Has minority foreign investment in China�s banks improved their cost efficiency?

James Laurenceson and Fengming Qin
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Fengming Qin: EAERG - School of Economics, The University of Queensland

No 1305, EAERG Discussion Paper Series from University of Queensland, School of Economics

Abstract: Since 2001, foreign investors have been permitted to acquire minority ownership stakes in China�s banks. This paper assesses whether there is any evidence of a cost efficiency payoff in those banks that have taken on foreign investment. Data Envelopment Analysis is first used to generate measures of cost efficiency for China�s banks over the period 2001-2006. A second stage regression is then performed to determine whether foreign investment has an impact on cost efficiency. The results indicate a positive impact, although one that is only marginally significant. Policy implications are discussed.

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