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 Friday, 3 January, 2003, 12:00 GMT
Citigroup's deal for credit cards in China
SPDB chairman Zhang Guangsheng (left) and Citigroup Asia manager Stephen Long
Banks hope to introduce more Chinese consumers to credit cards
US banking giant Citigroup has agreed a strategic alliance with a Chinese bank so it can enter China's emerging credit card market.

China is a top priority for Citigroup

Sandford Weill, chairman Citigroup

Citigroup said it had acquired a 5% shareholding in a Chinese commercial bank, Shanghai Pudong Development Bank (SPDB), and a seat on its board.

Citibank became the first foreign bank to open its doors to Chinese customers in March 2002 when it got permission to carry out foreign currency transactions.

The credit card deal with SPDB is a huge step towards Citibank's ultimate goal of carrying out local currency business for Chinese customers.

Top target market

Citigroup gave no financial details of the transaction, but it is reported to have paid 600 million Yuan ($72.5m; 45.5m), according to the independent China Online news website, which cited company sources.

"China is a top priority for Citigroup," said Sandford Weill, the US bank's executive chairman, welcoming the deal.

A cleaner in a Beijing department store
Big city stores are increasingly stylish

"We expect to issue our co-branded local currency card in 2003," SPDB chairman Zhang Guangsheng said.

Bank lending to consumers is still in its infancy in China.

For much of the last fifty years the country's banks have operated as cashiers for often insolvent state enterprises, paying little attention to their ability to repay, and building up a mountain of bad debt.

China's market reforms and entry into the World Trade Organisation (WTO) have prompted a government-supported shake up of the banking sector, which is under pressure to allocate credit more effectively.

More reforms needed

Of China's 1.3 billion consumers, only about 20 million have credit cards, and the lack of a national bank clearing system to co-ordinate transactions means most card holders can use their plastic only locally.

Shopping mall in Beijing
New shopping malls are popular hangouts

Foreign banks have therefore identified credit card shopping as a market with plenty of scope for growth, though the eventual scale of such business will depend on regulatory reforms.

Citigroup said its new partner, SPDB, had built a successful franchise in just 10 years, becoming China's ninth largest commercial bank with 270 branches in major cities. It has total assets of $30bn.

SPDB chairman Zhang Guangsheng said he believed the tie-up with Citigroup would enable it to become one China's top banks.

Citigroup said developing the credit card business would be "the focal point" of its alliance with SPDB, which it will provide with technical assistance.

"It is intended that this business will apply to set up an equity joint venture in the future," the US bank said.

The deal gives Citigroup the option to increase its shareholding in its Chinese partner in the future, provided it wins regulatory approval.

Citigroup first opened consumer banking operations in China in 2001, though it had built up a corporate and investment banking business with 900 clients.


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