China has surpassed Japan to become the world's second-largest market for automated teller machines, according to Retail Banking Research.

The London consulting company estimates that China's installed-ATM base reached 208,000 machines at the end of last year; Japan's base totaled 187,123 ATMs, said Mark Glover, a Retail Banking Research associate.

Banks and other companies operate 400,000 to 440,000 ATMs in the U.S.

China's state-owned banks — Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China — are driving ATM installations by transforming their combined 66,000 branches to full-service operations, from facilities that have handled only basic transactions.

Chinese banks operate a combined 195,000 branches throughout the country, but when compared with China's 2008 population of 1.3 billion, the ratio is relatively low, leaving enough room for further expansion, Glover said.

"Many of the branches are self-service, deploying several ATMs that accept deposits and dispense cash," said Glover, who spent five months in China surveying the ATM market.

Last year, Chinese banks installed 42,000 ATMs, up 16.7% from 2008. The installed base in 2008 grew 80%, from 20,000 machines in 2007.

The Chinese ATM market is led by the two top U.S. manufacturers of ATMs, NCR Corp. and Diebold Inc.; Wincor Nixdorf AG of Germany; and GRG Banking Equipment Co. Ltd. of China, Glover said.

Chinese banks buy the same high-end, full-function ATMs bought by U.S. banks, said Gil Luria, a Wedbush Securities analyst in Los Angeles. "China sees itself as a developing economy with central planning, unlike India and Brazil — also fast-growing ATM markets — that purchase low-end ATMs for the current market," Luria said.

Chinese banks also buy cash-recycling ATMs, because China is still a "cash-intensive" society, he said.

Diebold, of North Canton, Ohio, operates a sales and services office in Beijing and a manufacturing plant in Shanghai, said Mike Jacobsen, a company spokesman. It also operates a number of smaller offices throughout the country.

"We have a real strong focus on China, and in terms of growth it is one our key markets," Jacobsen said. "That is why we are spending a lot of time and resources there."

Diebold recorded an increase in Chinese bank ATM orders leading up to the 2008 Beijing Summer Olympics, but demand remained strong after the Olympics, Thomas Swidarski, Diebold's president and chief executive, told analysts last year.

That is because China's domestic retail market took off, Glover said. "The retail market is growing beyond belief," he said.