U.S. Banks, Card Companies Catch a Break in China Trade Deal
January 15 2020 - 6:09PM
Dow Jones News
By David Benoit and AnnaMaria Andriotis
A trade deal with China has given U.S. banks and financial
companies new hope that their decades-long attempts to crack the
Chinese market may bear fruit.
The deal signed Wednesday clears some of the obstacles that have
prevented U.S. banks, credit-card networks, insurance companies and
distressed-debt investors from operating in China.
U.S. financial institutions have long talked up the prospect of
China, where earning even a small share of the massive market could
result in sizable gains. But they have struggled to navigate the
bureaucratic thicket to obtain the licenses they need to operate
there.
JPMorgan Chase & Co., the largest U.S. bank by assets, is
waiting on the Chinese government to grant it some of the licenses
it needs to build up its investment banking and wealth-management
divisions in China. Visa Inc. and Mastercard Inc., too, need the
government's stamp of approval to get their cards more widely
accepted in China.
While short on details, the deal broadly requires China to take
action on those applications. In some cases, it sets parameters on
what the Chinese government can consider in making licensing
decisions.
Visa and Mastercard, in particular, stand to gain. Their
applications to operate in the country have languished. The deal
requires China to make a decision on those applications and to
provide a reason if it rejects them.
Mastercard is making "every effort to secure the requisite
license to be able to operate in China domestically," a company
spokesman said. "This deal is a step forward in the process."
"We see significant potential for Visa to support the continued
growth and evolution of digital payments in China," said a
spokesman for Visa.
The deal also gives U.S. distressed-debt investors more access
to the Chinese market, allowing them to buy troubled loans from
China's state-owned banks. That is a business well known to several
of Mr. Trump's top advisers on China, including Commerce Secretary
Wilbur Ross, who made his fortune investing in troubled
companies.
Still, U.S. financial companies face a number of challenges to
gaining meaningful market share in China.
China's state-owned banks dwarf U.S. banks in size, and many
Chinese consumers pay for goods and services using mobile wallets
such as WeChat Pay and Alipay that don't rely on traditional card
technology. UnionPay, China's domestic card network, has about 95%
of the market for card payments in the country, according to the
payments-industry publication Nilson Report.
Even if China grants licenses, more hurdles await. In 2018,
American Express Co. became the first U.S. card network to gain
approval to set up card-clearing services in China. Its joint
venture with a Chinese financial-technology firm is awaiting
approval for a business operating license. The People's Bank of
China has advised AmEx that it has formally received its
application, viewed by AmEx as an important step in the process.
The trade deal doesn't impact that.
China already has been taking steps to open up to foreign banks
in an effort to expand and reform its own markets. The government,
for example, has allowed foreign banks to take control of joint
ventures with domestic partners.
"They want JPMorgan to be there to help set transparency and
standards and rules," JPMorgan Chief Executive James Dimon told Fox
Business in an interview this week. "And the Chinese need, they
want to, eliminate corruption, have efficient companies and capital
allocation, and they need very good financial markets."
At a press conference announcing the deal Wednesday, President
Trump told JPMorgan executives in attendance to say hello to Mr.
Dimon for him.
Write to David Benoit at david.benoit@wsj.com and AnnaMaria
Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
January 15, 2020 18:54 ET (23:54 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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