China will now permit foreign companies to access its $27 trillion payments market, which will further open up the world’s second-largest economy.
Foreign players can start applying for payment licenses and will be treated the same as local firms, the People’s Bank of China said in a statement on Wednesday.
Applicants must set up local units, establish payment infrastructure — including disaster recovery systems — and store client information domestically, the central bank said.
Premier Li Keqiang promised to protect the intellectual property of foreigners investing in its economy, as China seeks to avoid a trade war with the US.
Any entrants to the Chinese market — apart from meeting stiff local regulations — will also have to compete with the more than 260 firms that have received payment licenses including Ant Financial Services Group’s Alipay and Tencent Holdings’s WeChat Pay.
“The domestic market is quite saturated with very strong domestic players, and it is relatively hard for foreign companies to get a piece of the pie,” said Iris Pang, a Hong Kong-based economist at ING Groep NV. “But there is a chance for them to compete in the cross-border payment market.”
Chinese residents are increasingly fond of shopping on overseas e-commerce platforms, which tend to prefer local payment companies, Pang said.
Allowing foreign firms to enter the payment market with defined regulations helps boost innovation, creates a fair environment for competition, and improves the services of payment providers, the central bank said in the statement.
Some major Chinese players have expanded overseas and offered services to global users, it added, without naming any company. China’s payment firms processed 169 trillion yuan ($27 trillion) of transactions in 2017, a nine-fold surge from 2013, according to the central bank.
With this access to the payment sector, “China fulfilled its promise to further open up the financial sector and, at the same time, it is very confident about the competitiveness of its payment companies,” said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong.
“Banking is the real sector that needs to be further opened up,” he said. “That requires not only lift of policy barriers but also clearing of invisible barriers.”