Credit, Personal Finance, The Home 

Do the Chinese Not Like Debt?

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So I read now unavailable news article about how HSBC and Citigroup are entering the credit card business in China but they have run into the problem of Chinese people paying off their debt at the end of each month! Why is that?

If you’re Chinese (American-born such as myself or otherwise) then this scenario will be very familiar to you (it’s probably familiar to you even if you aren’t Chinese). You are visiting a friend or relative, they take you out to a very nice dinner, and when the check arrives you fight over it. You, as the visitor, will likely never pay but you still argue and then acquiesce because that’s how things are done. The next time, you invite your friend out and you “re-pay” the “debt” of the nice meal. Years can pass between these two meals but the one in “debt” always remembers.

This is tied very deeply with a concept in Chinese society known as Guanxi, that is, the personal relationship between two individuals. Wikipedia has a brief explanation of this concept. The crux of the idea is that when someone can do a favor for you, you are in their debt and should do your best to make right of it to them or their descendants.

I believe the bottom line is that Chinese folks don’t want to be indebted to someone else when they don’t have to be. Call it a pride thing but if you can do it yourself then you don’t ask someone else for help. When you do ask someone for help, you remember to repay them. I believe that the idea of being indebted to someone (in this case a credit card company) is so uncomfortable a feeling and so ingrained in society that it will be hard for credit card companies to make headway until the consumerist and commercialistic aspects of Western culture spreads more in Chinese society (which I think is an unfortunate thing). So when you do borrow money from a credit card company, you pay them back.

Or, Chinese people are just smarter about credit than the companies anticipated. 🙂

(It would be interesting to see the payback rates based on ethnicity as a matter of inspecting society but I doubt companies keep that sort of data for fear of retribution if they were ever discovered.)

{ 15 comments, please add your thoughts now! }

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15 Responses to “Do the Chinese Not Like Debt?”

  1. Jim – A thoughtful yet funny response. As a Chinese-American, I’ve fought over many a restaurant bill myself. And no, I have never carried a balance on my credit cards, although I’ve been tempted to with all the zero % balance transfer offers. If my parents could have, they would have paid for everything in cash. I think they’ve only had 2 car loans in their entire lifetimes and they paid off their mortgage in 11 years. I’m a bit more liberal than they are, but I too paid off my car loan and student loans before I had to. Maybe not the wisest move on my part (both had fairly low interest rates), but I hated the thought of being in debt.

  2. JPC says:

    Hey Jim–

    I’ve experienced the restaurant tab owing myself and have see it as a kid between my mother and aunt after dim sum. My sister and I call it “check kung fu.” You’d see my mom and aunt duking it out with the check. They’d literally each grab one end and start to pull. They’d both get red with exertion and growls of frustration can be heard during the struggle. The victor usually has a smirk on her face that would linger until the check has been paid. The loser would utter promises of retribution at the next dim sum meal. As a kid, it was better than courtside seats at Wimbledon. My eyeballs would just follow the action of two matronly looking ladies getting their game on.

  3. Tim MMF says:

    Apparently, the Chinese have it right. Being indebted to someone else sucks.

  4. Joe says:

    Old school Chinese people like to save save save. If they can’t pay for it in cash, then they most likely wont buy it at all. Americans could learn alot from them.

  5. Jonathan says:

    Just give Citi and HSBC a couple of generations, it’ll happen. And they know it…

  6. Moussa says:

    Amen to that Jonathan

  7. Phil says:

    Interesting perspective on this. One other thing is that most non-young Chinese are very conservative with money, much as the Americans were pre-WWII. Mortgages were as rare in the US then as they are in China now. Of course, that’s changing rapidly.

