Credit cards in China: Citi building

LAST year your correspondent visited one of Citibank’s few branches in mainland China, hoping, among other things, to get a local credit card. The reply was unexpected. “Sorry, sir, but we are not very good in China. I recommend you go to another bank.”

Assuming such honesty has not already cost him his job, the teller has a better story now. This week Citibank became the first Western bank to receive regulatory approval to issue credit cards in its own name; previously, foreign banks (Hong Kong’s Bank of East Asia was the exception) could offer cards only through local partners. Citi has been expanding its retail network in China, including in novel places like airports and tube stations. In January it also announced it would set up a joint venture with China’s Orient Securities Company.

Is good news for Citi also manna for others? Some note that China’s official policy is to encourage consumption and wonder if the announcement suggests a desire to expand the domestic credit-card market in a big way. Others point out that China stands accused at the World Trade Organisation (WTO) of illegally boosting UnionPay, a domestic payment system backed by big local banks, and ask if this signals opportunity for the likes of MasterCard and Visa.

Do not hold your breath. It is true that the country’s credit-card market is growing (local banks had issued nearly 270m cards by the end of the third quarter last year, up by 20% on a year earlier) but from a low base. Officials would much rather see future consumption growth come via lower household savings than through splurges on credit cards, argues Tom Quarmby of Barclays Capital. And even if the WTO case results in a formal change in regulation, says Liu Jing of the Cheung Kong Graduate School of Business in Beijing, such are the advantages of incumbency and local backing that UnionPay is likely to remain dominant.

As for the notion that Citi’s recent advances suggest a speedier opening of China’s financial system to foreigners, that hope also seems misplaced. This is a year of leadership transition in China, when officials typically take few chances. Some reforms may move forward, but probably as pilot schemes. Foreign firms have invested heavily in order to capitalise on any Chinese bonanza, but the waiting game is far from over.

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