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Is China Opening its Banking Industry?

BritCham / CBBC
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Source: Bloomberg news

China's decision to allow Citigroup Inc. to issue credit cards in its own name may signal a step toward the 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 yesterday 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.

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