Cost efficiency, technological progress and productivity growth of Chinese banking pre- and post-WTO accession

Rasoul Rezvanian, Rima Turk Ariss and Seyed Mehdian

Applied Financial Economics, 2011, vol. 21, issue 7, 437-454

Abstract: China has recently taken substantial steps to reform its banking sector, particularly after joining the World Trade Organization (WTO) in December 2001. This study examines the effect of recent banking reforms and WTO accession on the cost efficiency of Chinese banking and the efficiency differentials across different bank ownership groups. We use a nonparametric approach to investigate the efficiency trend and productivity growth of banks between 1998 and 2006 prior to and after joining the WTO. We find that, on average, domestic banks outperform their foreign counterparts over the sample period in terms of overall and allocative efficiencies, but they fall behind in terms of overall technical efficiency. A pre- and post-WTO accession analysis reveals that the efficiency of domestic banks has declined post-accession, while foreign banks have enjoyed an improvement in their cost efficiency post-WTO accession. The findings further suggest that the total factor productivity of Chinese banks has weakened over the period under study. However, total factor productivity has increased for both domestic and foreign banks after China joined the WTO, equally owing to efficiency improvement and technological progress.

Date: 2011
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DOI: 10.1080/09603107.2010.532110

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