Chinese Consumers Use Credit Cards to Invest in Real Estate and Stocks


Chinese consumers are increasingly making illicit use of their credit cards to obtain cash for investment in real estate.

The problem of the illicit “cashing” (套现) of credit cards had become increasingly widespread in China, with as much as 1 trillion yuan in funds  obtained each year via the method.

“Cashing” or “taoxian” refers to an illicit method of obtaining cash via the use of credit cards for fake transactions or contrived product returns.

While in the past a single point of sales (POS) system corresponded to a single merchant, Wang Weidong (王卫东), chief manager, Bank of Communications Credit Card Center, said to 21st Century Business Herald that in China today a single POS machine can cater to many thousands of merchants, and thus be readily used to fabricate false transactions.

As a consequence Bank of Communications launched a crackdown in the first quarter of this year on the use of POS systems by direct sales personnel.

According to Wang many of the proceeds obtained via credit card cashing are used for micro-loans or investment in real estate and shares, which undermines the validity of regulatory data and risk models, as well as leads to irrational growth in credit.

Wang further points out that banks use customer transaction data to determine their credit extension amounts,  a process which is undermined when transactions are widely falsified.

One source close to financial authorities said that because the cost of credit cashing is low and regulation remains loose, some payment entities assist clients to engage in cashing, while others even publicly engage in cashing as their primary service, given that it provides higher returns that the fees on conventional transactions.

Some Chinese banks are also providing large-sum credit cards to small and medium-enterprises in order to support their business operations, while other payment organisations deliberately keep their client and transaction assessments loose.

Data from the Chinese central bank payments system indicates that as of the end of the first quarter of 2018 a total of 612 million credit cards had been issued in China, for an average of 0.44 per person.

13.14 trillion yuan in credit had been extended via credit cards, for an average of 21,500 yuan per card.

“In 2017 household leverage rose by 10% compared to 2015,” said Wang at the official release of the “China Payments and Settlement development Report (2018)” (中国支付清算发展报告(2018)).

“In the first quarter of 2018 the balance of overdue credit card loans increased by 87.1% compared to the end of 2015, and these are risks that members of the industry must focus upon.”