HSBC in Chinese credit card venture

HSBC and America's Citigroup, the world's two biggest banks, have become the first foreign banks to enter the potentially enormous market for credit cards in China. Both received regulatory approval from the Beijing authorities yesterday to give technical and management advice to Chinese partner banks.

HSBC, one of Britain's big four banks, whose chairman is Sir John Bond, is to assist Bank of Shanghai, in which it holds an 8 per cent share stake. Citigroup owns 4.6 per cent of Shanghai Pudong Development Bank.

Dandan Chang, HSBC's spokeswoman, said: "Our 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." But holders of the new cards will be able to choose whether to settle bills in Chinese yuan or US dollars.

These moves are the first steps by the Chinese government to comply with its pledge to the World Trade Organisation to open its financial services industry to foreign competition.

He Yuanyuan at Huaxia Securities said: "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."

Foreign entities will not be allowed to enter the Chinese retail banking market under their own steam until 2007, when it is expected they will be allowed to issue their own credit cards as well as offering bank accounts and borrowing facilities.

In December, the head of China's banking regulatory authority, Liu Mingkang, said the country was still working on rules to allow foreign banks to issue their own credit cards in China. It currently lacks a nationwide credit scoring system. But the 1.3 billion-strong Chinese population has average savings of $1,000 (£570) a head, largely concentrated in the wealthier coastal cities to the east and south.

The country's first credit card, the Great Wall card, was issued by the Bank of China in 1986. But as many as 99 per cent of China's 560 million bank cards are debit cards, backed by deposits made in advance of purchases.

Xu Jie of Capital International Holdings said: "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."

Britain's Standard Chartered Bank, which has as much experience of Asia as HSBC has, is understood to feel that rules and regulations covering credit cards in China are not yet sufficiently attractive for it to enter the market.