paypal_logoChina’s regulators have never been known for moving fast on anything, and that case seems to apply even more when it comes to allowing foreign players into emerging markets like third-party payment services. More than two years after China began awarding licenses for its domestic companies to offer such, foreign companies are still waiting for equal rights in the lucrative domestic market. But now US e-commerce giant eBay (Nasdaq: EBAY) is saying it could soon become the first foreign licensee to enter the market, providing both a big opportunity, but also a major challenge, as it seeks to catch up to Chinese rivals with more than a two-year head-start.
China’s e-commerce has boomed over the last two years, as both domestic and global players aggressively entered a market forecast to see nearly two trillion yuan ($322 billion) in sales this year alone. Chinese firms, most notably names like Alibaba’s AliPay, Tencent’s (HKEx: 700) Tenpay, and industry giant UnionPay have been making big money off the trend, even as big western names have been forced to wait on the sidelines for a chance to participate in the market.
eBay and its PayPal online payments arm have been the most aggressive among the foreign players aiming for a piece of the market. PayPal said as early as September 2011 that it had applied for a China third-party payment license, and has said several times since then that it is still very keen to enter the market as soon as it gets approval. Yet despite its long wait, the regulator has yet to issue such licenses for foreign-backed firms.
Now eBay CEO John Donahoe has made new remarks saying his company is seeing “encouraging signs,” and predicting that eBay could soon become the first foreign firm to win a third-party payments license for China. (English articleChinese article) Just to make sure no one gets their hopes up too high, Donahoe was quick to add he has no idea when these new licenses could actually be awarded, saying it “could be in three months or five years.”
Obviously Donahoe knows much more than I do since his people are in constant contact with the Chinese financial regulator that is overseeing the process. But based on my relatively long experience reporting on various industries in China, I would caution eBay and other potential applicants for third-party payment licenses not to get too excited over such “encouraging signs.  ”
Most of my experience comes in the tech and telecoms space, where the regulator has been notoriously slow to approve anything new. That regulator, the Ministry of Industry and Information Industry (MIT), took a long time to finally issue 3G mobile licenses, after “studying” the issue for more than four years. It’s also known for its bureaucracy that requires every cellphone maker to get a license for each of its new models—a process that has repeatedly forced Apple (Nasdaq: AAPL) to delay launch of its new iPhones in China until months after their global debuts.
China’s anti-monopoly regulator, the Commerce Ministry, isn’t much better, often taking months longer than most of its peers to approve major domestic and global M&A. Those lengthy delays forced at least one company to restructure a multibillion-dollar deal, and have caused business disruptions for firms that must remain in a state of limbo until their plans are finally either approved or rejected.
All of that said, I should be fair and note that Chinese regulators treat everyone with similar levels of bureaucracy, not just foreign firms like eBay and PayPal. But in this case, the two-tiered nature of the third-party payment licensing system is clearly putting potential foreign competitors at a major disadvantage compared to their domestic rivals. Donahoe’s remarks were made in response to a specific reporter’s question at an industry event, meaning I doubt that any announcement of new licenses is imminent. Still, eBay certainly has plenty of experience at this waiting game, so perhaps Donahoe’s latest comments indicate that China could finally issue third-party payment licenses to foreign firms by the end of this year.
Bottom line: New comments from eBay indicate third-party payment licenses could be issued to foreign firms by year’s end, more than two years after Chinese rivals received similar licenses.
Doug Young lives in Shanghai and writes opinion pieces about tech investment in China for Techonomy and at He is the author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.