| Citigroup's |
Citigroup's China Bet
The planned launch of a credit card in
China later this year by Citigroup and its local banking partner is about much
more than persuading Chinese consumer to use more plastic. It also marks a broad
new front in the United States bank's long campaign to be a major player in the
world's most populous market.
The seeds of that big new push were sown in December when Citigroup signed a deal to take a 5% stake for $67 million in Shanghai Pudong Development Bank, or SPDB, China's ninth-largest commercial bank. In many ways, the deal represented an unusual approach for the U.S. "bancassurance" giant.
Traditionally, through its Citibank unit, Citigroup has built a local presence from scratch, beginning with corporate banking and then high-end consumer banking. And typically, it purchases companies outright and integrates them into Citigroup's broader businesses, rather than accepting a minority stake.
But in China, regulatory restrictions have turned that well-established strategy on its head. Forbidden from offering the bulk of its services directly to local clients or buying a controlling share of any local bank, Citigroup chose the only path available to piggyback. It's looking to SPDB's market knowledge and national distribution network to sell mass-market consumer products, starting with a jointly branded credit card planned for later this year. Other consumer financial products in conjunction with SPDB are expected to follow.
Citigroup isn't saying what thee products will be, except to say that eventually it will offer all the products it is allowed to under local regulations that it believes will be profitable - so potentially, mortgages, consumer finance and mutual funds. The credit-card business comes first because it is potentially the biggest business, and Citigroup doesn't need an extensive branch network to get into it.