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Market Watch
Business> Market Watch
UPDATED: August 23, 2010 NO. 34 AUGUST 26, 2010

Credit Card Boom

Despite China's reputation as a nation of savers, credit cards are establishing a presence.

By the end of June 2010, Chinese banks issued 207 million credit cards, extending credit of 1.64 trillion yuan ($241.9 billion), said the People's Bank of China, the central bank.

Guo Tianyong, Director of the Research Center of China's Banking Industry under the Central University of Finance and Economics said the sector has deep growth potential.

According to a report from the accounting firm McKinsey & Co., just 14 percent of eligible customers have a credit card in China, compared to 81 percent in Hong Kong and 70 percent in Taiwan.

But it is still necessary to strengthen regulations over the sector and to strike hard against credit fraud and relevant crimes, Guo said.

The current boom was in part boosted by unscrupulous card issuers that recklessly put their cards into the wallets of many under-qualified low-income consumers, planting the seeds of bad debt.

Policymakers have stepped up controls over the exploding business and warned issuers against potential risks. In response, the China Merchants Bank has suspended card issuance to university students and slowed the pace of increasing credit limits to card holders.

Regulation efforts seem to be paying off. Credit card debt that was overdue for at least six months was 7.3 billion yuan ($1.1 billion) by the end of June 2010, a decline of 17.7 percent from the end of March 2010, said the central bank.

Sina Cashes In

Sina Corp., a major Chinese Internet portal provider, reaped windfall profits, as online advertising boomed amid the economic recovery.

The company said its second-quarter profit surged 89 percent to reach $25.2 million, as the company sold more online advertising in the world's biggest Internet market. Revenues rose 10 percent to $99.4 million in the second quarter, supported by a 27-percent increase in online advertising sales.

The Shanghai-headquartered company plans to raise prices for advertisers this year, capitalizing on demand from companies marketing their products and services in the world's second biggest economy.

"Our cost controls have been efficient and the advertising income received a substantial boost from the simmering FIFA World Cup in South Africa and the World Expo in Shanghai," said Charles Chao, CEO of Sina. "The demands from auto, telecom and financial industries were especially robust."

But Sina's mobile service businesses have been buckling since December 2009. Cao said he expects revenues from mobile services to stabilize in the third quarter and the company will strengthen marketing efforts in emerging businesses, such as Microblog, a Twitter-like social messaging network.

P&G's Expansion

The global consumer products giant Procter & Gamble (P&G) plans to invest at least $1 billion in China over the next five years. That is more than it has poured into the country during the past decade.

In its latest move, the conglomerate inaugurated a $79 million innovation center in Beijing on August 18. This is the company's sixth research facility globally and is expected to be one of its few innovation centers, supporting its global business, especially in emerging markets.

"China is P&G's second largest consumer market in the world following the United States, but per-capita consumption is still far less than in America," Bob McDonald, CEO of P&G, said.

For that reason, P&G is compelled to "continue to increase investment in the market and take advantage of the robust economic growth here," he said.

P&G generated $5 billion in sales in China for fiscal year 2009, accounting for 7 percent of its global sales revenues of $75 billion.

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