Established in 2002, China UnionPay is the country's card association, operating a unified inter-bank clearing and settlement system. Last year the number of UnionPay card inter-bank transactions hit seven billion worth $1.1 trillion.
It has been strongly helped by rules that mean foreign companies are not allowed to issue their own cards denominated in its currency, build networks, or process interbank point-of-sale transactions, instead having to co-brand.
Earlier this year MasterCard, along with Visa and others, approached the US government about filing a WTO trade complaint against China for cutting them out of the market.
This was followed by Visa warning its bank members that they would be fined if they used the Chinese firm's network to process international transactions for their co-branded cards.
Now the Chinese outfit has agreed to work with MasterCard to form working groups and "formulate a business development plan" as they consider co-operation on various areas, including online payments, according to a brief statement.