China UnionPay's Northeast Asia Plan

From Money & Investment, page 20
issue no. 382, Aug 25, 2008
Translated by Ren Yujie
Original article: [Chinese]

Watch out Visa and Mastercard - South Koreans, Japanese, Mongolians and Russians are increasingly coming to China armed with Chinese UnionPay cards issued abroad.

Chinese credit card and interbank network UnionPay recently launched a strategy to form a "Northeast Asia payment ring" with the hopes of carving up some market share long enjoyed by Visa and Mastercard in the region. Its final goal: become a truly international brand in the industry.

First Stop: South Korea
UnionPay's strategy is still in infancy - it has issued about 150,000 credit cards to South Koreans. Considering that China has received some five million South Koreans visitors annually, and with another one million residing and working in China, UnionPay had so far tapped a minute portion of the potential market.

Korean BD Card, UnionPay's partner in South Korea, planned to boost the number of card holders to one million within a year.

Since launching UnionPay cards in South Korea in February, the 150,000 card holders had already charged 130 million yuan to the cards in their home country, with another 20 million yuan spent in China. That was ten million yuan more thhan Chinese UnionPay cardholders’ spent in South Korea from January to July.

Three years ago, UnionPay began setting up debit card payment points in popular South Korean tourist spots to indulge Chinese travelers while they shopped and dined.

Eyeing the South Korean market was a logical move, as bilateral trade between the two nations reached 159.89 billion dollars in 2007, and the number of Chinese travelers in South Korea increased to 1.07 million in 2007 from 630,000 in 2004.

Cai Jingxian, overseeing a duty-free shop Walker-hill in South Korea, said after UnionPay introduced payment points in the shop, Chinese travelers' spending there had increased to 2,000,000 yuan per month from 200,000 yuan before the cards were used.

Northeast Asia Strategy
South Korea was only one step of a greater strategy, which targeted a gradually maturing regional trade network between China, Japan, South Korea, Russia, Mongolia and North Korea.

Statistics from the United Nations Conference on Trade and Development (UNCTD) revealed that overall exports from these six nations accounted  for 21% of the world's export volume; and total imports in the region accounted for 16% of the world's imports. Moreover, the intra-regional trade volume accounted for nearly 40% of the overall trade in Asia.

Meanwhile, the number of visitors exchanged between these six nations had reached some 15 million per year. The above factors showed there was room for the development of an intra-regional credit card payment system.

However, international credit card companies like Visavappeared to be in an unshakable position, especially in markets like the United States, Europe and Japan. In exploring the Northeast Asia markets, UnionPay president Xu Luode reckoned that the company would have to bank on China's rising economic power and share the similar ideology and goals in development.

In other words, UnionPay hoped to tap the influence of Chinese economy in the region and push for a yuan-based payment system, thus locating its own unique status and position in the industry to secure market share in the region.

The Northeast Asia Strategy introduced UnionPay credit cards in Japan last year, and in August this year, UnionPay debit cards were issued in Russia. In Mongolia, UnionPay partnered up with the Khan Bank of Mongolia.

For the first half of 2008, the bilateral transactions between China and the above-mentioned four countries had reached over 600 million yuan - four times the amount during the same period last year.