China Plays the Goodwill Card Ahead of Official's Visit: The Ticker

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By Paula Dwyer

The Chinese are beginning to be predictable. China today agreed to allow Citigroup Inc. to issue credit cards in its own name, and without a Chinese partner, to domestic consumers. The decision may signal that Beijing finally is ready to open its banking industry.

Or not. The more cynical interpretation is that China is making nice ahead of next week's visit to the U.S. of Vice President Xi Jinping, likely to become the next general secretary of the Chinese Communist Party. Another interpretation is that the move is a cave-in to a U.S. complaint to the World Trade Organization that China was in violation of an agreement to let foreign companies issue their own bank cards in China.

Based on past behavior, it's plausible that China isn't backing down at the WTO but is extending an olive branch to its American hosts. Trips of this kind are often preceded by trade-opening deals or major purchases of, say, Boeing Co. jets to build goodwill and silence U.S. critics.

Citigroup is only the second foreign bank -- Bank of East Asia Ltd., Hong Kong's third-largest lender, was the first non-mainland issuer -- and the first Western one to be permitted to issue credit cards in China.

China's economy is still largely cash-based, but Chinese consumers are quickly learning how to buy on credit, with about 250 million cards now in use. The card-issuance business, once a lucrative U.S. revenue source for banks, might get some of its glow back if Chinese consumers flock to them.

China now requires foreign banks to "co-brand" with Chinese operators to issue credit cards and execute payments through China UnionPay Data Co., its banking network. The U.S. says the rules contravene a pledge by China when it joined the WTO in 2001 to open its debit- and credit-card markets to foreign processors by the end of 2006.

The Chinese government last month also opened the way for Citigroup to set up a securities firm in China, but it must be a joint-venture with Orient Securities Co. Ltd.

(Paula Dwyer is a member of the Bloomberg View editorial board.)


-0- Feb/06/2012 22:15 GMT