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, 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.

Date: 2009
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