases. The World Tourism
Organisation forecasts that China will be the fourth biggest source of tourists in the
world by the year 2020, with an estimation that 100 million Chinese will have travelled
outside of China by then. As mainland Chinese travel more widely, it can be assumed
that they will increasingly see the value of the credit card as a payment mechanism
whilst travelling (see Table III) and thus the holding and usage of such cards will
continue to rise. Once a credit card is acquired and then successfully used, it is likely
that continued usage will occur, be that as a transactor or as a revolver. Thus we can
predict with some confidence that the credit card product will continue to penetrate the
Chinese payments market, to the detriment of cash and thus assist in migrating China
from a cash centric society, to a more card-centric society.

No more than 100 RMB Above 100 RMB No more than US $30 Above US $30
(Base 174) (Base169) (Base 159) (Base 168)
(%) (%) (%) (%)

Credit Card 15.5 72.2 38.4 83.9

Debit Card 5.2 18.3 1.3 4.2 Table IV.
Cash 79.3 9.5 60.4 11.9 Purchase value trigger
Total 100.0 100.0 100.0 100.0 points
IJBM Conclusion
25,4 The market for financial services in China will become more open under the WTO
agreement and as the Chinese government seeks to encourage its “domestic” banks to
learn new skills from their “foreign” partners. These new skills include risk
management, debt collection and new product development, all key aspects of the
credit card product in other developed economies. Thus research into the plastic
250 payment card and the credit card in particular, is highly appropriate, given the
aspirations of the Chinese government to move to a more consumption based economy,
where increasing numbers of transactions will be completed electronically, via a
payment card and consequently where there will be then less reliance on cash.
There has been a limited amount of research into payment channels in China and
this research project was designed to make a contribution in this area, as well as to
administer a questionnaire on consumer attitudes towards acquiring credit cards in
China and their subsequent behaviour when using such cards. It is acknowledged that
the sample of respondents is a narrowly defined group, but they belong to the
urban-affluent segment and are likely to be the “early-adopters” of the credit card
product and hence, are considered a representative sample of the urban-affluent
population that this research focuses on. This research can now be extended to a wider
sample of the Chinese population, building also on the findings of Lu (2004), concerning
segments and usage.
The research reported here does therefore add to the very limited body of
knowledge concerning the credit card product in China, in a market which both
“domestic” and “foreign” financial institutions, see as being ripe for development.
There is evidence that the “early adopters” already hold credit cards; that they use
them for consumption and that they appreciate some of the advantages of credit cards,
particularly as opposed to the use of cash. Being regular travellers, both internationally
and domestically, the respondents to this research also appear to acknowledge the
usefulness of the credit card in facilitating travel and entertainment. Within China
however there are still some “infrastructure” issues, such as the availability of POS
machines, that inhibit the use of credit cards and some concerns about the security
issues that surround the use of credit cards, both in China and elsewhere throughout
the world.
The research results concerning purchase value trigger points do however indicate
that the use of credit cards for purchases above certain values, is already prevalent
with this sample of urban-affluent Chinese consumers. This augers well for the future
of this financial services product in China, for as more opportunities become available
to pay by credit card and as awareness of the attributes of this type of payment card
grows, then hopefully the “early majority” will follow the “early adopters” in both
taking out and then subsequently using credit cards.
This reported research is the first phase of an on-going research agenda, devised,
actioned and then disseminated by two collaborating Universities. As such it echoes
the existing relationships between the “domestic” Chinese banks and the “foreign”
banks with interests in China. They will have to work in partnership, to leverage their
respective skill sets and customer relationship assets. The credit card can be a
“stand-alone” relationship, whereby a consumer can take a credit card from any
potential provider, assuming that they are credit worthy. In the case of China, it is
however more likely that consumers will want to take this relatively new product from
the bank with whom they have an existing relationship and thus a partnership The adoption
approach will be required if “foreign” banks aspire to gain a foothold in this potentially and usage of
huge new market.
credit cards
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Further reading
The McKinsey Quarterly (2004), “Special Edition: China today”, The McKinsey Quarterly.

Corresponding author
Steve Worthington can be contacted at: steve.worthington@buseco.monash.edu.au

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