Despite its name, the Bank of America Corporation is spreading its wings far beyond the United States. In fact, the bank recently announced that it will jointly enter into a new venture with the China Construction Bank. Together, the banks will offer new credit cards and other services to the Chinese market. The collaboration allows both banks to take advantage of the strengths they each bring to the table – Bank of America has the credit card expertise while China Construction Bank has the market strength needed to succeed in China.
According to reports, the two banks will implement this venture in two stages. During the first stage, China Construction Bank will create its own credit card unit and its current credit card operations will be merged into the new one. With the help of an advisory committee, which will include representatives from Bank of America, they will determine the business structure of the new unit.
During the second stage, the credit card unit will be converted to a Chinese-foreign credit card. Though it will be registered in China, it will be created through a joint venture, of which Bank of America will acquire 37%. Bank of America will also begin to launch co-branded credit cards and members of both banks will have representatives that are members of the senior management team of the project.
In order to complete the second stage of the venture, the banks have to wait until the Chinese government enacts new joint venture regulations. In addition, the banks will need to obtain regulatory approval, but this is not expected to be an issue.
This is certainly a smart financial move for Bank of America, as it will allow them to take advantage of one of the world’s fastest growing economies. In 2006 alone, the credit card volume in China jumped up by over 70%, and it is only expected to continue to grow.
The joint venture is also beneficial for China Construction Bank because it will help them to better meet the needs of the market. In turn, this will increase revenue for both banks. China Construction Bank is already a leader in the Chinese finance industry and is the second largest issuer of credit cards in the country. According to the chairman of the bank, Guo Shuging, China Construction Bank hopes that Bank of America will help provide them with the support and expertise they need to take their company to the next level – with the ultimate goal to become known as a world-class retail bank.
Bank of America’s involvement with the China Construction Bank is nothing new. In fact, Bank of America became a 9% shareholder in 2005 and has been providing the bank with advice ever since.