As the big-box retailer par excellence convenes industry analysts in fabulous Teaneck, New Jersey, Wal-Mart’s expansion plans are reorienting far away from the Garden State.
During the fiscal year of 2008, Wal-Mart’s retail space – the primary measure of expansion since the amount of room you have to stack trampolines and towels directly correlates to how many you can sell – is projected to grow by 7.5% in the US.
Internationally, retail space is set to grow by a full 10%. The emphasis has shifted.
Wal-Mart has had some well-publicized stumbles over the past year in Europe and Asia, where German and South Korean versions of Sam Walton’s big box were folded up in seeming surrender to rival operations like French-owned Carrefour.
Yet Wal-Mart is undeterred from planting more seeds of sales abroad, and in the process of its adventure the company is turning a pillar of globalization on its head.
China doesn’t just work — it wants
China, Credit, and Consumption
China is still a plastic-poor society. Perhaps this is to the benefit of the Middle Kingdom, as the budding consumer base depends far more on paper currency for transactions than most US shoppers.
In the modern world it’s almost an absurdity to be limited in your purchasing power merely by what cash you have on hand. During my month-long jade junket last year, a credit card was as rare as a fork in the shops and restaurants I frequented.
Indeed, I used neither occidental implement even one time in China.
Fewer than 5% of Chinese have credit cards, and those who pack the plastics are reluctant to run them. Only 3% of spending is transacted with credit cards.
But compare that to over 25% of spending conducted by CC in the economic island of Hong Kong, officially a part of China except that it is financial lightyears beyond even neighboring Shenzhen.
Both Hong Kong and its twin former foreign protectorate, Portuguese-influenced Macau, use different currencies from China’s yuan (also known as the renminbi, or “people’s currency”).
This poses a problem for credit continuity from the special business zones into the newly prosperous mainland. Even the politically uniform parts of China have their work cut out in order to ease uniformity at the sales counter.
According to China Union Pay, a national industry organization launched in 2002 to integrate the country’s credit card payment options, in 2002 only 2.7% of merchants accepted credit cards.
At 2003’s end, China had 3 million plastic-powered pocketbooks. But that number surged over the ensuing years, surpassing 12 million total cards at the end of 2005.
That’s a 400% gain!
Wal-Mart, content to have its Chinese strategy hinge on Chinese production for so long, is now making it its business to further initiate Chinese consumers into the world of cash-free consumption.
Wal-Mart has teamed up with General Electric’s financial services branch and the Chinese Shenzhen Development Bank to launch Wal-Mart’s second retail credit card in China.
This Visa will be a passport to international consumerism as well for those who sign on, allowing purchases to be rung up in the yuan and also in US dollars. It is being branded as a “dual-currency” card, which leaves unclear whether the Visa could switch easily between stores in China, Hong Kong, and Macau where three different banknotes are in use.
In September, Wal-Mart partnered with London-based banking giant HSBC and China’s Bank of Communications to issue a Mastercard.
Emblazoned with the Wal-Mart logo, both of these cards will serve as advertisements as well as consumer tools, and between the northern-focused Mastercard and the southern issuance of the Visa, Wal-Mart will cover all its bases.
Plastic Power Corrupts
As China UnionPay tries to standardize the nascent and prolific Chinese credit card industry, it must systematize magnetic stripe readers, point-of-sale terminals, and the account number system that operates independently of issuers or even card types like MasterCard and Visa.
The industry also must prevent counterfeiting. This April, Shenzhen police busted a ring of card counterfeiters with 41,000 blank Visas, Mastercards, and others with the capability to turn them all into functional purse power.
We must all remind ourselves that the essential benefit of credit cards is also an intrinsic danger – it’s money you might not really have. In the US there is now heightening discussion of consumer spending as a function of home equity in a sagging housing market. I believe that burden of credit will shift to credit cards and other bank-orchestrated means of lending at the counter.
China is descending from a 40% household savings rate to a reality in which storefront spending is a more day-to-day reality. Chinese consumers would be wise to moderate their previous lifestyle compared to the American extreme which now lies at a negative household savings rate.
But the market for international financial services is already well-established in China, and it is growing.
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