China’s decision to allow Citigroup Inc. to issue credit cards in its own name may signal a step toward the government in Beijing opening its banking industry.
New York-based Citigroup is the second foreign bank, and the first Western one, to be permitted to issue credit cards in China.
The announcement Monday came as the World Trade Organization, acting on a U.S. complaint, probes the legality China’s refusal to let foreign companies issue their own bank cards denominated in its currency or to permit companies such as Visa Inc., American Express Co., MasterCard Inc., Discover Financial Services and First Data Corp. to process card transactions in China.
“It’s perhaps not a coincidence that this is coming at this point when this case is going on,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “But I think it’s more connected to changes on the ground in China, in its policy on competition in banking in China, where we see a cautiously gradual opening.”
China requires foreign banks to “co-brand” with Chinese operators to issue credit cards and execute payments through China UnionPay Data Co. The U.S. says the rules contravene a pledge the world’s most populous nation made when it joined the Geneva-based WTO in 2001 to open its debit- and credit-card markets to foreign processors by the end of 2006.
Bank of East Asia Ltd., Hong Kong’s third-largest lender, was the first non-mainland issuer of credit cards. More banks will probably follow, Erixon said.
“If China really wants to stabilize its own shaky banking sector through competition, the right to issue credit cards in your own currency is a critical part of that,” he said by phone from London. “You need to give it to others, too. China moves slowly, it wants to test the waters, see if it’s going to work, if there are going to be any political reactions to it.”
Pedestrians walk past Citigroup Inc. offices in New York. (Bloomberg)
China’s nod to Citibank probably came with some strings attached, said Jacques Bourgeois, a trade attorney at Wilmer Hale in Brussels.
“If I were in the Chinese authorities’ shoes, I would subject that authorization to a number of conditions that would safeguard my position in the WTO,” he said by telephone from Brussels. “Making a move like this in the middle of a case otherwise appears to me like caving in.”
Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment on whether conditions were attached to the permission. Nkenge Harmon, a spokeswoman at the U.S. Trade Representative’s Office in Washington, didn’t respond to e-mails asking for comment.
Citibank said in a statement from Shanghai that the Chinese government’s consent followed preliminary regulatory approval in January 2012 for the lender to set up a joint-venture securities firm in China with Orient Securities Co. Ltd. Citi Orient Securities Co. Ltd. will be involved in investment banking in the Chinese domestic market, including securities underwriting and sponsoring and any other business as approved by China Securities Regulatory Commission.
(Bloomberg)
