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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)
New Economics Papers: this item is included in nep-ban, nep-cna, nep-eff and nep-tra
Date: 2007-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

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

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