Credit card defaults in China in the second quarter more than doubled from a year earlier, but analysts said the risk for card issuers remains under control.

The value of credit card accounts in arrears six months or longer surged 131 percent to 5.77 billion yuan (US$845 million) as of the end of June, according to the People's Bank of China.

On a quarterly basis, defaults grew 16.2 percent.

"Credit card defaults grew in tandem with booming use of cards," said She Minhua, a Haitong Securities Co analyst. "However, the default rate in China is still low when compared with Western markets."

In China, defaults accounted for 3.1 percent of total outstanding credit card lending, up 0.7 percentage point from a year ago.

The figure in the United States, where plastic money originated, is about 7.5 percent.

"I think the default rate is still within control," She said. "We don't need to worry too much about it now."

Banks had issued 162.6 million credit cards in China as of the end of June, up 32.9 percent from a year earlier.

The aggregate credit line extended on the cards rose 69.3 percent to 1.17 trillion yuan, while outstanding credit jumped 77 percent to 187.9 billion yuan in the same period.

China is encouraging non-cash payment options such as credit cards, which feature overdrafts, to boost domestic consumption.

Banks are also pushing credit cards to expand revenues.

Plastic is expected to be the second-most lucrative retail credit business for lenders by 2013, following individual mortgages, McKinsey & Co said in an earlier report.

In China, credit cards are more popular in affluent cities such as Shanghai and Beijing. But use of the cards remains small nationwide.

China's average credit card penetration is 0.12 card per capita. But in Beijing the figure has risen to 1.35 cards per person, and in Shanghai the figure is 0.75.

(Shanghai Daily September 18, 2009)