By Samuel Richter

Citigroup (C) has announced that it will be the first Western bank to issue credit cards in China. Currently, the only foreign bank allowed to offer its own credit cards in China is the Bank of East Asia (BKEAY) in Hong Kong.

The Chinese credit card market is dominated by domestic banks, including Industrial and Commercial Bank of China (IDCBY) and China Construction Bank (CICHY), which have been facing challenges recently from a deflating property market and troubles in Europe, which may stall Chinese growth.

Increasing signs of a Chinese slowdown may mean that the domestic credit market will not be as lucrative as it was in the heady days of 2008, when the number of Chinese holding credit cards doubled in one quarter. Consumer spending in China is expected to weaken, and the sale of luxury goods in the country may slow as middle-class Chinese consumers tighten their belts. This will mean less credit utilization, fewer credit card fees and less revenue for the major Chinese banks, as well as newcomers to the market like Citigroup. Right now, Citigroup has branches in 13 Chinese cities.

However, investors would be foolish to write off the news just because China's economy is slowing. Slow growth is still growth, and China's gross domestic product rose by 8.9% last quarter. While European and American economists can only dream of such figures, they are a reality in China, where the middle class is expanding faster than the American middle class is contracting. The Chinese credit card market is relatively massive. Dow Jones reports that there were 268 million credit cards issued in China during the month of September.

Still, a slowdown in Chinese consumer spending is inevitable. Shoppers saw prices rise by 5.4% last year, despite desperate attempts by the government to slow inflation. Wages in China can only go so high without alienating foreign investors, particularly American firms who might like the positive goodwill that repatriating jobs brought to companies like Caterpillar (CAT) and NCR (NCR).

Paradoxically, the bad news for Chinese banks may prove positive for Citigroup. Sluggish consumer spending will disappoint investors in Chinese banks who have gotten used to the explosive growth in the consumer credit market. For Citigroup, the Chinese market is a new opportunity, and the promise of new business in a still growing emergent economy will likely translate into higher revenues for the bank.

Citgroup desperately needs more income. While other American banks have begun to show signs of health, Citigroup still staggers. Bank of America (BAC) recently impressed investors with its improved tier 1 capital ratio, and Wells Fargo is profiting from being the biggest mortgage servicer at a time of record-low mortgage rates and an improving residential real estate market. Citigroup, on the other hand, saw earnings and revenue fall in the fourth quarter of 2011 because stayed addicted to the investment-banking business that also hurt Morgan Stanley (MS), causing the bank to post a loss of $275 million last month.

With a lingering European sovereign debt crisis, low treasury yields, and low trading volumes in equity markets, consumer markets are looking like an attractive refuge for banks. A return to consumer credit could help Citigroup capitalize on a more active market, and a presence in China would help it profit from that country's still-impressive growth.