While in China, I am always amazed at how a country with such enormous financial capacity can lacks fundamental financial regulations. The most recent example of this is best illustrated by the introduction of credit cards to China.
1) Card holders are paying late or just not making payments. Credit card debt at least 6 months overdue is up 131% from last year.
2) Banks are not doing their due diligence before extending credit. Little documentation is required to get a credit card in China; sometimes all that is requested is a business card.
3) Lack of education regarding responsible use of credit. Stories of young Chinese racking up debt in the amount $30,000 USD (210,000 RMB) before the age of 30 is common.
So now what? China’s major cities, Beijing, Shanghai, Guangzhou, Shenzhen will be filled with middle age Chinese drowning in debt. We might as well write-off the 8% growth projection for 2010.
And since consumer protection in China is essentially non-existent, the parents of those irresponsible credit card holder will continue to experience harassing phone calls and threats to seize property. Well, I guess each country has the right to learn the hard way.