A credit card is an important thing to have when globetrotting, not least because many forms of online reservation require credit rather than debit payment. For those anticipating a long stay in China, a credit card may seem like a good idea. In general, however, Chinese banks have been very unwilling to give credit cards to foreigners because of the risk of them leaving the country without having paid all of the bills. Despite this, there is now some indication that things may be changing. A total of 270 million domestic credit cards were issued by the end of the third quarter of last year, and this increase may spill into the ever-growing foreign market in China. It must be pointed out that the government’s desire to increase spending is balanced with a suspicion of the credit and loan-based issues behind the Western financial crisis of 2008. Nevertheless, foreigners who previously found it almost impossible to get hold of a domestic credit card may find new opportunities in the coming months and years.

What foreign credit cards can I currently use in China?

There are at present seven foreign credit cards available in China, including Visa, MasterCard, American Express, Diners Club, JCB, Federal and Million. These work best in urban areas. There are obvious benefits to having a domestic Chinese credit card rather than a foreign one, insofar as the money earned in China will go straight into your account without bypassing any change in currency or other costs which will lose value. Foreign credit and debit card use in China may result in unusually high commission fees by whichever Chinese bank you use to withdraw from.

Applying for a domestic credit card

As already alluded to, China currently makes it more or less as difficult as possible for foreigners to obtain a credit card.

Requirements

Requirements may range from owning a house (or other assets); to having or depositing a certain amount of funds in your account (one person quoted 500,000 RMB). With a typical teacher’s monthly salary of around 8,000 RMB, it is extremely difficult to successfully obtain a domestic credit card, and generally pointless, because your credit limit as a % of your salary will be extremely low.

Banks will generally look more favourably on those married to a Chinese person. If you are not married, you may be able to arrange a co-signer who will pay for any overdue bills should you abandon ship (and for this reason, they’d probably have to be a pretty good friend). Such procedures will greatly strengthen your application. The long and short of the matter involves having some kind of collateral in China that can be used should you default on a payment.

Obviously, your application will require demonstration of work permit, passport and contract; the longer your contract, the greater the likelihood that your application will be successful. In general, each bank will have a very similar approach, requiring some collateral or a huge initial deposit. In general, however, the China Merchant’s Bank is recommended, and has a reputation for taking on customers who have been rejected by CCB and BOC.

Nevertheless, in terms of foreign applications, there are few hard and fast rules: each application is taken on its own merits. It should be added that if you work for a Fortune 500 company, you will probably be accepted for a domestic credit card because of your company’s inevitably close relationship with Chinese finance (so they have a means of chasing the money should you forfeit on payments).

Benefits to a domestic credit card

Once you have the card, there are numerous benefits. Not only can you gain points per purchase that can be redeemed as gifts, but you can also use your card abroad, meaning that you can spend the money you earned in China at a much more favourable rate than if you had to transfer cash at a money exchange.

Travelling will generally become much easier for the same reason (consider that these cards are what Chinese abroad tend to use). Extra charges that apply to foreign credit cards do not apply, because no conversion of currency is required, and you are merely spending RMB rather than a foreign currency. Expenditures at most banks can be converted into air miles. Add to this the obvious benefit that you can make large purchases before you have the money in your account, which will save money in that you will be able to book tickets and other travel expenses earlier than usual. If you are a high-earner in China, and your money is being paid into a Chinese account, then a domestic credit card could potentially save you a large sum of money.

Charges and interest

Chinese credit card interest rates are government-set at 0.05% a day, and capped at 18.25% a year. Late fees tend to be 5% of the minimum overdue portion, being at least $1 or 5 RMB. If you miss two payments successively, Chinese law requires you to pay the full owed amount immediately. Failure to do so can lead to years of imprisonment. These laws are much more severe than Western equivalent, driven in part by fears of a parallel credit-driven financial crisis.

Only a small amount of credit-loans are defaulted on in China, compared to a large number in the US. In short, the benefits of potentially lower interest rates (that, again, vary from bank to bank) are offset by more severe punishment for defaulting. Then again, if you have the financial muscle to obtain a credit card (mass deposit, assets, etc.), defaulting is probably unlikely.

What foreign banks issue domestic credit cards in China?

Since early 2012, Citibank has become the first non-Asian financial institution to gain approval to offer credit cards in China. This event undoubtedly marks one of the most important shifts in modern Chinese financial history, opening up a currently largely untapped credit market. The process has been complicated, but the result is probably one of the most significant in modern China’s financial history.

Previously, Citibank could only offer credit and debit cards in partnership with Shanghai Pudong Development Bank (SPDB), and the customers would exclusively belong to the Chinese partner. After threats from the World Trade Organisation over the financial legality of UnionPay’s monopoly on the Chinese market, the Chinese government has finally relented and allowed Citibank to access a market of over a billion potential credit consumers.

Applications for a credit card with Citibank are likely to be considerably more straightforward than with Chinese counterparts, especially as the bank’s global status means they are considerably less threatened by people defaulting on payments. The scheme is not yet fully launched.

Can I link my existing international credit card to a Chinese account?

Yes. If you already have an international credit card, and open a bank account with any Chinese branch (China Merchant’s Bank, Bank of China, etc.), you will have the option to link the two accounts. If you leave the country with unpaid credit card bills, the amount will be withdrawn from your existing overseas account to which your credit card is linked. The benefits of this approach are obvious: you can earn RMB and then pay off credit-debt directly with this money. For many foreigners, this will probably be a preferable option to applying for a domestic credit card, which, as indicated above, can be an arduous process.

Article Source：Echinacities News