The Strategist

China keeps Visa and MasterCard away despite of WTO rules

01/15/2019 - 11:46

Payment companies Visa and MasterCard applied for a license to work in China as early as mid-2017. However, as sources of the Financial Times (FT) say, they have not yet been considered. This way, the Chinese authorities are bypassing rules adopted in 2017 under the pressure of the World Trade Organization (WTO): they do not prohibit foreign companies to operate independently in the Chinese market, but still don’t let them in.

China has removed formal barriers for foreign companies to enter the payment processing market a year and a half ago. Companies such as Visa and MasterCard have been waiting for this opportunity for almost ten years, and in the middle of 2017 they have finally applied to the Central Bank of China to obtain the appropriate licenses. However, as reported by Financial Times sources, applications of American payment corporations have not yet been reviewed.

The Chinese payment market with bank cards is estimated at $ 124 trillion, and the local mobile payment market, for example, is 50 times larger than the American one.

For many years, the market remained completely closed to foreign companies, which very much wanted to gain access to the world's largest market. In 2010, the US government filed a complaint with the WTO about China’s protectionist policies; two years later, the WTO called on the Chinese authorities to open the card payment market to foreign operators. And only in June 2017, the People’s Bank of China established a procedure that allows companies from abroad to start working in China. To do this, they need to obtain the appropriate license from the Central Bank of China. In the case of US representatives, only American Express managed to do it. The company received the right to settle payments in RMB within China, but for this it will have to create a joint venture LianLian Group.

In November 2017, Reuters reported that the People’s Bank of China was inclining towards a similar operating principle in the Chinese market and Visa with MasterCard. At the same time, their applications for independent work in China are neither being accepted nor rejected. 

“Someone might suspect that it’s all a matter of a trade war, but again, American Express’s application was approved. Someone will say that AmEx is smaller and does not have such an impact on the market, but no one knows the real reasons,” one of the sources, representing a large payment operator, told FT.“ There are lots of options. We occasionally communicate with the Central Bank of China, but the exact reason is not clear."