The Research On Banking Internationalization And Financial Stability Of China

With the constant deepening of the world economy globalization and financial liberalization, the pace of the banking internationalization process has been accelerated, which has resulted in a far-reaching influence on the countries related and even the international finance and the world economy. Especially in the point of view of the developing countries, with the continuous expanding scale of the banking internationalization, the keen inter-bank competition and large amount of international capital flowing has brought a constant and remarkable influence on their financial systems including the bank industry, the money market, the capital market and the foreign exchange market. It is concerned not only with the interests of the bank industry itself, but also with the realization of those countries' goals of internal and external economic equilibrium directly or indirectly. And then will impose an impact, to a certain extent, on the host countries' finance stability and interests of the macroeconomy. Therefore, the study on the theory base, causes, process and effects concerning the banking internationalization will help us to have a further grasp of its development trend and law and will possess a profound theoretical and realistic significance, which is the intention of this dissertation.Based on the basic theories concerning the banking internationalization and finance stability, this dissertation, in the first place, analyzes, from the angles of financial service openness and international capital flow, the banking internationalization's causes, process, characteristics and development trend. Then it further explores the internationalization's impact mechanism and effects on the developing countries' finance and economy. And then it carries on an empirical analysis on the relationship between the banking internationalization and the finance stability of some developing countries. After that, we empirically examine the interrelated relationship between the host countries' banking internationalization and the bank industry's efficiency and economic growth. Finally, it attempts to summarize China's banking internationalization's influence on its finance stability and bring forward the relevant measures.The first part (Chapter1), which is the introduction, clarifies the dissertation's study background, significance, defines some related concepts and explains the scope and methods for further study. And then it reviews the literature in the light of the subject of this dissertation. In this chapter, it is put forward that under the background of the international production factors movement, based on the monetary internationalization, with transnational flow of international capital as the link and by means of the international transmit and coordination of the monetary policy, the banking internationalization is defined as a process or a development trend which trends towards openness from a state of closeness in a bid for the optimal allocation of financial resources around the world. Moreover, in a broader sense, finance stability in the context of this dissertation is an organic unity between efficiency and risk.The second part (Chapter2- Chapter3), from the two angles of financial service and international capital flow, makes a systematic and comprehensive exposition of the theory base on the banking internationalization and finance stability, that is, we have presented an overall analysis on such related topics as the causes of the banking internationalization based on the related theories such as International Trade, Capital Movement, International Investment, Industrial Organization, Financial Stability and so on. Then we study the relationship between the banking internationalization and finance stability. And then the dissertation reviews the banking internationalization's historic process, characteristics and development trend. In this chapter, the dissertation puts forward that the development of international trade and investment are the two important premises for banks to engage in international business and also the objective elements to accelerate the process of the banking internationalization. Although the angles of view from which to study the above-mentioned issue are diversified, financial service and international investment are usually the dominant angles with the international capital flow as the masterstroke. As for the process, the banking internationalization, in a real sense, came with after the world war II It is such factors as the rising of the Euro-dollar market, the financial innovation and liberalization and so on that have promoted the development of the banking internationalization. Particularly, in the wave of financial liberalization in the late 1980s, the scope of banking internationalization expanded rapidly to many countries in Asia, Latin America and the Middle and Eastern Europe.The third part (Chapter4- Chapter5), from the two angles of financial service trade liberalization and international capital flow, illustrates respectively . the micromechanism and macromechanism concerning the banking internationalization's impact on the finance stability of the developing countries. In general, at the initial stage of the banking internationalization, owing to the fact that the developing countries usually have strict control over the international capital flow, it is not possible to incur large-scale interest risk and exchange rate risk. Accordingly, there's little probability of giving rise to financial risks relatively. And the major effect of the foreign banks' entry on the domestic banking is that those foreign banks will usually influence, to a certain degree, the efficiency of the host countries' bank industry. This can be seen most clearly in the competition of banking market share and the contrast of the power of competitiveness. Therefore it is necessary to master the opening degree. Only the moderate entry of the foreign banks and the necessary market entry barriers are the indispensable prerequisites to raise the allocation efficiency of banking resources. As the degree of the banking internationalization rises continuously, the speed and scale of international capital flow increases accordingly, large amount of the above-mentioned funds flowing in the domestic and international financial markets will probably bring about unfavorable influences on the host countries' capital account and financial account by means of such channels as interest, exchange rate and financial credit. And then will possibly have a huge and direct or indirect impact on the host countries' product market, money market, foreign exchange market, capital market and balance of payments. Such a kind of impact will probably result in a monetary crisis which will affect the banking and financial stability of the host countries.The forth part (Chapter6), by means of setting up models concerning financial service liberalization, financial stability and banking efficiency, examines firstly the relationship among the banking internationalization and banking stability and currency stability based on the associated panel data of dozens of developing countries for the past few years. And we've come to the conclusion that the banking internationalization was not positively correlated with the banking stability and currency stability. Then it continues to empirically study the influence of the banking internationalization on the economic growth and banking efficiency of those host countries. The results of the empirical examination indicate a strong correlativity among the openness of banking market and the return on assets, and the return on capital of the banking sectors. But the link among the openness of banking market and banking overheads, net interest revenue and growth seems to be casual. Therefore we conclude that the opening of banking market will promote competition and, to some extent, improve the banking efficiency, but it will not definitely lead to higher economic growth.The fifth part (Chapter7-Chapter8), gives an analysis of the causes, major process and effects of China's banking internationalization and discusses the corresponding policy measures as to how to improve the competitiveness of China's bank industry and how to maintain financial stability in the face of keen inter-bank competition from both home and abroad. In this part, we study empirically the banking internationalization's effects on the bank industry's operation efficiency through establishing multivariate regression models. The empirical analysis shows that China's banking internationalization has produced unfavorable effects on the performance of the "Big Four" state-owned commercial banks, whereas the performance of the other share-holding commercial banks has steadily improved. Those results were related to China's typical oligopoly banking market and the strategic place of the state-owned commercial banks.Finally, aiming at the above facts, it is further pointed out that, at present and in the future, the main issue we are confronted with is to deal with the three relations among opening the banking market, improving efficiency and maintaining financial stability, particularly, it will be critical to solidify the macroeconomic foundation. More specifically, the resolutions to the above puzzles lie in the following two aspects: firstly, for the purpose of increasing the domestic banking's efficiency and competitiveness, we must proceed with the reforming the industry's inherent structure, then we should reduce the entry barriers of the banking market, cultivate and foster diversified bank property right structure, break through the present situation of oligopoly and change the unreasonable market structure, establish a deposit insurance system, improve the legal procedures of market exit, perfect the corporate governance of domestic bank industry. Secondly, in order to maintain financial stability, we should further ascertain the specific goals of monetary policy and the direction of a prudent fiscal policy, implement the progressive opening strategy, accelerate the pace of interest rate market-oriented reform, set up the RMB exchange rate regime which allows greater flexibility and open the capital account step by step.