With the rapid development of China's financial industry and gradual acceptance of consumer credit, the status of various types of bank cards in people's social lives has been gradually elevated.

Horizon Research and Vision Investment conducted a survey among 2,210 residents aged between 14 and 60 in the cities of Beijing, Shanghai, Guangzhou, Wuhan, Chengdu, Shenyang and Xi'an in May, on how Chinese consumers have been utilizing the overdraft function of credit cards.

Results showed that 225 respondents, or 10.2 per cent of all survey participants, had a credit card, and 105 of them had overdrawn their bank accounts at least once, representing 4.8 per cent of all participants.

In terms of the use of overdraft and the incentives of and habits in overdrawing, Chinese consumers are still at a preliminary stage in utilizing the overdraft function of credit cards.

Overdraft mainly used for daily consumption, urgent expenditures

The most important area where Chinese consumers overdraw their accounts is "purchasing daily necessities," followed by "leisure and entertainment" and "sightseeing and business trips."

Consumers go into overdraft far less frequently when making larger expenditures such as buying homes, cars and home decoration.

Therefore, consumers choose overdrafts mainly for the purposes of daily consumption and urgent spending.

Overdraft frequency and amounts overdrawn remain low

Survey results also indicated a low monthly average of overdrafts and a low average of amounts overdrawn. The respondents made an average of 2.1 overdrafts per month, with the monthly average for 65.5 per cent of them less than three times, while only 6 per cent indicated clearly that they went into overdraft more than three times each month.

The average amount of overdraft stood at 943 yuan (US$113). Nearly half of the overdraft users had an average overdraft amount below 500 yuan (US$60), while 60 per cent of them had an average below 1,000 yuan (US$120).

Only 6 per cent of overdraft users indicated clearly their average overdraft amount exceeded 2,000 yuan (US$240). Two respondents reported the highest average overdraft amount 5,000 yuan (US$600).

Young and middle-aged working females constitute the majority of overdraft card users

Overdraft users are mostly female, aged between 23 and 40, with monthly average income of more than 1,000 yuan (US$120), and are among low-level employees.

An earlier survey by Horizon Research on consumption habits of females aged between 18 and 35 in Beijing, Shanghai and Guangzhou found a nature of high sensitivity among women, especially young women, which made them susceptible to moods and surroundings and often led to irregular and impulsive spending.

Such irregular spending was, in many cases, the direct cause of "overdraft consumption."

Most middle-aged women shoulder the responsibility of daily household shopping, not only for themselves but for their children and husbands.

The high frequency of their shopping behavior inevitably led to overdraft consumption when urgent needs arose.

Eyeing the high profitability of credit card business, Chinese banks are actively exploring promotion methods for differentiated market segments, some of which target female consumers.

But existing promotion methods are mainly focused on young women, with lesser attention to middle-aged females.

Horizon Research says, as China's current situation of overdraft consumption suggests more attention should be given to middle-aged women when promoting credit cards.

Reluctance to pay interest makes most overdraft users stop at "positive overdrawing"

In the area of repayment methods, two-thirds of the respondents chose to repay the entire balance within the interest-free period,further confirming that consumers are using the overdraft function of credit cards only to meet urgent needs, rather than to borrow and spend in a purposeful and planned manner.

Consumers found the overdraft services available somewhere between "satisfactory" and "acceptable." Consumers mostly complained about "financial costs (such as annual fees and interest)" the reason 97 per cent of the respondents gave for dissatisfaction.

This reflects the widespread mentality among Chinese consumers that it is not worthwhile to borrow money for the purpose of consumption, and that borrowing for consumption benefits the bank more than the borrower.

Let's take a further look at the consumption mentality of Chinese consumers. Sixty per cent of the 2,210 respondents maintain a "spend no more than you earn" stance, while only 7 per cent of them support the "borrow to spend" approach.

The consumption mentality among overdraft users is more advanced, with 27.6 per cent of them advocating "borrow to spend," although the percentage is still not a high one.

Among the consumers who are already "borrowing to spend," 43.3 per cent still borrowed for urgent needs, and a fairly high percentage 26.3 per cent maintain the "spend no more than you earn" stance.

In summary, borrowing actively for consumption purposes is only advanced among a small fraction of Chinese consumers. The deep-rooted perception of "spend no more than you earn" makes the credit card a tool to meet urgent consumption needs for Chinese consumers, while its role in financial management is largely neglected.

(China Daily October 11, 2004)