Five foreign banks have become the first to be given permission
to issue credit and debit cards in China by the country’s banking
regulator. Citigroup, HSBC, Standard Chartered (StanChart), Bank of
East Asia and Hang Seng Bank have been told they can issue the
cards from late 2008 if they meet regulatory criteria set out by
the central bank, the People’s Bank of China (PBoC).

Previously, foreign banks had to take equity stakes in or
partner with domestic Chinese bank institutions in order to issue
cards. In 2004, Citigroup’s Citibank and HSBC became the first
foreign banks approved to issue credit cards through Chinese banks.
American Express issued a card later that year. Now, the government
has lowered regulatory barriers to meet World Trade Organisation
commitments, meaning that foreign banks can make preparations for
starting their own bank card services.

In May 2007, China agreed to allow foreign banks to issue
yuan-denominated debit and credit cards following the China-US
Strategic Economic Dialogue, a bilateral macro-economic forum. The
following month, the China Banking Regulatory Commission began
reviewing applications from the locally incorporated units of four
foreign card issuers to issue yuan-denominated debit cards. In late
2007 it was expected that foreign banks with locally incorporated
subsidiaries could begin issuing yuan-denominated cards but new
legislation from the PBoC was introduced requiring foreign banks to
establish data centres.

Explosive demand for consumer credit

In China, which has the world’s fastest-growing major economy and a
population of 1.3 billion, there is expected to be explosive demand
for consumer credit in line with rising incomes, but it remains to
be seen how quickly the five foreign banks can make inroads into
the market, which is hampered by relatively poor network
infrastructure and credit bureau information.

PBoC figures show Chinese banks had issued more than 1.23
billion bankcards by the end of 2006, of which debit cards
accounted for 1.08 billion, or 95.6 percent. Credit cards in issue
numbered 50 million.