U.S. WTO Case Against China ‘Major Reason’ for Citibank Nod

A World Trade Organization probe into the legality of Chinese rules on foreign companies issuing credit cards is a “major reason” Citigroup Inc. (C) was given permission to do so, said Stuart Eizenstat, former deputy Treasury secretary under President Bill Clinton.

New York-based Citigroup announced yesterday that it will become the second foreign bank, and the first western one, allowed to issue its own credit card in China. The news came about 10 months after the WTO said it would investigate a U.S. complaint about Chinese curbs on credit-card payment processing.

China requires foreign banks to “co-brand” with Chinese operators to issue credit cards in yuan and to 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.

“I have no doubt that the WTO case is a major reason why China has issued this license,” Eizenstat, a partner with the Covington & Burling law firm in Washington who was also President Jimmy Carter’s chief domestic policy adviser, said in an e-mailed response to questions. “By this action, they are trying to take the ‘sting’ out of any adverse ruling.”

Nkenge Harmon, a spokeswoman at the U.S. Trade Representative’s office in Washington, said today that China’s decision on Citibank “has no bearing on the U.S. WTO claims.”

UnionPay’s Role

Transactions made on Citibank’s credit cards will still be processed through Beijing-based UnionPay rather than U.S. companies such as Visa Inc., American Express Co., MasterCard Inc., Discover Financial Services and First Data Corp.

A UnionPay spokesman who declined to be identified, citing company policy, would not comment. Nobody at the China Banking Regulatory Commission’s press Office in Beijing was immediately available to comment after office hours.

Stephen Thomas, a Citibank spokesman in Shanghai, said the company “is in a preparatory phase having received regulatory approval and will reveal more details about our China cards business in due course.” He declined to comment when asked about the processing of transactions or say what conditions Citibank accepted to be permitted to issue credit cards.

Xi Visits U.S.

Citibank’s announcement comes a week before Vice President Xi Jinping, who is set to become the next general secretary of the Chinese Communist Party later this year and to succeed Hu Jintao as president in March 2013, visits the U.S.

Credit cards are becoming more popular among China’s 1.3 billion people as rising incomes stoke consumer spending. Chinese banks issued 268 million credit cards as of Sept. 30, up 20 percent from a year earlier, according to the central bank.

Bank of East Asia Ltd., Hong Kong’s third-largest lender, was the first non-mainland issuer of credit cards in 2008. Transactions on the bank’s cards are also processed through UnionPay. Hong Kong is a special administrative region of China.

The decision to permit Citigroup to issue its own credit card “is a positive step to open China’s internal market for financial services, and will be another step toward their integration into the global market,” Eizenstat said.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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