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Chinese travelers can charge it

For the first time, Chinese who travel overseas can bring along a credit card they can use on both ends of the trip -- at anyplace that takes Visa.

Citigroup joined local partner Shanghai Pudong Development Bank yesterday to launch the nation's first foreign-backed credit card for use both at home and abroad -- a step long awaited by international banks itching to tap China's huge market.

Chinese consumers are just beginning to awaken to the possibilities of paying with plastic, and foreign banks view the nascent credit card industry as a potential gold mine.

The new gold and classic Visa cards, initially available only in Shanghai, can be used both inside China and overseas. Users have access to a round-the-clock customer service hotline and card replacement service, the banks said.

China is slowly loosening restrictions on foreign banks operating in the country in preparation for a full opening of the banking sector by 2006. Local banks, many of which are mired in bad debt, are joining with foreign partners to boost competitiveness.

China began developing a credit card system with the 1986 debut of the Great Wall card. According to industry estimates, about 570 million bank cards have been issued, but all but a small fraction are debit cards that draw money directly from consumers' bank accounts.

Plans to develop a consumer credit market in the country face a number of obstacles, chief among them the lack of a national bank clearing system and a paucity of credit records. Local banks branching into the home and auto lending businesses have already been burned by the reluctance of many borrowers to repay loans.

Citigroup, which first opened a branch in China in 1902, holds a 4.6 percent in Pudong Development Bank, China's ninth largest commercial bank. It expects that arrangement to give it a platform for expansion.

Last month, Chinese regulators approved both Citigroup and international competitor HSBC Holdings to issue credit cards with their Chinese partners. HSBC has begun issuing a foreign currency credit card, with partner Bank of Shanghai, that it hopes will be a hit with Chinese traveling abroad.

The Bank of Shanghai-HSBC cards enable Chinese travelers to make purchases abroad in foreign currency but pay their bills in Chinese currency back home. HSBC owns an 8 percent stake in Bank of Shanghai. The card can only be used overseas.

The Citibank-Shanghai Pudong Development Bank cards can be used anywhere inside and outside China that accepts Visa cards.

Users will have to pay their bills -- in US dollars for overseas purchases and Chinese yuan for transactions inside China -- at branches of the Chinese bank, which will handle all card-related transactions. Initially, Citigroup will provide only technological and managerial advice on the credit card.

The banks said their target clientele would be Shanghai residents with annual incomes of more than 50,000 yuan (US$6,000) -- among the country's most affluent citizens.

Chinese banks have traditionally focused on financing state-owned industries, a role that has left them laden with bad debt. Until recently, retail banking was limited mainly to taking deposits.

But there is huge potential for expansion: Local banks hold more than 10 trillion yuan (US$1.2 trillion) in individual deposits.

Both the banks and the government would like to see that money put to profitable use. Seeking out the expertise of foreign partners, the local banks have upgrading services and expanding their retail banking businesses to help boost earnings and reduce reliance on corporate lending.
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