"In April and May, Suning's customers who pay via credit card will be exempt from down payments, bank interest, and commission fees. They will also be eligible for a handful of other advantageous offers," Shanghai Suning market spokesman Mr. Yao told China Business News Monday.
The home appliance giant is closely shadowing national policy, as five ministries and commissions including the Ministry of Commerce, Ministry of Finance, and the People's Bank of China have issued a memo encouraging credit consumption.
Suning Vice President Ling Guosheng reiterated the view signaled by the commerce ministry as early as last December, calling on the retail sector to act positively and follow the successful example of western credit consumption so as to boost domestic demand. Currently, credit consumption accounts for 90 percent of US retail turnover, and more than 33 percent in Japan. Even in developing countries like Brazil, credit consumption is more popular than China, where it represents a meager figure of less than 20 percent.
Suning responded to the central authorities' clarion-call on December 24, six days after the memo was issued, and launched a tri-partite cooperation scheme with eight domestic banks and upstream home appliance suppliers, aiming to stimulate consumption by means of credit card.
Mr. Yao revealed that shortly after New Year's Day 2009, Suning Shanghai stores registered a 500 percent year-on-year growth in sales. However, the advantageous promotion lasted only 50 days. Suning therefore plans to re-launch the promotion next month, and all first tier cities are likely to be included.
But credit card consumption and payment by installments both increase business costs. In fact, some retailers are already complaining.
During China's recent National People's Congress (NPC) and Chinese People's Political Consultative Conference (CPPCC) sessions, NPC Deputy Zheng Xiaoyan, chairperson of Hefei Department Store, revealed the findings of her company's investigation: In 2008, fees remitted to China Unionpay accounted for more than 10 percent of the retailer's entire margin. Considering falling business turnover in 2009, this proportion is likely to rise.
Her findings were confirmed by many retail insiders, who note that this cost has in fact become a heavy burden on business. They suggest that the country upgrade its bank card system, and reduce commission fees for swiping credit cards.
Suning's Ling Guosheng told the newspaper that during the tri-partite joint promotion, the Shanghai company itself paid the banks 10 million yuan (US$1.46 million) in card commission fees.
However, the credit consumption bonanza could encourage illegal scams, for example applying for credit cards with a fake identity, and then making huge purchases with the cards.
In the light of this, preventative measures are included in the memo; credit insurance will be introduced into the stimulus program in that retailers who suffer losses will be compensated according to insurance terms. Ling Guosheng adds that during their promotion campaign, customers will be required to present their citizenship cards in all cases, even if their cards are password protected, and personnel will also double check the customers' identity upon delivery.
(China.org.cn by Maverick Chen, March 18, 2009)