Citigroup Breaks China Virgin Credit Card Market

Citigroup has announced today that it will be issuing credit cards under the Citigroup name in China. Citigroup, which is based in New York, is the first Western bank that China has allowed to issue credit cards in the country. A step of this nature could mean that China is withdrawing its tight reigns on its banking industry, and will soon allow more foreigners into the Beijing banking arena.

Citigroup is said to be offering both commercial and consumer credit cards in China by the end of next year. China has been of growing interest for many investors, mainly because the country`s growing economy, which jumped almost 10 percent last year, and because of the country`s growing middle class and their potential purchasing power.

Although the decision is a monumental one, analysts suspect that it was no coincidence that this information came as the World Trade Organization replied to a U.S. complaint about the legitimacy of China not allowing foreign banking companies to issue their branded bank cards. China has repeatedly denied MasterCard Inc, Visa Inc, American Express Co., First Data Corp. and Discover Financial Services suggestions to implement their cards in the Chinese market. There is no word yet whether the new Chinese cards will bear a MasterCard or Visa logo, but both companies have been trying to expand their reach in China and other international sectors for years.

"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," said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy, in a Bloomberg article.

Nevertheless, these changes could mean very good news for American participation in the Chinese financial market. With this announcement, China has slightly lifted the barrier to entry when it comes Chinese banking. And while there is still stiff competition, allowing Citigroup in could be a catalyst for more strategic foreign partnerships.

Currently, China requires all foreign banks to work with Chinese companies in order to issue their foreign credit cards. These companies are also required to use China UnionPay Data Co. (CUPDCZ) for payments and other Chinese services. In addition, Citigroup revealed in a statement that the Chinese government has consented to allowing Citigroup to work with Orient Securities Co. Ltd to form Citi Orient Securities Co. Ltd for investment banking purposes, including sponsoring and securities underwriting. By taking these small steps, China is making it clear that it wants to stabilize it`s unstable banking system, and one of the first ways to do this is to let others into your market.

Over the years, Citigroup has had a stable relationship in China, and currently operates Citigroup`s in 13 Chinese cities. By having the ability to issue credit cards with their own name, Citigroup aims to increase its appeal in China and open the door for more international banking.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.