U.S. credit card firms want to get more plastic into Chinese wallets

BEIJING — Jin Jitao, an editor at a textbook publishing house, may be the prototype of China’s new urban consumer. Although he had never even heard of credit cards until 2004, he now has 79.

He has a card embossed with his nickname, one with a photo of his family, a pink Barbie card and two with Garfield the cat. He has a card especially for dads and several with Chinese cartoon characters.

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“I like beautiful cards,” he said.

In a country that still largely runs on cash and where the idea of saving money seems embedded in the cultural DNA, the use of credit cards and debit cards is skyrocketing.

China issued 230 million new credit cards in 2010, an increase of 24 percent over the previous year, according to the China Banking Association, and the use of plastic for retail sales is up more than 40 percent this year.

It is a growing market that U.S. credit card companies such as MasterCard, Visa, American Express and Discover are watching enviously as Americans are tightening their belts.

“In the next 20 years, more and more people are going to switch from cash to credit cards,” said Arthur Kroeber, managing director of GaveKal-Dragonomics, a Beijing-based economics research firm. “The growth is going to be spectacular.”

But for now, a single Chinese company, China UnionPay, has a de facto monopoly over that market. Foreign credit card firms cannot issue local cards unless they are co-branded with the UnionPay logo, and all transactions must be processed on the UnionPay network.

The American card companies are here, but they work in a forced marriage with China UnionPay.

American Express, which has been in China since 2004, signed a new “memorandum of understanding” to “explore the expansion of our current cooperative activities,” said Luisa S. Megale, international public affairs vice president for the company.

MasterCard and China UnionPay signed an agreement in Shanghai in June that allows UnionPay cards used outside China for e-commerce transactions to be processed over MasterCard’s worldwide network. Visa is in an ongoing dispute with UnionPay over who can process its co-branded cards outside China.

With UnionPay’s monopoly in China, the American companies cannot offer most of their well-known customer services, such as replacing stolen cards. The foreign companies can issue cards only in dollars, not in the local currency, which most Chinese would want. And UnionPay gets a cut of every transaction.

Chinese card users apparently also want more choices. Jin, 34, belongs to an online discussion forum called “I Love My Credit Cards,” where he said the UnionPay monopoly has been a constant topic.

“Lots of people think it’s unfair that China UnionPay has a monopoly,” he said. “If other credit card companies in China could issue their own cards, people would fight to apply for them.”

Newly rich consumers

The issue is about more than simply opening a potentially lucrative market to American credit card companies. The United States has asked China to shift from an export-led growth model to a more consumer-led economy. Chinese people buying more Chinese-made products would help reduce the U.S. trade deficit with China, and one way to spur domestic consumption, economists and business leaders say, is to put more credit cards into the hands of China’s newly rich consumers.