China is an extremely fast-growing economy where the standard of living in the major urban centers has improved even faster than the overall growth rate. The financial sector of the economy is also evolving rapidly. However, China is at a very different position than many other economies in terms of its payment systems in the economy. In China personal checks are not used. The use of cash is extremely high in China. Although debit cards are widespread and credit cards are beginning to be introduced, cash continues to be the payment method of choice when consumers pay their monthly bills and pay for their purchases.


When paying monthly bills for utilities and rent consumers typically have two choices: (1) pay in cash or with a debit card, which often means standing in line or (2) establish an automatic payment arrangement with a bank where the utility bills are debited against the account each month or use electronic banking.2 According to an executive at one of the four largest Chinese banks, about 2/3 of its customers have chosen to use option (1).

China has a single debit and credit card network; Moneylink.3 Moneylinks rates are regulated by People Bank of Chinathe Central Bank of China, although complaints regarding the level of fees are widespread. Many medium and smaller merchants do not offer debit card payment because of the interchange fee and the cost of acquiring the point of sale (POS) terminals for debit card (and credit card) payment. Thus, cash is the primary payment method when consumers pay for their purchases.



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1 MIT Department of Economics, MIT Sloan School, and Chinese Academy of Social Sciences. We thank the MIT Center for E-business for financial support (Xinzhu Zhang)

2 Electronic banking is also possible but the penetration of PCs at the household level is quite low. This alternative is used very little to pay bills according to interviews with Chinese banking officials.

3Moneylink is also referred to as China Unionpay. In the US Visa and MasterCard are two major credit card networks and also offer signature debit. Three major debit networks, not associated with the credit card networks offer online (or PIN) debit. However, Visa offers both the largest credit card network and will be the largest (online) debit network beginning in about 2005.

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