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On the Efficiency of Chinese Banks And WTO Challenges

[journal article]

Yao, Shuije

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-239579

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Abstract After joining the WTO in December 2001, China was given 5 years to completely open up its banking market for international competition. Chinese banks have been renowned for their mounting non-performing loans and low efficiency. Despite gradual reforms, the banking system is still dominated by state ownership and encapsulated monopolistic control. How to raise efficiency is a key to the survival and success of domestic banks, especially the state-owned commercial banks. Two important factors may be responsible for raising efficiency: ownership reform and hard budget constraints. This paper uses a panel data of 22 banks over the period 1995-2001, and employs a stochastic frontier production function to investigate the effects of ownership structure and hard budget constraint on efficiency. Empirical results suggest that non-state banks were 8-18% more efficient than state banks, and that banks facing a harder budget tend to perform better than those heavily capitalized by the state or regional governments. The results shed important light on banking sector reform in China facing up to the tough challenges after WTO accession.
Document language English
Publication Year 2007
Page/Pages p. 629-643
Journal Applied Economics, 39 (2007) 5
DOI http://dx.doi.org/10.1080/00036840500447799
Status Postprint; reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)
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