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Beijing nod for citi's card signals easing

Beijing's decision to allow Citibank to issue credit cards independently signals an easing on restrictions of foreign players in the sector, an area that the World Trade Organisation and some economists say has been too slow to reform.

Eager to tap into the China's booming consumer business, Citibank is the second foreign bank and the first Western one to receive permission from the China Banking Regulatory Commission to issue a stand-alone credit card on the mainland, following the Bank of East Asia.

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

The business will include both retail and commercial cards and is expected to be launched later this year.

Usually Beijing requires foreign banks to 'co-brand' with Chinese operators to issue credit cards, and requires yuan-denominated credit card transactions to go through China UnionPay, the nation's largest electronic-payment network, established by more than 80 banks and other state-owned companies.

And it refuses to allow foreign banks to issue credit cards in a separate currency, for example US dollars, sparking WTO complaints. Beijing's refusal to permit companies like Visa, American Express, MasterCard to process card transactions on the mainland independently has also sparked complaints to the WTO.

Citibank declined to comment on the issue.

'China has definitely not opened up enough its credit card business to foreign players since entering the WTO,' said Liu Shengjun, deputy director of the China Europe International Business School's Case Centre in Shanghai. 'Introducing more foreign players could enhance credit card business practices.'

Liu added that despite the mainland's fast development in the credit card sector in recent years, regulations requiring foreign banks to team up with local players had 'undermined the meaning of opening up'.

China's credit card market is one of the largest markets in the world, driven by rising domestic consumption. A total of 268 million credit cards were issued on the mainland as of the end of September last year, up 20 per cent from a year earlier, according to the central bank.

But foreign players have found the mainland hard to crack. Foreign banks' share of China's banking assets fell to 1.85 per cent by the end of 2010, from 2.38 per cent in 2007.

Liu said China UnionPay's still holds a semi-official and monopoly role in credit card payments, backed by the People's Bank of China.

'The central bank might be reluctant to fully open up the market to foreign players like Visa and MasterCard out of considerations of financial security,' Liu said. But in the long run it would be better to improve overall market quality by introducing more foreign players under central bank guidance, he said.

Citibank and Shanghai Pudong Development Bank (SPDB) agreed that SPDB will continue to be responsible for its co-branded credit card launched in 2003. The card will no longer bear Citibank's logo.

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