China charges into credit cards

Welcome to the world of plastic -- Chinese style.

Chinese banks don't have national credit bureaus and sophisticated scoring models that allow them to churn out approvals in minutes. Instead, armies of young workers pore over paper applications, manually verifying one piece of information at a time.

Yet banks in China have issued tens of millions of credit cards in recent years. Today, more than 100 million are in circulation among China's 1.3 billion people, up from just 3 million in 2003, according to analysts and bankers.

Unlike American credit card firms, which are cutting back because of rising delinquencies, Chinese banks are stepping up their marketing of plastic. In the next five to 10 years, analysts say, China could issue 1 billion new cards, largely to a mass market that has little experience with credit.

Chi Wei Joong, a former American Express Co. executive, runs the credit card operations for China Merchants Bank. He has more than 9,000 workers nationwide. In every major city, Joong's sales force researches office buildings, their occupancy rates, average rents and other statistics. A report is then sent to the bank's credit department, which assigns a credit score for the building before salespeople target folks who work there.

"This is to control risk," Joong said. But if borrowers default, he doesn't hesitate to turn the accounts over to more than 100 collection agencies.

Joong says fewer than 10% of his bad loans end up in court, but some people have gone to jail. Under Chinese law, a credit card user who intentionally defaults on a sum as little as $3,000 can be sentenced to as much as five years in prison.

The tough regulations haven't stopped the steady increase in troubled credit card debts at China Merchants and other lenders. Analysts estimate that banks in China this year were writing off 2% to 3% of their credit card loans, less than half of the July charge-off rate of 6.6% in the U.S., according to Fitch Ratings.