    The other week I asked a couple of Chinese co-workers why the savings rate was so high there. They both said that it’s because most people are so conservative and risk-averse that they save for everything before buying it. Could you imagine anyone saving for their entire life to buy a house in the US? If the savings rate numbers were redone to take into account things that Americans buy on credit vs. saving for (i.e., house, car, school), I think the difference would be much lower. The ready availability of credit and willingness to use it also has the effect of essentially preventing anyone from actually being able to save enough to buy a house, since the prices are so high and rise so much faster.

  8. RS says:

    Very interesting stuff. It always is always very interesting for me to see how different cultures do things differently. Especially with money matters.

  9. Jack Yan says:

    You mean other races don’t do this? Wow. Surely the normal view is: if someone advances you credit, then you pay them back on the day they demand?

  10. This is an interesting discussion. I will attribute the high saving rate to the lack of safety. Without a reliable pension system and safety net like medicare, people always save for the rainy days.

  11. Jack Yan says:

    You will find that even Chinese who live in countries with reliable pension systems (e.g. New Zealand, which has state-provided healthcare), the pattern is identical.

  12. Andy says:

    I decend from poor German immigrants; three generations ago on my mother’s side and four generations on my father’s side. When we cleared out my Great Grandfather’s house after his passing, we hit some woodwork with a piece of furniture and found he had stashed money in secret compartments throughout the house. He lived though the turn of the century and the great Depression and didn’t believe in banks, but he sure did save. He never used credit. On my mother’s side, her parents had separate envelopes they put money in until each bill was due. They did this before spending for anything else. They never had a checking account or credit cards. My parents followed suit, but I can see the idea of credit come into the picture as my Dad used the GI Bill to get a low interest house loan and help with college while he worked his ass off. They never had a new car until I was out of the house and paid all their bills on a monthly basis. My brother and I haven’t fallen far from the tree. We both have no loans outstanding other than very conservative houses, pay our credit cards off every month, save to buy expensive items such as a vehicle and invest to create wealth growth. My father retired a successful businessman and has a few million bucks that they can not spend even in their later years, because they just can’t change now. Even today, if I experience a winfall from my job’s profit sharing or a successful investment, Dad always tells me to “go south with a little bit of it” a strange saying he heard from my G-grandfather decades ago that means “save some of it”.

    I work with people who spend their entire paycheck every other week, in debt up to their eyeballs and if anything happens to effect that vicious cycle, they go beyond broke. I can’t figure what makes them different or why they do it, other than they can and The Man tells them its OK to give all their money away because there’s always more to borrow and they beleive it.

  13. jim says:

    That’s a great story Andy, thank you for sharing it.

    MM – “Without a reliable pension system and safety net like medicare, people always save for the rainy days.” I’m sure you’re aware of this but a lot of people might not be and it’s that whereas the West is used to relying on retirement homes and communities to care for the elderly, Chinese people don’t because of how the family is structured. The children care for the parents in their old age and so the need for a financial safety net such as a reliable pension system (though ask retired airline pilots how that pension is doing, not as reliable as it once was!) and medicare simply isn’t as critical as they are here. So I don’t think that’s a good reason as to why people save for a rainy day.

    Andy’s story, however, does explain a reason why you would save for a rainy day (mistrust in banks, especially since they can go bankrupt) but not necessarily why you wouldn’t borrow. If you borrow the money from a credit card company, they can’t come and order you to pay it off, you can always make minimum payments so you are safe there but the fiscally conservative attitude would be a reason why you wouldn’t want to overspend (i.e. borrow to spend). I hope that all made sense.

  14. ally hing says:

    If we all save more and avoid big debts, all prices of goods will be lower, including housing.

  15. Ally Debt says:

    I am American (US citizen) and I was taught that debt helps others be employed. It is not a selfish thing more like a system. If we all grew our own veggies why would we need aproduce section in the grocery store. As globalization grows and cultures mix you hear all about different ideas and how debt should be tamed or untamed. My question is “is credit card debt still used to pay employees at the end of the day or has it been re-engineered for the greedy. If so, maybe I should pay off my debt especially if I am employing Chinese minded Americans.

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