The Empirical Study On The Market Structure Of Chinese Banking

Facing the opportunity and challenge of the Chinese economic growth, How to understand the Chinese banking market structrue in order to promote the China commercial bank effeciency? How to make clear the relationship between the reform of the banking and competition? This paper mainly focuses the market structure in the view of promoting bank performance. From the former experiences,the bank reform is a complex systemic work and it can not be accomplished in one policy shoting.The relationship between the bank reform and change of competition, the differences of competition among different characteristic bank, the relationship between the bank reform and the change of demand ande supply of banking products, the relationship between the bank reform and eonimic growth must be made clearly.Considering the Chinese banking, the author considers that because the reform of property right and the perfect of the corporate governance is a long process,there may be a few influences on the bank market structure during this process. It is not clear if the other bank reforms are beginning to change until this process finished.For the stability of the banking system and the macro economy, it is neccessary to research the Chinese banking market structure in order to improve bank's achievement and economics stabability in dynamic developmental condition. And now the proper method is that using the theoritic and empirical method to find all kinds of factors which decide the bank performance demand supply and the situation of the competition. According to the all of these factors,the author test the change of the Chinese market structrue, the competition betweem the banks, the demand and supply of the bank products and the most effeciency financial structure. Coming next is the key problem:what kinds of factors determine the China bank performance and how to consider them in the framwork of the economic analyse? The paper will solve these problems step by step in the logic order. According to the industry organization theory and reality in Chinese banking system and ased on 100 Chinese commercial banks panel data from 1994 to 2006, this paper measures the competition of market using HHI and demonstrates the relationship between competition and bank performance. In order to solve the endogenous problems caused by bank's heterogeneity and the simultaneous problem between market competition and bank performance, we use the depending depth of Chinese foreign trade to construct the instrumental variable of market competition and add the dummy variable and random effect to control the bank's heterogeneity. The empirical study finds:along with deregulation, the degree of competition in Chinese banking market is promoted which leads the bank's profit generally decreases; the existed bank's heterogeneity doesn't affect the bank performance significant. In this paper we demonstrate the relationship between competition and banking deregulation performance using PR model. The empirical study finds:The Chinese banking market is monopoly competition, the degree of competition in Chinese banking is promoted along with the situations of macroeconomics; because of the policy of national capital controlling the core of the economics, the national banking firms'performances are suitable for perfect competition, because of the comparative advantage in solving the soft information about the customers, according to different areas, the non-national banking firms' performances are flexible. So, we suggest that in current not only we must increase the market competition, but also we need pay more attentions on developing different behavior financial institutions.This paper also develops and estimates a structure model to analyze competition in the Chinese banking in light of the differences in provinces and that in loans and deposits. Based on 30 Chinese provinces macro-data from 1994 to 2006, the empirical study suggests:(1) generally the markets structure of loans and deposits are all between Cournot equilibrium and Monopoly, but the competition of loans market is higher than deposits market. (2) Along with the regulation of interest rate in China, the loans market enjoys more scale economy than deposits market. (3) All of the banks have the same behaviors in the market. So, nowadays we should deregulate the interest rate and encourage the competition in banking, in the same time,we must supervise the financial products sold by banks and encourage developing different financial institutions which have different behaviors, such as warrant corporate and rural bank.This paper gives an empirical research to the relationship between the banking market structure and the birthrates of small and medium-sized enterprises in the last part. Based on the panel data of 30 provinces in 1995 and 2006, using fixed-effect model, we found that the increasing market shares of small and medium-sized banks in favor of the birthrates of small and medium-sized enterprise and many other interesting results. In order to investigate whether there is causality, we used an IV which based on the background of China's gradual reforms. Re-estimated results showed that the causal relationship did exist. In order to overcome the endogeniety of other explanatory variables, we used dynamic GMM model to check the robust. The results also supported the theoretical hypothesis of this paper.