Card giants clash over growing hunger for credit
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The uneasiness of US bank card companies with China's financial rules has finally simmered into a formal dispute, with the US declaring that it has filed a complaint in the WTO.
According to the US side, China hasn't duly fulfilled its commitments of market access for foreign-invested banks to all payment and money-transmission services, including credit cards, by the fifth year as of its entry into the WTO.
Such a dispute is a tug of war for the market between the big card companies and reflects a competitive relationship between them.
On the one hand, given that Visa, the world's biggest credit card company, is being pinched in the European and US markets for its monopolistic practices, it badly needs to get into the Chinese market.
On the other hand, if China UnionPay, the biggest card company in China, can't triumph over Visa in the Chinese market, even the increasing number of Chinese tourists abroad may not guarantee a bright picture for it in the overseas market, where Visa has a killer advantage in its commercial network and money-transmission services.
This tug of war in the bank card markets has escalated from a contractual dispute between two private parties into a bilateral trade dispute between two WTO members, which has become intertwined with politics and bilateral diplomatic or economic relations, and plucks the already sensitive nerve between the two countries.
In the past several months, Visa and China UnionPay have been engaged in a contractual discord for the overseas market share with both relying on their cooperation arrangement for their own defense.
While it's not clear how the overseas market struggle will pan out, the same market chase has ramped up into a WTO complaint by the US against an alleged market access problem in China and complicates the already convoluted bilateral trade disputes.
Once the WTO establishes a panel for the dispute, the specific commitments of China made for its banking and financial services market in its accession into the WTO constitute a significant benchmark for a right or wrong question.
China's financial rules preclude the branches of foreign banks from providing bank card services as these branches are not registered in China. If finally the case develops to the panel stage, China may have to justify such restrictive rules for prudential reasons.
When the branches of foreign banks are not allowed to issue cards, Visa and the like may not be able to establish a money-transmission network for their foreign bank members and business ventures in China.
In turn, the invalidity of Visa and the like helps put China UnionPay in a monopolistic position in the payment processing services in China.
The constraints in foreign banks entering China's payment services market has pushed Visa and the like to cooperate with China UnionPay, and yet the failure in such cooperation pushes Visa back to making efforts to pry open China's bank card market.
Though difficult at present, Visa is not doomed. The best approach for it may be through the foreign-invested banks which are already registered in China as these banks are legally allowed to issue bank cards.
Visa's long-term prospects depend on the WTO. China may decide to further open up its bank card market as a result of bilateral negotiations or due to the recommendation of the WTO dispute settlement body. Then Visa will have an improved market opportunity if a somewhat level playing field can be guaranteed.
Once Visa is on the same footing as its Chinese counterpart, the rivals will compete for their survival. This will end up benefitting consumers.
Without the previous protective umbrella, UnionPay will have to make more efforts to attract consumers as any loss in the domestic market can result in a further failure in the overseas market.
The author is director of the policy review division of the Beijing WTO Affairs Center. policyreview@ bjwto.gov.cn
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