Citi, which has branches in 13 cities, said it would likely launch credit card operations this year.

"This approval represents a significant milestone in the continued expansion of Citi's business in China, a priority market for Citi," said Citi Asia Pacific Chief Executive Stephen Bird. "Our business in China continues to perform strongly across institutional and consumer lines, and our ability to introduce a credit and commercial card proposition adds to our healthy growth momentum in this key market."

Citi had about 16 million cards in Asia at the end of 2011, according to company figures. It also signed an agreement with Shanghai-based Orient Securities in June to launch a securities joint venture in the country.

About 40 foreign banks have locally incorporated units in China, allowing them to carry out yuan-related business, since 2007 when the first batch of banks were approved.

However, their growth has been slow, making up only about 2 percent of current total market share, partly because of reluctance among Chinese consumers to bank with a foreign name but also because of the tight regulatory environment.

The China unit of Hong Kong's Bank of East Asia Ltd (0023.HK) is the only foreign bank with credit card operations on the mainland.

(Additional reporting by Kelvin Soh in HONG KONG; Editing by Chris Lewis)

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