Reply To: Shanghai Apartment Search – Tired of Bait & Switch

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Is it difficult for an expat to obtain an unsecured credit card from a Chinese bank? Generally, yes. Very.

Is it discrimination? The answer is murky.

Just like in, say, the USA, there is a legitimate risk issue that banks are obligated to consider. Some factors that mitigate that risk are:

1. Credit history;

2. Property ownership;

3. Own your own car;

4. Ties to the local community;

5. Ability to repay the amount borrowed;

6. Cosigner;

7. … and others.

The vast majority of expats have no established credit history which can be verified in the People’s Bank credit reporting system. This leaves the expat applicant at a serious disadvantage.

The vast majority of expats also do not own property or cars. With no established credit history, this can be fatal when the bank is evaluating your application.

In the bank’s eyes, ties to the local community means you have a long-term presence and roots in the community. Having that and a decent, stable job will sometimes result in approval for local residents, especially college students. Unfortunately few expats are in this target group.

Most expats would probably have the ability to repay their debt, but even for local people this alone is seldom sufficient.

In the past banks did allow — and often even insisted on — cosigners. Now they generally do not allow cosigners even for Chinese applicants.

Probably the best method an expat could use is to obtain a secured credit card. Make sure the history is reported to the People’s Bank and after a couple of years request a refund of your security deposit. A year or two after that, apply for another credit card based on your good credit record.

We all know that when you exchange, say, US$ for RMB that you can often take the unused RMB and exchange it back into US$ on the strength of the original currency exchange receipt. Well, when it comes to US$ obtained from an incoming wire transfer (TT), you need to be very careful or when you exchange those US$ into RMB you are pretty much stuck with those RMB for life if your idea was to use whatever RMB you didn’t need back into US$ using only the original currency exchange memo.

US$ cash in hand (i.e. banknotes) is considered “cash” [钞] and cash can be converted to RMB and then back again to US$ using the original exchange receipt.

US$ obtained as the result of a TT or the deposit of a US$ check is not considered cash. It is considered “forex” [汇] and if you are not careful when you exchange that forex to RMB you will have problems repatriating any unused money.

The reason is, basically, because of the disparity between the exchange rate between US$ cash to RMB and the US$ forex to RMB. Let’s say that the US$ / RMB exchange rate is 1:7. You can give $1 cash to the bank teller and they will give you 7 RMB. When you want to later get US$ back for your RMB you give the bank, say, 7.5 RMB and they will give you $1. Let’s call this 0.50 RMB the “spread” or the bank’s profit on the transaction. However, when you give the bank $1 in forex, the bank gives you pretty close to if not exactly 7.5 RMB, but they give you no currency exchange receipt because they do not allow you change the resulting RMB back to US$ without them having earned their spread.

The only way to get around this is by first exchanging your US$ forex for US$ cash, taking the US$ cash and then using that to buy RMB. Unfortunately, when you take the proceeds of a TT or foreign currency check deposit in foreign currency cash the bank does not like that and they will charge you an approximately 1% commission on the currency you withdraw.

This whole forex vs. cash distinction is supposedly going to be eliminated by the People’s Bank , but it not happening very quickly.

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