China delays market entry for Visa and Mastercard

New rules allow foreign access, but PBoC has refused to process card companies’ applications.

China’s central bank has refused to acknowledge applications submitted by Visa and Mastercard to process renminbi payments, despite rules in 2017 that removed formal obstacles to foreign participation in the $124tn market following a decade-long struggle, accoridng to Financial Times.

The application delays highlight complaints by overseas companies and White House trade negotiators that China uses informal barriers to block foreign competition in the domestic market, even where written rules ostensibly guarantee fair treatment.  Although Visa and Mastercard submitted applications to the People’s Bank of China more than a year ago, the PBoC has not formally acknowledged these submissions, according to two people familiar with the application process.

China’s refusal to process the applications could cause trouble in trade negotiations between Washington and Beijing, which are reaching a critical juncture ahead of a March 2 deadline to strike a deal or face a new escalation in tariffs.

The US has been trying to secure greater market access for American financial services companies, along with other changes to Chinese economic policy, like curbing the forced transfer of technology. The Office of the US Trade Representative, which is leading the talks, did not immediately respond to a request for comment on Sunday.

In a typical Chinese permissions process, formal acceptance and acknowledgment — shouli in Chinese — is the initial step towards approval. According to the application procedure published in 2017, the central bank must decide on applications within 90 days of acknowledgment.

“It’s a funny spin on World Trade Organization compliance. Yes, China will have due process for the application once they’ve accepted it, but no one ever thought it would be possible not to accept the application,” said one of the people.

In November, American Express became the first foreign card scheme to win initial approval from the central bank to establish a renminbi bank-card clearing company. But Amex’s approval raised eyebrows because the new entity is a 50-50 joint venture with a Chinese partner, even though the rules permit wholly foreign-owned ventures.

Reuters reported in November 2017 that China was pressuring Visa and Mastercard to operate through joint ventures. But an executive at a major foreign card operator said the PBoC had not explained its refusal to process the company’s application.

“One could suspect that it’s because of the trade war, but then again American Express was approved. Somebody said, ‘Well Amex is smaller, so there’s less impact to the market,’ but nobody really knows,” he said. “There are a lot of variables. We are communicating with the central bank on and off, but there’s no clear reason.”