In an effort to capitalize on the emerging credit card industry in China, Citigroup Inc. (C) started issuing its first credit card under its own brand in the country. This marks a milestone for Citi — the first U.S.-based bank to introduce its own credit card in China.
Notably, Citi had received approval from the China Banking Regulatory Commission in early February this year. The company already has a co-branded credit card business in China with Shanghai Pudong Development Bank. This venture took off in 2003. Following Citi’s credit card business launch, the program with Shanghai Pudong Development Bank will end. Citi will join forces with China UnionPay for its payment processing services.
As a matter of fact, prior to 2008, foreign companies were only allowed to issue credit cards in collaboration with local companies. Similar to Citi, HSBC Holdings PLC (HBC) has a co-branded card with Bank of Communications Co.
Regulators have been slow in approving foreign companies’ direct participation in this business and presently, only Hong Kong-based Bank of East Asia is permitted to issue credit cards in mainland China.
Citi currently has its business in institutional and consumer lines in China and we expect this credit card business launch to boost its growth momentum in the country. This is a strategic move for Citi, given the fact that even with a vast population and rising income, the number of credit card users in China is comparatively low.
According to a Wall Street Journal report, which cited Central-bank data, China’s credit cards issuance was approximately 268 million by September 2011. This was over 5 times the figure at 2006 end. Moreover, referring to estimates of MasterCard Inc. (MA), the report pointed that credit numbers in China will reach a whopping 1.1 billion in 2025 while expenditures on those cards will be around $2.5 trillion. Therefore, opportunities in the market are enormous and Citi plans to leverage on that to build its card business.
As a matter of fact, faced with a slowdown in the U.S. market, Citi is emphasizing growth in the international markets. The company has an impressive overseas presence and is striving to expand and tap opportunities in the emerging markets.
Earlier this month, Citi’s securities joint venture (JV) in China with Shanghai-based Orient Securities Co. – Citi Orient Securities Co., debuted. The JV is engaged in investment banking activities including securities underwriting and sponsoring. This partnership was announced in June last year, and received regulatory approval earlier this year.
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. Citi’s global network will be enhanced and its revenue base is expected to benefit by leveraging on faster-growing economies, thereby strengthening its market share internationally. We expect such efforts to bear fruit in the future.
Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals, we have a long term Neutral recommendation on the stock.
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