AXP American Express Company

By Lingling Wei and Chao Deng 

BEIJING -- American Express Co. cleared a hurdle in its yearslong effort to operate in China, potentially becoming the first U.S. card network to receive permission to offer services in the Chinese market.

China's central bank informed the New York-based card issuer that it will "formally accept" its application to clear and settle domestic bank-card transactions, an Amex spokesman said. The firm has applied to do so by forming a joint venture with a Chinese mobile-payment provider, Lianlian Group, said the spokesman, Fritz Quinn. People close to the central bank confirmed officials have given "verbal acceptance" to AmEx's application.

Obtaining such regulatory consent marks an important, if only an initial step toward gaining a foothold in China's fast-growing electronic-payment market. Chinese authorities hope to tout AmEx's application as an example of progress in opening its markets when President Donald Trump's top economic advisers travel to Beijing next week to try to settle escalating trade disputes, according to people involved in China's decision-making.

AmEx's decision to take on a Chinese partner -- instead of forming a wholly owned entity -- shows the difficulties foreign firms face in going solo in a market where the government holds sway, said analysts and industry experts. Barriers to foreigners have been high for so long that Chinese institutions now thoroughly dominate many sectors, especially in finance -- be they for payment services, credit rating, brokerages or banking -- sectors where China has said greater foreign participation would be allowed.

Authorities "aren't establishing a level playing field," said Lester Ross, a Beijing-based lawyer at WilmerHale, who advises U.S. businesses operating in China. Instead, he said, they're "opening a door but only for firms to crawl through."

Opening the market to foreign card companies was a pledge Beijing made a dozen years ago. It still hadn't done so when Beijing promised "full and prompt" market access as part of a quick "100-day" market-opening package made after a summit between President Donald Trump and President Xi Jinping a year ago. Credit-rating, brokerage and financial firms are all areas Beijing has over the past year said greater foreign participation would be allowed, but where foreign executives complain that licensing and other regulatory roadblocks leave those promises unfulfilled.

China already has 6.7 billion bank cards in circulation, with government-owned China UnionPay Co. commanding more than 90% of the domestic market.

Joint ventures, like the one being formed by AmEx, have drawn particular ire from some Trump administration officials who see them as a tool China uses to reduce American companies' profits and siphon off their technical know-how.

The AmEx spokesman, Mr. Quinn, said the firm's strategy has always been to form a joint venture in China. AmEx has worked with Lianlian as far back as 2012, providing technologies to power Lianlian's digital wallets, which Chinese consumers can use to top up mobile phone minutes and pay bills with. "For any foreign business doing business, it's nice to have some help," Mr. Quinn said.

In addition to AmEx, Mastercard Inc. has also formed a partnership with three Chinese entities and has applied with the central bank to conduct card-clearing and settlement transactions in the country, according to people with knowledge of the matter. Its joint-venture application so far hasn't been accepted by the People's Bank of China, the people said.

"Do they have a preference?" one of the people said, referring to the question of whether the government prefers that foreign companies find local partners. "You have to feel it for yourself."

Visa Inc. recently has withdrawn and resubmitted its application to form a wholly owned entity in China, according to people familiar with the matter. The refiling came after senior Visa executives met with People's Bank governor Yi Gang in late March, the people said. So far, the firm's application hasn't been accepted by the central bank, the people added, and Visa is also weighing potentially teaming up with Chinese banks as way to get into Chinese market if it doesn't get the green light to proceed with the application.

A Visa spokeswoman said the company would continue to work through the application process and is committed to China for the long run. She declined to elaborate.

Even with the informal acceptance of its application by the central bank, AmEx still needs to overcome other hurdles to be able to start operating in China. It has to go through a rather-murky national-security review process, the people with knowledge of its application procedure said. The firm could face more than a year before it can get its local business running, because the government also requires the joint-venture company to put data centers and other processing systems in place before seeking a final approval.

Meanwhile, another group promised fast progress as part of the Trump-Xi "100-day" plan- -- global credit-rating companies -- are still struggling with local barriers. As part of that agreement, China was supposed to allow wholly owned foreign rating firms to provide credit assessment services in the country by July 2017. So far, none of the big three raters -- S&P Global Inc., Moody's Investors Service and Fitch Ratings -- has applied, according to people with knowledge of the process.

One major obstacle is a request that they adopt domestic rating standards that tend to give local companies loftier grades than they would likely receive under the foreign firms' global standards, these people said. S&P declined to comment. Moody's and Fitch said they welcomed the regulatory changes.

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Yang Jie

and AnnaMaria Andriotis contributed to this article.

Write to Lingling Wei at lingling.wei@wsj.com and Chao Deng at Chao.Deng@wsj.com

(END) Dow Jones Newswires

April 25, 2018 10:47 ET (14:47 GMT)

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