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Chinese banking regulations are bound to change the world

Week 03, 2007

The impact has been quick: we have witnessed a series of operations taking place between Chinese and foreign banks. For instance, Citigroup is acquiring China's Guangdong Development Bank for US$ 3.1 billion (EUR 2.4 billion).

Globally nine foreign banks have been granted approval to incorporate in China: Citigroup (US), Mizuho Corporate Bank (Japan), Sumitomo Mitsui Bank (Japan), HSBC (UK), Standard Chartered (UK), ABN Amro Holdings (the Netherlands), DBS Bank (Singapore), Bank of East Asia (Hong Kong), and Hang Seng Bank (Hong Kong).

At the same time, Chinese banks are becoming more international. For instance, ICBC (Industrial and Commercial Bank of China) announced it is acquiring Indonesia's Bank Halim. Some other combinations happen such as France’s Credit Agricole and the Agricultural Bank of China setting a funds management joint venture.

The Industrial and Commercial Bank of China (ICBC) and China Construction Bank together have issued around 20 million credit cards. China Union Pay, the Chinese card payment-processing network based in Shanghai expects that it will issue 10 million credit cards in 2007, vs. a mere 3 million in 2006. At the same time, China Union Pay globally issued around 1 billion cards of all kinds. China Union Pay cards are also gaining acceptance abroad in Japan thanks to partnerships with Japan Sumitomo Mitsui and JCB, or in Thailand with SCB and TMB Bank.

As many countries switch to EMV, raising the level of security, the Chinese authorities fear that China could become a hotbed for fraud if the country sticks with its magstripe cards and Chinese banks would be facing the possibility of higher losses from transaction fraud. So, Chinese banks are starting to switch to EMV: in December, we saw ICBC introducing MasterCard Peony Chip Card, the first card issued in China to be EMV compliant. ICBC justifies this evolution by the need of a better security level for card transactions.

Of course, this move cannot stay isolated. Most of payment cards in China will have to evolve in terms of technology. For the time being, it seems that the evolution goes towards contact EMV cards, but no definitive decision is made. Such moves will definitely have a deep impact on the industry. In a few years, China may well become the first market for payment cards, just like it is already the first market for SIM cards. The consequence of such a situation is known in advance: a raise of the technology level of Chinese card manufacturers as well as their global reinforcement, bringing even more competition to western smart card manufacturers.

Thierry Spanjaard
Chief Editor
Smart Insights