Bank Reforms, Competition and Efficiency in China's Banking System: Are Small City Bank Entrants More Efficient?

Hui-Lin Lin, Chia-Chi Tsao and Chih-Hai Yang

China & World Economy, 2009, vol. 17, issue 5, pages 69-87

Abstract: This paper analyzes technical efficiency in China's banking system by large banks and small city banks as well as the pre-WTO and post-WTO accession periods. Using an unbalanced panel dataset for 63 banks over 1997-2006 and employing the stochastic frontier function approach, the empirical results reveal that the new entrants, small city banks, experienced a slightly higher efficiency score than incumbent large banks, on average. Compared with the pre-WTO accession period, the efficiency score is found to have improved significantly after entry into the WTO as a result of the competition effect. This competition effect is particularly relevant for small city banks. Finally, determinants of X-inefficiency are examined. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Institute of World Economics and Politics, Chinese Academy of Social Sciences.

Date: 2009

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