In China, Cash Carries the Weight

Despite Banking Strides, Credit Largely Shunned

Because credit cards in China have low limits and few stores take them, they are more popular as fashion statements than financial tools. (By Ng Han Guan -- Associated Press)

BEIJING -- When Wang Xiaoyu set out to buy some sleek Lincoln automobiles for the small company he owns, the problem was how to pay. No dealer in China takes personal checks. Credit card limits are too low. Car loans barely exist.

So he brought cash, more than $200,000 worth of it, in three rolling suitcases.

"Everything else is a lot of trouble -- just easier to use cash," said Wang, 29, who runs a consulting company that helps Chinese businesses find foreign partners.

China's state-owned banks rank among the highest-valued in the world, with stock market capitalizations in the billions of dollars, but they are widely considered the weakest part of the country's booming economy.

Although China has made strides in reforming its banking system over the past five years -- cracking down on corruption, buying out many troubled loans and allowing foreign banks into the market -- retail banking remains stuck in an earlier era. The problem isn't new, but the number of people in China who have enough money to need modern banking services is soaring. The system hasn't kept up.

Many employees' salaries are still distributed in fat envelopes of cash rather than by check or direct deposit. It's not unusual for life's major purchases, such as cars or even houses, to be paid for in cash.

It isn't just the banks stuck in the past; there's consumer resistance in China to financial tools that are routine in other countries. Credit cards are gradually spreading, for instance, but many people embrace them chiefly as a fashion statement. There are floral-scented ones, cards bearing Hello Kitty logos, pink cards aimed at women. But because they are only accepted at some stores, such as designer boutiques and larger chains, their utility is limited.

"The reason I got that in the first place was because it was cute and cool, and has value as a collectible," Zhu Jing, a 24-year-old bank clerk said as she flashed one of her cards. She has seven, including one with an MSN Messenger logo and another with an Olympics theme.

Chen Jing, a 28-year-old teacher from the eastern coastal city of Ningbo, however, came to the conclusion that the novelty wasn't worth the $25 annual fee. "I had a credit card but just canceled it recently because I don't need it and I never used it," Chen said.

The underdeveloped financial system has frustrated many Chinese consumers and foreigners trying to do business in the country. But China's banking regulators say the slow pace of change is in the national interest.

China's financial leaders say they are cautious about moving too quickly because they see the problems that has caused in other countries. They cite the United States as an example of what can happen to a country that hands out credit too loosely, pointing to high levels of indebtedness among young Americans and the recent problems in the mortgage industry that have caused families to lose their homes.

Wang Huaqing, assistant chairman of the China Banking Regulatory Commission, said in an interview that in recent months, the country has been alarmed to see novel financial schemes crop up. People have been caught taking out cash from credit cards and loans to gamble the money away in the stock markets or on speculative real estate. Gangs have been investigated for stealing people's identities to open accounts. And criminals have been put away for laundering money.