China pressuring foreign card companies into JV

There is an emerging pattern in China’s approach as it engages in various fronts in the world stage. While officially it portrays itself as being professional, however its true colors become apparent as it seeks to impose its will that curtails existing agreements and commitments. The following report is a classic example of the Chinese mindset and strategy.

According to three sources familiar with the matter at hand, China is pressurizing foreign payment card companies to form local joint ventures for onshore operations in a move that would counter its pledge on market access, Beijing made to U.S. President Donald Trump.

China is pushing foreign card payment processing companies to enter into equity tie-ups with Chinese companies, instead of running wholly owned units.

The move could further delay access to China’s rapidly growing market for foreign card companies, including Visa and MasterCard.

The Trump administration has come down very heavily on China’s mercantilist policies. In September, U.S. Trade Representative Robert Lighthizer had criticized China for forcing companies into joint entering ventures.

Trump had termed the U.S. trade deficit with China as “horrible”.

For more than a decade, China has successfully blocked foreign card companies from directly accessing its market, which according to GlobalData, a research company, is set to become the world’s No.1 bank card market by 2020.

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

Earlier this year in May, Washington and Beijing had agreed on a deadline by which China will have to issue guidelines for the launch of local operations by U.S. payment network operators, leading to “full and prompt market access”.

According to three sources briefed on the discussions at hand, many foreign card issuers, who were set to open their own operations in China, have been “informally” told by Chinese authorities that they are to enter into equity joint ventures with local companies.

It is not clear whether the foreign companies would be allowed to own majority stakes in their joint ventures, said sources.

In most other financial services businesses, foreign companies are 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,” said a source while referring to the near monopoly state-backed China UnionPay Co Ltd enjoys in the domestic bank card market.

Furthermore, even if foreign card companies agree on a local equity partner, they will be forced to subject themselves to unspecified national security reviews and agree to set up data systems within China.

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