Move over fast food: American credit cards land in China

By Megg Mueller

"Made in China" just took on a new twist, at least for one American bank. Citibank has just been given the green light to issue credit cards in the notoriously restrictive country, a coup that makes Citi the first Western bank allowed into China's rapidly growing banking market.

China joined the World Trade Organization in 2001, but it has been very slow to warm to foreign financial institutions on its home turf. While foreign banks have been allowed to partner with Chinese banks and issue co-branded credit cards, the Citibank deal marks the first time the Asian nation is letting a non-Chinese company fly solo.

While some analysts are quick to say this is a sign China is opening its market to foreign interests, it bears noting the approval comes on the heels of some significant, if not entirely prescient, events:

• Obama's State of the Union address: The president had some pointedly harsh words in his Jan. 24 speech when he said that the U.S. would form a trade enforcement group to investigate "unfair trade practices in countries like China." CBS notes the president was alluding to the massive trade deficit which has cost 2.8 million American jobs by some estimates.
• The World Trade Organization investigation: When the U.S. complained, the WTO started investigating China's refusal to let foreign companies do business as solo entities (without Chinese partners). Bloomberg News reports former deputy Treasury secretary Stuart Eizenstat as saying that investigation was a major reason Citibank won its approval.
• Chinese Vice President Xi Jinping visit: The announcement came as the next general secretary of the Chinese Communist Party was heading to Washington, D.C., which the Wall Street Journal noted often augurs many a deal between the two countries. Everyone wants to come to the table with lots of goodwill on their side, right?

Whatever the reason for the approval, Citibank is sitting in the catbird seat as it becomes evident China is on the verge of adopting more of the U.S.'s bad habits. We weren't content to just flood the nation with fast-food outlets, now we're going to introduce the concept of personal debt.

The Chinese have been impressive savers; CBS MoneyWatch notes most Chinese households save about a quarter of their personal income. The country is culturally oriented to saving, not spending, as evidenced by the popularity of debit cards. Credit hasn't been king, and in fact some estimates are 2 billion debit cards have been issued in the nation of 1.3 billion people. But credit card use is growing, as is the country's personal income level. Bloomberg reports 268 million credit cards were issued as of the end of September, which is 20 percent more than the previous year.

For now, it's unlikely America or any other foreign nation will get too big too fast in China. And that's been the case for a while; at the end of 2010 foreign banks accounted for just 1.85 percent of the country's banking assets, according to Bloomberg Businessweek. Another major reason is China still requires that all credit card transactions in yuan must be processed through one entity, China UnionPay, which is owned by state-owned banks and other companies. At least for now, MasterCard and Visa are shut out of that game.

But, according to a company press release, MasterCard estimates China will have 1.1 billion credit cards by 2025, with a balance owed of $2.5 billion in U.S. dollars. You can bet your French fries we aren't about to pass that kind of money up. Just as we buy a plethora of goods made in the People's Republic, it appears China is about to get a taste of how we do things over here. And while it's likely the impending credit cards can be made more cheaply, I highly doubt the interest rates will be much different than ours. Good luck, China!