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UPDATED: February 27, 2012 NO. 9 MARCH 1, 2012
Credit Craze
Citibank gets green light to issue credit cards in China
By Hu Yue

GROWING COMPETITION: Various kinds of credit cards issued by Chinese banks. Citi's entry will intensify competition in the local credit card market (MENG ZHONGDE)

On hearing the news that U.S. financial services giant Citi announced it had obtained approval to issue credit cards in China, Chen Shuye, a 30-year-old tour guide in Beijing, got excited.

"I'd like to try credit cards from Citi," said Chen, who has been using a credit card issued by Shanghai Pudong Development Bank (SPDB) co-branded with Citi. "It offers discounts for spending at many overseas hotels, restaurants and shopping malls, which gives me great convenience when I take tours around the world," he said.

"Perhaps the services of independent Citi credit cards will be even better," said Chen.

Citi's co-branded credit card business with the SPDB started in 2003 with the SPDB providing technical and personnel support. The newly approved credit card business in China is expected to be launched sometime this year, making the American banking giant the first non-Asian bank to offer its own plastic cards of commerce in China.

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

"Our business in China continues to perform strongly across both institutional and consumer lines, and our ability to introduce a credit and commercial card proposition adds to our healthy growth momentum in this key market," he said.

"We have a dynamic consumer banking business and a broad-based institutional business in China. The ability to offer retail and commercial cards provides Citi with a strong competitive edge further meeting the needs of our expanding customer base," said Andrew Au, CEO of Citi China.

Exploring China

Citibank is one of many foreign banks scrambling to cash in on the thriving Chinese economy and booming banking market.

A total of 127 foreign-funded banks held combined banking assets of 1.7 trillion yuan ($269.8 billion) at the end of 2010, up 29 percent from a year earlier, said a report from the accounting firm PwC. That accounted for 1.83 percent of the country's overall banking assets, compared with 1.71 percent in 2009.

Under Chinese rules, foreign banks must incorporate their operations locally to tap the mass retail market and offer products such as credit cards. Around 40 foreign banks are now locally incorporated in China, according to data from the China Banking Regulatory Commission.

In April 2007, Citi was among the first international banks to locally incorporate in China.

In recent years, Citi's foray into the Chinese market has picked up pace. In September 2011, Citibank set up its fourth small lending company in the country to provide credit to individual borrowers, the self-employed and micro-enterprises. It was the first international bank to introduce the lending company model to China in 2008.

In January 2012, it received a regulatory nod of approval to establish a joint venture securities firm in China together with the Orient Securities Co. Ltd. The new entity will engage in investment banking business, including securities underwriting and sponsoring.

Credit card buoyancy

As foreign banks seek to solidify their China foothold, the credit card sector presents new growth opportunities.

"Three major factors are expanding the use of credit cards in China—fast wage growth of the young population, technological developments and the emerging trend of e-commerce," said Guo Tianyong, Director of the Research Center of China's Banking Industry at the Central University of Finance and Economics.

In 1985, the Bank of China's Zhuhai branch in Guangdong Province issued the country's first credit card. Now, the market is getting into full swing as credit cards increasingly gains popularity.

By the end of September 2011, Chinese banks had issued 268 million credit cards, more than five times the level at the end of 2006, according to data from the People's Bank of China, the central bank.

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