Foreign Credit Card Obstacle in China

China is pressing foreign payment card companies to form local joint ventures (JVs) for onshore operations, a move that would counter a pledge on market access the Chinese government made to US President Donald Trump.

The push to get foreign card issuers to enter into equity tie-ups with Chinese companies, instead of running fully owned units could further delay access to China’s rapidly growing market for foreign card companies like MasterCard and Visa.

The Trump administration has been a fierce critic of what it sees as China’s mercantilist policies. In September, US Trade Representative Robert Lighthizer criticized China for forcing companies into JVs.

Foreign card companies have been lobbying for more than a decade for direct access to China, which is set to become the world’s No.1 bank card market by 2020, according to GlobalData, a research company.

In 2012, the World Trade Organization ruled that China was discriminating against foreign card companies.

In May, China and the US agreed on a deadline for China to issue guidelines for the launch of local operations by US payment network operators, leading to “full and prompt market access.”

Some of the foreign card issuers, who were looking to set up their wholly owned operations in China, have “informally” been told by the authorities to enter into equity JVs with local companies.  It was not immediately clear whether the foreign firms would be allowed to own majority stakes in the JVs. In most other financial service businesses, foreign companies are only allowed to own minority holdings.

“While this is in line with how they treat foreign investments in other financial services, expectations were building up for wholly owned operations because foreign firms can never be a big competitor to UnionPay, the near monopoly of the State-backed China UnionPay Co in the domestic bank card market.

Visa, the world’s largest payments network operator, was the first to submit its application for a license in July, after the People’s Bank of China the central bank, issued the guidelines on June 30.  Visa’s application, however, has been put on hold and the company has been asked informally to firm up its local equity partnership before resubmitting the application.