Research On The Impact Of Foreign Capital Entry On Stability Of China's Banking System

With the rapid development of global economy,the globalization and liberalization trend of financial development has become increasingly apparent.In the face of the world trend of financial industry's internationalization,China step by step opens the financial industry to the outside world in an orderly manner.This not only fulfills the commitments made at the accession to the WTO,but also becomes the important motivation to accelerate and deepen financial system reform in our country;yet opening up the banking sector is the most important part of the process of China's financial opening.After entering the WTO,because foreign access restrictions gradually reduced,foreign capital presents the characteristics of expanding institutions quantity,broadening business scope,extending geographical range,diversifying organizational form and service object in the development of the banking system in our country and the degree of foreign penetration becomes deepened day by day.Foreign and domestic commercial banks' cooperation and competition promote the internal structure adjustment of China's banking system.Especially in recent years,the degree of financial industry opening continues to deepen,RMB joins SDR(special drawing rights),and RMB settlement of cross-border trade develops rapidly.These factors all can continuously improve capital account openness;foreign capital in and out of China will be more free and convenient.Therefore,the continuous scale expansion of foreign capital in China is inevitable trend in the future;the impact of foreign capital entry on stability of China's banking system is to be reckoned with.Facts show that the impact of foreign capital entry on stability of China's banking system is a double-edged sword;positive influence and negative influence coexist.Under the current situation,the impact of foreign capital entry on stability of China's banking system is mainly positive effect or negative effect on earth? How to promote the banking industry opening to the outside world reasonably and orderly in the premise of ensuring China's financial security and bank stability? How should reform the banking system in China so as to effectively cope with strong competition of foreign capital,but also to ensure its own stability? The above problems in the future development of China's banking system appear very important and serious.To solve these questions,we should deeply study the influence mechanism of foreign capital entry on stability of China's banking system and verify the actual effect of foreign capital entry based on investigating the reality in detail.It is also a research starting point in this article.At present,the global economy has not fully recovered;China's economy enters the new normal;China's banking system has a lot of problems of its own.Under the above background,discussing how China's banking system should meet the challenges brought by foreign capital entry,seize the opportunity to enhance the international competitiveness of Chinese Banks as soon as possible,and improve the stability of China's banking system and crisis prevention ability has a strong practical value.The study in this article not only can provide the empirical evidence from a big developing country for relevant research on the stability of banking system,form an effective complement to the study about the impact of foreign capital entry on the host countries' banking system and enrich the related therories on foreign capital entry and finanical stability in host countries,but also be conducive to weigh the pros and cons of the introduction of foreign capital in China's banking system.This article can not only provide reasonable advice to optimize foreign capital introduction policy of China's banking system,but also be beneficial to explore how to maintain and improve the banking system stability preferably in the introduction process of foreign capital for China in the deep water area of financial reform and provide the basis of decision making for scientifically setting our country's financial policy and healthy development of China's banking system.Therefore,the study in this article has strong theoretical significance and practical value.In this article,innovations include the following points.Firstly,the existing literature only study the impact of a certain kind of entry mode of foreign capital on the stability of host countries' banking system,this article combines two kinds of entry mode of foreign capital(Greenfield investment and strategic investment)to conduct research,not only studies the overall impact of foreign capital entry on the stability of China's banking system,but also respectively studies the impact of two kinds of entry mode of foreign capital on the stability of China's banking system from the aspects of theoretical analysis and empirical measure and constructs relatively complete and systematic functionary mechanism and analytical framework about the impact of foreign capital entry on China's banking system stability.Secondly,based on the “Bank Transnational Investment Model” built by foreign scholar called Bulmash,this article makes the improvement according to the specific situation of China's banking system,and establishes a mathematical model about the entry motivation of foreign capital into China.Thirdly,in the past literature,the studies about the impact of Greenfield investment on the stability of China's banking system frequently establish regression models and make static analysis,yet the discussion about long-term stability of the model and the interaction between long-term