RPT-FEATURE-Chinese learn credit card perils the hard way

(Repeats story that moved at 0000 GMT)

* China banks forced to scale back credit card policy

* Rising late payments a cause for concern

* Government curtails distribution of credit cards

By Michael Wei and Kirby Chien

BEIJING, Aug 13 (Reuters) - Beijing retiree Yuan Yizhong cut up his son's seven credit cards with a scissors in a frenzy of fury when he discovered that the 29-year-old had racked up huge debts that he couldn't afford to pay back.

Yuan then used most of his life savings to repay his son's credit card bills of 200,000 yuan ($29,280), managing to pay off about half.

"My son will get my house after I die, but I'm afraid it might not be enough," Yuan said sadly.

Stories like Yuan's have forced China's government and banks to scale back a credit card policy that expanded too far too fast in a country with little history or experience with personal debt.

Credit cards gained popularity among Chinese as the middle class expanded and living standards rose, and as the government tried to encourage the use of such cards to stimulate domestic consumption.

But rising debt, especially among young Chinese who were poor candidates for credit cards in the first place, has put a strain on some families and the government is now tightening up the credit card industry.

"In the past two years, banks have blindly issued credit cards," said Nie Junfeng, an expert on personal debt at CITIC Bank, the country's seventh-largest lender.

"The bubble has started to form and the risks rooted in false application information and low-income customers are beginning to emerge," Nie said.

China's banking watchdog, the China Banking Regulatory Commission (CBRC), told banks in July not to offer gifts to new credit card holders, set quotas for their sales staff, and perhaps most importantly, not to issue cards to people under 18.

The regulator's admonition followed the disclosure by the People's Bank of China that 4.97 billion yuan of credit card payments were at least 60 days late in the first six months of 2009, a jump of 133.1 percent from a year earlier.

Policymakers are keen to ensure that if plastic does take off in China there is no repeat of the sort of uncontrolled issuance that left as many as four million South Koreans unable to pay their card debts earlier this decade.