The Changs Of International Competitiveness In The Japanese Banking

The Japanese economy has entered a period of rapid growth since1955.Theaverage annual real economic growth has reached up to9.3%during the period of1955-1972. Japan’s gross national product exceeded that of Germany in1968, bywhich Japan became the second largest economy behind the U.S. in the capitalistworld. Accompanied by rapid economic growth, in the Japanese banking industry hasalso laid a solid capital foundation for its international competitiveness. With theincreasing development of financial liberalization and globalization, there has somegradual deregulations in the Japan’s financial sectors to promote the development ofits financial globalization since the1980s. Japan’s financial institutions have began toexpand access to overseas,thus greatly enhancing the status of the TokyoInternational Financial Market and the internationalization of Japanese yen. By theend of1986, the overseas assets in Japanese commercial banks have accounted for20%of its total assets and22%in international business revenues. Throughout the1980s, the Japanese banking industry has achieved large-scale profits and in large partcontributed to the global banking industry profits, which makes the European andAmerican competitors far behind.The bubble economy collapsed in the early1990s and the Japanese economyentered into a prolonged slump. However, the M&A wave set off by the internationalbanking industry prompted the Japanese banking sector to expand its scale even morein this change. In1992, the world’s top nine commercial banks are Japanese banksand nearly half (22)of the world’s top50commercial banks was also from Japan. In1994, the Japanese banks decreased in these two ranks, but still ranked the world’s top six commercial banks. Among the world’s total banking assets, Japan onceaccounted for nearly40%.In1995, the breakout of the Jusen Event uncovered huge amounts ofnon-performing loans in Japanese banks, with which the internationalcompetitiveness in the Japanese banking was made worse from the global financialdominance. The collapse of bubble economy accumulated a huge amount ofnon-performing loans in Japanese banks, the international competitiveness in theJapanese banking became substantially weakened, the Japanese economy into aprolonged slump unable to extricate themselves. During the decade from1992to2002, Japanese banks have dealt with about90trillion yen of bad debts, of which thisamount has reached80%of total increased loans that was issued in Japan’s economicbubble boom during the latter half of1980s.The1997Asian Financial Crisis and the1998“Financial Big Bang” don’t make financial authorities really clarify theunderlying causes of Japanese banking crisis, always finding solutions between thepath dependence, formed by the system fatigue and institutional inertia, and the roleof government. It is reflected that the government didn’t gain expected effects onvarious measures, reform programs and policy responses, thus causing final delaysand missing best opportunities. The international competitiveness in Japanesebanking industry fell from the financial peak and devastated. The2008internationalfinancial crisis and the subsequent extension of the deterioration of Europeansovereign debt crisis have made the Japanese government struggling to cope withexternal shocks and accordingly delaying domestic reforms, which also hampers theupgrading of the international competitiveness in Japanese banks. Through theformation and the evolution of the Japanese banking industry, the evolutionary pathand the underlying causes as well as the formation mechanism should be searched forthe rise and fall of its international competitiveness. It has important strategicsignificance for China to enhance the international competitiveness of her commercial banks，to prevent financial risks and to maintain national financial security in thefinancial deepening process.The dissertation is divided into seven chapters. The first chapter is Introduction.In this chapter,the research’s theoretical and practical significances should bediscussed and the relevant literature is sorted out and reviewed on this basis.Then themain structure and research methods of the thesis are further explored. Finally theinnovation and deficiencies of the dissertation should be pointed out.The second chapter deals with relevant theories on the banking industry’sinternational competitiveness and its evaluation criteria. The relevant theories on thebanking industry’s international competitiveness are introduced first. Then theevaluation criteria of the banking industry’s international competitiveness is described.Finally, the evaluation systems of the banking industry international competitivenessare mentioned.The third chapter deals with the formation and development of internationalcompetitiveness in the Japanese banking. The changes of the internationalcompetitiveness in the Japanese banking are divided into two evolution stages fromweak to strong and from strong to weak in details. In the stage evolving from weak tostrong in the Japanese banking’s international competitiveness, it is further dividedinto three phases: the economic sprout and take-off period (before1955), rapideconomic growth period (1955to1973) and low or stable economic growth period(1974to1985); In the stage evolving from strong to weak in the Japanese banking’sinternational competitiveness, it is also further divided into two typical phases: thebubble economy period (1986to1990) and economic prolonged slowdown period(1991to present).The fourth chapter deals with the macro motivations leading to the changes ofinternational competitiveness in the Japanese banking since the mid-1990s. Theinternational and domestic environments are commented in two key aspects: in terms of the international environment, it embraces four aspects: up-surging cross-border M&A wave, rapid expansion of international capital flows, global imbalances and theinternational financial crisis and the New Basel Capital Accord; in terms of thedomestic environment, it is also focused on four aspects in details: the declining grossdomestic product (GDP) growth, liquidity traps and quantitative easing policy,continuing appreciation of the Japanese yen and the Jusen Event.The fifth chapter deals with the micro motivations leading to the changes ofinternational competitiveness in the Japanese banking since the mid-1990s. In thischapter, the declining international competitiveness in the Japanese banking isdiscussed for their own reasons. There are mainly four related aspects including bankfranchise value, governance structure, internal control and audit supervision.The sixth chapter deals with the formation mechanism leading to the weakenedinternational competitiveness in the Japanese banking since the mid-1990s. In thischapter, the formation mechanism should be attributed to two major aspects: the firstis “hard constraints” resulting from the system fatigue and institutional inertia; thesecond is “soft constraints” resulting from the weakening role of government.“Hardconstraints” reflect institutional changes as the nature of path dependence, that is, theinstitutional fatigue and institutional inertia make it difficult to give up the interestties between Japanese banks and firms, which will increase the stock accumulation ofbanks’ non-performing loans; in the meanwhile,“soft constraints” reflect thegovernment’s leading role weakening in the economy, that is, the weak role ofgovernment in economic slowdown is replaced by the strong role of government inrapid economic growth from the transition of government-led economy tomarket-oriented economy, thus resulting in delay and missing best opportunities indealing with huge amounts of non-performing loans unable to extricate themselves.The seventh chapter is Conclusions and Implications. The conclusions of thisdissertation are attributed to three aspects:(1) the changes of rise and fall in the Japanese banking’s international competitiveness reflect the endogenous evolutionarypath of Japanese economy evolving from the rapid growth, the bubble economy toprolonged slowdown;(2) the changes of rise-and-fall in the Japanese banking’sinternational competitiveness reflect have a profound macro-and micro-motivation;(3)the rigid system and the weakening role of government are jointly contributed tothe changes in the Japanese banking since the mid-1990s. There are some importantimplications for China to enhance the banking’s international competitiveness:(1)implementation of the new capital regulatory standards should enhance the robustnessof the banking system;(2) value-creation-oriented commercial banks’ internal controlsystem should be built;(3) the interaction between internal control and internal auditin commercial banks should be strengthened;(4) the strengthening constraintsbetween information disclosure and external supervision should contribute to thefoundation of enhancing the international competitiveness in the Chinese banking.