effects and short-term effects is less to be seen;the discussion about dynamic impact of foreign capital entry on the banking system stability in the next several periods of the future is also rarely to be seen.This article measures the performance in both short-term and long-term of relationship between the two variables through the use of Johansen co integration and vector error correction(VEC)model.The article also measures the adjust action of long-term effect on short-term fluctuations through the VEC model,and measures dynamic effect of the impact through the impulse response function.Fourthly,in the past literature,most studies on the influence of strategic investment on China's bank system stability doesn't distinguish among specific types of the bank;they only analyze the overall influence,so the conclusions are also more general,no more classified study on the stability of city commercial bank.This article makes classified and detailed research on state-owned commercial banks,joint-equity commercial bank,and city commercial bank of China's banking system using the panel data model and draws conclusions about the different and specific influence of foreign capital entry on different types of commercial banks in China's banking system.When measuring stability of commercial banks,this article improves Z-score method designed by Hannan,Hanweck and De Nicolo etc.,the risk and security factors are considered and introduced into the process of measurement.This article consists of six parts,a total of eight chapters.Part I(chapter I)is the introductory.It mainly elaborates the background and significance,the definition of relevant concepts,the research methods and innovations.Part II(chapter II)is the theoretical basis analysis;it has a review of research literature and introduction of base theory for later study.Part III(chapter III)supplies a status analysis of foreign capital entry and China's banking system.Part IV(chapter IV)is the theoretical analysis,based on the status analysis;this part establishes a framework of theoretical analysis and further analyzes the impact of foreign capital entry on China's banking system stability from the theoretical level.The fifth part is an empirical analysis,it comprises three chapters(chapter V?VI?VII),and the fifth chapter is an empirical analysis of the overall impact of foreign capital entry on China's banking system stability,the sixth chapter is the impact of foreign Greenfield investment on China's banking system stability,the seventh chapter is an empirical analysis of the impact of foreign strategic investment on China's banking system stability.Parts VI(the eighth chapter)are the conclusions and policy recommendations of the full text.The basic conclusions of the full text include the following several aspects:Firstly,through the analysis of foreign capital and the banking system stability in our country,we draw the conclusion:(1)The theoretical analysis shows that the motives of foreign capital into the banking system in our country include expanding market capacity,reducing operating costs,following the old clients,obtaining excess profits,reducing the management risk,etc.,the ultimate goal is to maximize profits.Through the mathematical model analysis of foreign investment motivation,we draw the conclusion: in the process of foreign investment,return on assets,investment risk and cost should be considered,to determine the proportion of risky assets in the home country and China.If our country implements the capital freely convertible,foreign capital can be gained from the global financial market and configured in the Chinese market,at this time only need to consider the fit of risks and benefits,namely the marginal benefit of foreign investment should be equal to the weighted marginal risk.(2)The development characteristics of foreign Greenfield investment performance in our country: organization changes;the scale expands unceasingly;geographical scope expands rapidly;operating is stability as a whole.The development characteristics of foreign strategic investment performance in our country: take a stake in diversified financial institutions;investment object type is diversified.(3)Using principal component analysis(PCA),the article builds the index system from four aspects such as profitability,liquidity,market risk and credit risk to measure and analyze the stability of China‘s banking system,and draws the conclusion: the stability of banking system in China in recent years shows a tendency of rising steadily as a whole.Secondly,through the theoretical analysis of the effect of the foreign capital on the banking system stability of our country,the following conclusions: we draw the following conclusion:(1)The total mechanism of the effect of foreign investment on the banking system stability of our country can be summarized: after the foreign investment enter,through the impact on the the stability of Chinese commercial banks and the ability to maintain banking system stability of regulatory and supervised body,they can affect the stability of the banking system in our country.In particular,the foreign capital entering can improve the stability of the banking system through the catfish effect,spillover effect,the effect of human capital,market reform effects,reduce banking system stability through the short-term cost increase effect and crowding out;The influence of foreign investment on the regulatory body mainly through ascension regulation level,improving the efficiency of the banking system resource allocation,supporting the development of the financial markets,improving the financial infrastructure construction,promoting economic growth etc,and in turn improve the banking system stability,weaken the banking system stability by increasing regulatory challenges,weakening the effect of monetary policy,expanding the financial risk,endangering national security etc.