Citigroup Inc. (C) will launch its own credit card business in China. Its Chinese subsidiary Citibank (China) Co. Ltd. has received approval from the China Banking Regulatory Commission. The company will launch both retail and commercial cards before the end of this year. This marks a landmark for Citigroup — the first U.S.-based bank to introduce its own credit card in China.
Prior to 2008, foreign companies were only allowed to issue credit cards in collaboration with local companies. Regulators have been slow in approving foreign companies’ direct participation in this business and currently only Hong Kong-based Bank of East Asia is permitted to issue credit cards in mainland China.
Citi currently has a co-branded credit card business in China with Shanghai Pudong Development Bank. This credit card venture started in 2003. Following Citi’s credit card business launch, Shanghai Pudong Development Bank will be responsible for its existing credit card business. Similar to Citi, HSBC Holdings PLC (HBC) has a co-branded card with Bank of Communications Co.
Citi currently has its business in institutional and consumer lines in China and expects this credit card business launch to boost its growth momentum in the country. Only last month, Citi’s securities joint venture (JV) in China with Shanghai-based Orient Securities Co. has received a regulatory nod.
The JV will be named Citi Orient Securities Co. and will carry on investment banking activities including securities underwriting and sponsoring. This partnership was announced in June last year, and it is expected to be fully operational by mid-2012.
According to the terms of the agreement, Orient Securities will have a 66.7% stake in the JV and the remaining 33.3% will be held by Citi. This is the maximum permissible holding for a foreign entity according to the Chinese law. Besides Citi, J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), UBS AG (UBS) and Deutsche Bank AG (DB) have also set up such JVs in China.
These approvals indicate the opening up of the Chinese economy to some extent. Citi’s efforts to expand its business in China are part of its strategy to explore the thriving economy and booming consumer and commercial market in China.
Going forward, we believe that such strategic partnerships will enhance Citi’s global network and boost its revenue base by leveraging on faster-growing economies like China, thereby increasing its market share internationally. Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating.
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