Citigroup set to launch credit cards in ‘neo-Communist’ China

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A Citigroup credit cards advertisement in Shanghai, China. Photo - An Tu/Imaginechina via Bloomberg

Citigroup has announced its Chinese unit will be launching credit cards in China – the first non-Asian bank in the country to get the nod from financial authorities in the Communist state.

The New York-based bank will start offering credit cards to its customers from later this year after establishing its corporate and personal banking business in the country.

?This approval represents a significant milestone in the continued expansion of Citi?s business in China, a priority market for Citi,??Stephen Bird, CEO for Citi Asia Pacific, said.

Until now, Hong Kong?s Bank of East Asia was the only ‘foreign’ bank which offered credit cards in China. However, the US bank is already co-branding credit cards with Shanghai Pudong Development Bank.

The approval of credit card launch in China by Citigroup came just days before Chinese Vice President Xi Jingping travels to Washington. Some analysts believe such intergovernmental trips between countries put a major impact on deals that get approved.

?It?s perhaps not a coincidence that this is coming at this point when this case is going on,? said Frednik 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,? Erixon added.

RAPID GROWTH

There is a rapid growth in the demand of credit card in China because of rapid economic development and increasing e-commerce in the country. The data compiled by the Central Bank shows that China had around 268 million credit cards holder by September and is set to increase in the coming years.

Mastercard Inc has predicted that there will be a rise of about 1.1 billion credit card users by 2025, and spending from those cards will reach $25 trillion.

Although the state-owned banks, such as Industrial and Commercial Bank of China, China Construction Bank and Bank of China, are offering credit cards to its citizens, many financial analysts insist foreign banks will play a major role in coming years.

FOREIGN BANKS

By the end of 2010, foreign banks held 1.85% of China?s banking assets, compared to 2.38% in 2007. There were 360 outlets of overseas lenders in China by December 2010, compared with 16,000 owned by Industrial & Commercial Bank of China Ltd.
Citibank already has 46 consumer outlets in 13 Chinese cities and also owns a 19.9% stake in Guangfa Bank Co., which the latter is planning to float as a $5 billion initial public offering.

However, under Chinese rules, foreign banks investing in the country must incorporate their operations locally to tap mass retail market and offer credit cards. They also have to get approvals from the banking regulatory body to open outlets across the country.

It is not sure if Citi credit cards in China will carry a Visa?Inc. or?MasterCard Inc?logo.?Both payment processing networks have been aiming to expand their reach into China and bolster their overseas?business.

Sources: Businessweek, BBC News, WSJ

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