(2)The mechanism of the effect of foreign Greenfield investment on the banking system stability of our country can be summarized: the influence of foreign Greenfield investment on the stability of the banking system mainly through competition effect(the positive and the negative exist side by side)and demonstration effect(positive),these two effects is through management,credit,person with ability,research and development and business channels.(3)The mechanism of the effect of foreign strategic investment on the banking system stability of our country can be summarized: foreign strategic investment will promote property rights system reform of the bank,change the equity structure of Chinese banks.It can reduce the bank's non-performing loans,supplement the bank capital,perfect the corporate governance structure,improve the market behavior,etc.,and raise our country banking system stability,but at the same time also produces wealth loss risk,capital withdrawal risk,control system risk,and weaken our country banking system stability.In general,no matter in what way the foreign capital enters,the entry of foreign capital impacts Chinese banks' liquidity,profitability and safety,and then impacts the stability of China's banking system,and their impact on the stability of the banking system is that the positive and the negative exist side by side.The final impact depends on the results of the two effects cancel each other out.Thirdly,the overall impact of foreign capital on the banking system stability of our country has carried on the empirical analysis using Logit Model,the results show that:(1)when total foreign increased,the banking system stability probability also increases.(2)The GDP growth rate,the ratio of the foreign exchange reserve to GDP and M2 growth rate rising will make the banking system stability probability increase,bank concentration,real interest rate,the real exchange rate variation increasing will make the probability of banking system stability decrease.Fourthly,foreign Greenfield investment impact on the stability of the banking system of our country has carried on the empirical analysis using Johansen Cointegration test and VEC Model,the results show that:(1)Foreign Greenfield investment is the Granger cause of China's banking system stability.(2)There is a long-term and stable equilibrium relationship between them;long-term effects on short-term fluctuations have a regulatory role.The positive influence of foreign Greenfield investment on China's banking system stability is greater than the negative influence.(3)The macroeconomic growth has a positive effect on the stability of the banking system;bank concentration has a negative effect on the stability of the banking system.(4)If previous banking system stability is higher,the next issue will continue to maintain the stability in high level;if previous foreign investment proportion is larger,the next issue foreign Greenfield investment proportion will rise further.Fifthly,through the empirical analysis of foreign strategic investment impact on the stability of the banking system of our country using Panel Data Model,the results show that:(1)The positive influence of foreign strategic investment on commercial banks stability is greater than the negative influence.(2)The foreign shares have different effect on the stability of different types of banks,the influence of the city commercial bank is the biggest of all,the influence of shareholding commercial banks is relatively large,the influence of state-owned commercial banks is the smallest.(3)Macroeconomic growth has significant positive effect on the stability of be take equity stakes in banks,bank concentration,interest rate changes and exchange rate changes have significant negative effects on bank stability.(4)The effects of macroeconomic growth,bank concentration and interest rate changes on be taking a stake in bank stability meet such relationships: state-owned commercial banks < joint-equity commercial bank< city commercial bank,the effects of exchange rate changes meet such relationships: state-owned commercial banks > joint-equity commercial bank> city commercial bank.Based on the full text conclusion,in order to promote the steady rise of China's banking system stability and healthy development of the banking industry,this paper puts forward the policy suggestions.First of all,based on regulation and supervision level,the first is to ease restrictions on foreign access,give full play to its positive role to our country banking system stability;the second is to guide reasonably and adjust the distribution equilibrium of region and country;the third is to introduce orderly foreign capital,in order to ensure the control of the Chinese capital in banking system;the fourth is to monitor dynamically foreign capital risk,to set up the bank's risk early warning and response mechanism.Secondly,based on the level of Chinese Banks,the first is to absorb foreign technology advantage and innovate,and improve the Chinese bank financial innovation ability;the second is the advanced management experience and mechanism by learning foreign can improve actively the internal governance structure of Chinese Banks.The third is to establish a scientific human resources management system with reference to foreign training and employment mechanism;the fourth is to strengthen the cooperation with foreign,and strive to create a "mutually beneficial win-win" situation.