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Trump's recent China trip this weekend is preceded by the move to get overseas card emitters to commit to capital ties with China's companies instead of operating whollyowned entities and could further slow down entry into China's fast-growing markets for overseas card companies such as MasterCard (MA.N) and Visa (V.N).
Robert Lighthizer, the US commercial representative, criticised China in September for forcing companies into cooperative arrangements. The US dollar deficits with China were also described by Trump as "terrible" before a visit to Asia that began on Friday and included five country tours, China included. For more than a decade, overseas card companies have been advocating immediate China entry, which, according to GlobalData, a research firm, is expected to become the world's leading banking card industry by 2020.
The World Trade Organization decided in 2012 that China discriminates against card companies from abroad. Beijing and Washington reached an agreement in May on a timeframe for China to adopt guidance for US payments system providers to commence business locally, resulting in "full and rapid entry". Several of the overseas card emitters who wanted to establish their wholly-owned subsidiary in China were "informally" asked by the Chinese government to form venture capital companies with Chinese companies, said the three persons informed about the talks with the CBB.
According to the electorate, it is not immediately clear whether the aliens are permitted to hold controlling interests in the joints. For most other types of companies in the finance sector, overseas companies are permitted to hold non-controlling interests. "Whilst this is consistent with the way in which they deal with FDI in other types of finance service, there have been raised concerns about 100% ownership, as FDI can never be a major rival to UnionPay," said one present.
He referred to the near-monopoly of the state-supported China UnionPay Co Ltd. on the local debit card business. Visa, the world's largest payment gateway provider, was the first to file its license request in July after the People's Bank of China (PBOC), the Federal Reserve published its policy on 30 June.
Visa's request was put on ice, however, and the airline was asked to consolidate its domestic equities relationship before re-submitting the request, two persons close to the issue said. An American Express spokesperson said the airline had applied for a payments and processing license in China.
Recent developments in the long period of US card companies awaiting entry to the China Yuan-compliant on-shore clearing markets would also increase the number of appeals from non-national issuers about China's discrimination policy and barriers to entry. Since the WTO decision in 2012, overseas companies have been awaiting offering Japanese currency exchange rate notes, but UnionPay has been expanding far beyond China with a foothold in more than 160 nations, among them the USA and many European states.
According to Euromonitor, it had a 55 per cent stake in the worldwide debt card arena by 2015. A number of sector experts have raised private concern as to whether China would create a competitive environment for companies from abroad. Restricting the ownerships of card companies globally in locally owned businesses could affect their operative controls and dealing with expatriates - a common course of doing for them elsewhere, they said.
So even after winning a domestic equities counterparty, overseas credit card companies would have to undergo indeterminate domestic safety checks and commit to setting up information gathering within China. However, some US card companies could benefit from setting up JVs with large, locally based companies with an established client base and network connectivity across China, two of the participants said.