China has rapidly evolved into an economic powerhouse, but its banking, check payments and credit- and debit-card systems haven't kept pace in the vast country where much is rural, people traditionally didn't travel much, and payment-processing remains surprisingly local within provinces.
But that's changing, according to consultancy The Tower Group, which says the People's Republic of China is now putting in place a modern, sophisticated payment system based on high-speed fiber-optic networks expected to benefit China's consumers and businesses.
The Chinese government already has rolled out what's called the Chinese National Advanced Payment System (CNAPS) over the past few years for high-value interbank transactions in China's renminbi currency, as well as a separate network for lower-value renminbi transactions that works much like automated clearinghouse transactions (ACH) in the United States.
The latest modernization effort is a check-image exchange system introduced just this year, according to Tower Group Analyst Colin Kerr, author of the report, "Year of the Pig: Chinese Interbank payment Systems." (2007 is the Year of the Pig in traditional Chinese astrology, and it's a belief that people born now tend toward being "honest, straightforward and patient.")
China's national check-image exchange system, which went live in June in six cities and provinces, allows checks to be exchanged electronically among banks and electronic acknowledgments delivered for check settlement using the national electronic payment networks developed under CNAPS.
"Traditional paper-check clearing in China has been local, limited to particular cities and used primarily by corporations," says Tower Group in its report. "However, one ambition of the Chinese government is to encourage consumer use of checks as a secure alternative to cash, especially for large-value transactions such as automobile purchase."
The Chinese government also is encouraging growth and international acceptance in debit cards issued by bank sponsors of China UnionPay, an effort begun five years ago to unite China's disparate debit-card networks into a single infrastructure for clearing and settlement. "However, progress on this front has been relatively slow, largely because of incompatible technologies at the regional switches," Tower Group notes.
China remains a "fiscally conservative culture, where debit cards outstrip credit cards by a ratio of 22-to-1," Tower Group points out. According to sources cited by Tower Group, last year there were about 1.1 billion debit cards in circulation but only 50 million credit cards in a nation of 1.32 billion people.
Although more than 30,000 banking institutions are said to exist in China today, the four state-operated banks -- Bank of China; China Construction Bank; the Industrial and Commercial Bank of China; and the Agricultural Bank of China -- are the dominant ones driving the modernization effort. The four banks have the Electronic Interbank Network at their disposal, but connecting banks in distant rural areas remains a challenge.
China has special distinctions, such as having only one time zone for so vast a country, but two currencies, the second being the Hong Kong dollar. Hong Kong was re-united with the People's Republic of China as a "Special Administrative Region" under an agreement with Great Britain and the People's Republic of China in 1997. Hong Kong remains a global banking hub and has a separate clearing system.