U.S. giant Citibank and HSBC Holdings Plc, the world's two biggest banks by market value, have become the first foreign lenders to get their feet in the door of China's credit card industry.
Offering technical and management expertise to their local partners, who have won approval to issue credit cards to Chinese customers, both banks can begin to make their mark on a highly lucrative but largely closed business in China.
Still, analysts said on Friday the road remained long, since China was not committed to opening its retail banking sector until 2007 under pledges made on joining the World Trade Organization.
Last month banking regulatory chief Liu Mingkang said the country was still working on rules to allow foreign banks to issue their own credit cards in China.
"This will be good for local banks wanting to tap the spending power of mainlanders, but the impact on the foreign banks will be limited until they are allowed to issue their own cards," said He Yuanyuan at Huaxia Securities.
Apart from the regulatory issues, the lack of a unified credit appraisal system and a propensity to conduct everyday transactions in cash were further stumbling blocks, analysts said.
Despite the lure of $1.3 trillion in personal savings on the mainland, foreign credit card issuers will be keen to avoid problems suffered by South Korea's cash-strapped LG Card Co Ltd -- the biggest victim of a soured credit boom that has left overstretched customers unable to repay their loans.
"While there is no risk at present of an LG Card-style problem happening in China, banks will be wary, given the anticipated explosive growth of credit cards here," said He.
Charging in China
The Bank of Shanghai, in which HSBC owns an eight percent stake, and Shanghai Pudong Development Bank Co Ltd had won approval to issue credit cards to Chinese customers, their foreign partners said in a statement.
The participation of both HSBC and Citigroup Inc unit Citibank, which owns a 4.62-percent stake in Pudong Bank, would be limited to offering technical and management advice, the foreign banks said.
Neither will reap the lucrative transaction fees associated with issuing credit cards.
"The card will carry both HSBC and the Bank of Shanghai's logos but we are not the issuers of the card, so we won't get any associated fees," Dandan Chang, HSBC's spokeswoman, told Reuters.
Along with traditional credit card services, the approvals give Chinese consumers the ability to make purchases in both local and foreign currency, helping them get around China's restrictive capital controls.
China has about 560 million bank cards, most of them deposit-backed debit cards, industry sources say.
The country's first credit card, the Great Wall card, was issued by the Bank of China in 1986.
Analysts say less than one percent of bank cards are true credit cards, partly because there is no unified credit appraisal system to help banks separate the creditworthy from the risky.
"Chinese people don't really get the whole concept of credit cards, so penetration rates are very low. Credit checks are also difficult to perform due to a lack of a central credit checking agency," said Xu Jie at Capital International Holdings.
Britain's Standard Chartered Bank Plc has said rules and regulations covering credit cards in China were still too vague for it to consider entering the field.