An Analysis of the Determinants of Credit Card Use Among Urban Residents in China

Abstract: Along with globalization, the use of credit cards has become popular among Chinese urban residents; China has witnessed the tremendous growth in the accumulated number of credit cards issued and the amount of credit loans utilized. The new-classical consumption theory holds individuals responsible for the use of credit loans, however, from Veblen’s institutional perspective, the use of credit cards is influenced by issuers, consumers and governments. Hence in this research factors from individual (micro) level and institutional (macro) level are both analyzed. The research question is: frequency of credit card use of Chinese urban residents being the dependent variable, the research aims at analyzing the determinants of credit card use, including generalized trust, trust in institutions, socioeconomic status on the individual level, and driving forces on the institutional level, including card issuance and promotion policies, and competition in the payment market. Quantitative models and qualitative interviews are applied to identify the significant determinants of credit card use and to unveil the mechanism of their influences. From multinomial logistic regression models, conclusions can be drawn such as: compared with the response “having no credit cards”, (1) among socioeconomic variables, social status, income and higher education have significant positive impacts. (2) Among trust variables, generalized trust has positive impacts on the frequency of credit card use, while trust in institutions has positive impacts on holding cards. Furthermore, to understand the impacts and interactions of generalized trust and social status, cross the two to form four types of consumers:(Ⅰ) high status-low trust, (Ⅱ) high status-high trust, (Ⅲ) low status-low trust, and (Ⅳ) low status-high trust. Further conclusions can be reached: (3) for individuals with low social status, the higher the generalized trust one has, the more likely one will own a credit card; (4) for individuals with low generalized trust, the higher the social status one belongs to, the more frequent one will use credit cards; (5) for individuals with both high status and high generalized trust, they will use credit cards more frequently. In the interview phase, this research has found that on the individual level, the use of credit cards is propelled by the dual effects of status and trusts, as different types of trusts have various mechanism in affecting credit card holding or use; people from different social status exhibit distinct perspectives on the two major motives of credit card use—financial flexibility and credit cards preferential. On the institutional level, China’s commercial banks adopt aggressive credit card promotion policies; the credit card issuing institutions mirror not only the “U.S. model” which established formal rationalized institutions, but also the “Russian model” which availed informal social networks to promote cards; besides, the rapid growth of China’s payment market and the emergence of electronic payments have also shadowed the convenience of credit card use. Finally, a graph is generated to depict the mechanisms of trusts, status and institutions on credit card use (shown as Graph 5).