Rational Inefficiency and non-performing loans in Chinese Banking: A non-parametric Bootstrapping Approach

Kent Matthews, Jianguang Guo and Nina Zhang

No E2007/5, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: The existing Chinese banking system was born out of a state-planning framework focussed on the funding of state-owned enterprises. Despite the development of a modern banking system, numerous studies of Chinese banking point to its high level of average inefficiency. Much of this inefficiency relates to the high level of non-performing loans held on the banks books. This study argues that a significant component of inefficiency relates to a defunct bureaucratic incentive structure. Using bootstrap non-parametric techniques the paper decomposes cost-inefficiency into X-inefficiency and rational inefficiency caused by bureaucratic rent seeking. In contrast to other studies of the Chinese banking sector, the paper argues that a change in the incentive structure and the competitive threat of the opening up of the banking market in 2007 has produced reduced inefficiency and improved performance.

Keywords: Bank Efficiency; China; X-inefficiency; DEA (search for similar items in EconPapers)
JEL-codes: D23 G21 G28 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-02
New Economics Papers: this item is included in nep-ban, nep-cna, nep-eff and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in China Finance Review , 2007, 3, 1 , 55-75

Downloads: (external link)
http://carbsecon.com/wp/E2007_5.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2007/5

Access Statistics for this paper

More papers in Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section Contact information at EDIRC.
Bibliographic data for series maintained by Yongdeng Xu ().