China just lifted a decades-long ban on foreign credit card companies by allowing American Express to do business in the country.
American Express (NYSE:AXP) will be the first foreign credit card company to do business in China.
Mobile transactions alone in China topped $27 trillion in 2018. That doesn’t include other online payments and offline payments, as well as other financial services. It’s all because of the U.S.-China trade deal negotiated by the Trump White House. And it’s going to make Warren Buffett a lot of money.
The Chinese central bank has gave the final approval to license AmEx to do business in China. No foreign credit card company has ever before been allowed into the country. So the relaxing of restrictions on foreign card services represents a major milestone of Trump foreign policy, U.S.-China relations, and globalization. That move to lift trade barriers and do business is a sign of progress as tensions between the two powers lingers.
One of the big wins for U.S. financial services companies and Chinese consumers in the Phase 1 trade deal was granting entry to China. The Chinese financial sector is a $40 trillion market for American Express, Visa (NYSE:V), Mastercard (NYSE:MA), and JP Morgan (NYSE:JPM). And these banks and finance companies have been working for decades to get the Chinese government to let them in.
The flow of American credit into China may slowly remake its savings-based financial system into an American-style consumer credit economy. Ninety percent of China’s 8.5 billion bank cards are debit cards. That could change as U.S. credit and payments services flow in.
But one of the big payoffs for the punishing U.S.-China trade war will be vast new markets for American fintech companies. That will give a boost to AmEx stock and other payments companies. And it will put a lot of money in Warren Buffett’s pocket.
As American Express opens for business in China, Warren Buffett will see his fortunes shine brighter. The Berkshire Hathaway chair and CEO is the largest shareholder of AmEx stock. He bought 5% of the company in 1962 for $20 million, valuing it at $150 million. The price was low because of a financially costly and scandalous mistake at an AmEx subsidiary. Buffett thought it was absurdly low:
The whole American Express Company, synonymous with financial integrity and money substitutes around the world. When they closed the banks, when Roosevelt closed the banks, he exempted American Express Traveler’s Checks, so they substituted as US currency. It was not a business that should have been selling for $150 million, but everyone was terrified.
Buffett’s stake in AmEx is currently valued at around $14 billion. He also has major stakes in many other U.S. financials like JPMorgan that now have a lot more room to grow. The Chinese consumer loves American brands and spends a lot of money on them. U.S. financials like American Express have an enormous opportunity to grow their business in China.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:00 PM