On Structure And Performance Of China's Commercial Banks

With the deepening of Chinese economic system reform and the change of external environment for China entering WTO, the Chinese commercial banks, especially state-owned banks, are facing unprecedented competition pressure. The fundamental problem of banking reform, either through adjusting market structure of banking or through reforming bank ownership, is how to enhance our banks' real performance, but is neither to obtain book profits nor obtain monopoly profits. Researches on the influencing factors of industry performance stem from traditional industrial organization theory, which mainly explore the relationship between market structure and market performance. Assuming that enterprises pursue the maximization of profits, the new industrial organization theory argues that enterprise's behavior is related with its ownership structure through attaching importance to enterprise's behavior from market structure. Deposit insurance system greatly lessens the agency cost of liability and causes the absences of supervision by creditors. The capital adequacy supervision counteract the weaknesses, thus influence banks' behaviors. The paper attempts to introduce market structure, ownership structure and capital structure as determinants for banking performance into an analytical framework to explain why they have important effects on the performance. In the course of research, the paper continuously absorbs the research results of institutional economics, capital structure theory, regulation economics, soft budget constraint theory; and adopts deduction methods, econometrics estimation and comparative analysis. Moreover, taking the industrial organization theory as the basic frame, this paper adds capital structure as the explaining viable of the performance and futher explores the mechanism design of capital adequacy supervision; on the other hand, it also classifies the bank's performance to book performance and bad assets, and then explains the causes of bad loans with the soft budget constraints theory. Some conclusions by measuring or analyzing the market structure of Chinese banking, market concentration degree, economy of scale and entry barrier are that, the present banking market is highly monopoly; the biggest or least bank isn't economic to scale; the important factor of monopoly and low efficiency is the combination policy barrier with administration implementation. According to the new industrial organization theory, depicting the transitional Chinese banking is not enough only at the point of market structure. The paper depicts the Chinese banking structure combining market structure and ownership structure. The first layer is ownership information; the second layer is market information. The result of measurement is that the present banking structure is oligopolistic structure dominated by the state-owned banks. Partial equilibrium analyzing oligopolistic market dominated by state-owned banks shows that, the market in a special market structure is divided into different space structure due to bank ownership, which the state-owned banks and new joint-stock banks respectively have their space structure. Normally analyzing ownership structure, market structure and capital structure implies that state ownership of bank will cause vicious competition when some conditions exist; Quickly opening up banking market will easily cause moral hazard while bank investing; combining capital supervision and interest rate control may lessen moral hazard while bank investing. Surveying soft budget constraints reveals that, changing state ownership nature and enhancing capital adequacy ratio helps hardening soft budget constraints; however, there exists two effects while reducing banking market concentration degree. On one hand, decentralization of banking will more harden soft budget constraints than centralization of banking when banks face high loans risk; on the other hand, decentralization of banks will lessen investing on screening loans risks. The results through empirical research are that, market concentration degree ispositively related with bank performance; state ownership of bank is negatively related with bank performance; capital ratio is positively related with bank performance; the marginal effect of changing market structure is in the diminishing region, the productivity of banking (assuming depending on ownership structure) is in the increasing region. It is not enough that exploring how to enhance the performance of Chinese banking industry and the issue of banking reform from the angles of bank ownership and market structure of banking. Because continuous opening up of banking will cause more banks to fail and government won't always has the ability to be the supporter of the soft budget constraints. Through adding integrated budget constraints to mechanism design of capital supervision, which is the condition that must be qualified in market competition system, and enlarging to the banking system which includes supervisors, We find that there won't exist effective capital supervision policy while there isn't integrated budget constraints. Controversy over the focus of banking reform has been for many years. In fact, the suggestion that market structure of banking should be adjusted and the view that the ownership structure should be changed are mutually complementary. Based on empirical result that effect of adjusting market structure is diminishing, and assuming the state as the first action group of institutional innovation, the paper suggest that taking the reform of state-owned banks' ownership as the focus is the must under the present conditions; dividing China Industry & Commerce Bank and China Agriculture Bank should be considered as a waiting plan; reforming city commercial banks and credit corporatives through introducing foreign strategy investors and nongovernmental capital is a important front.