The Economic Effects Of China's Banking Competition

Facing the economic downward pressure stemming from the combination of gradual fading of traditional growth momentum and elusive international political and economic situations,China's government plans to infuse the economy with more vitality and driving forces by financial supply-side reforms.This is exactly what this thesis manages to do:that is,it studies how does the increasing interbank competition arising from banking system's market-oriented reform effect economy.Particularly,based on the supply-side reform policy objects of adjusting structure,decreasing cost,promoting innovation as well as industrial upgrading,this thesis manages to explore three questions:how does interbank competition affect firms'credit accessibility and loan price in credit fund market?What effects it has on firms' R&D expenses as well as their R&D investment expenditures'financial structure?and lastly,how are these effects channeled into industry level through firms,contributing to industrial upgrading?Employing theoretical and empirical analysis,the thesis has come to the following conclusions.Firstly,interbank competition has to some degree had promoted credit resources'allocation efficiency,which is mainly manifested in private firms'improved financial situation in credit fund market.On the credit quantity,interbank competition increases loan accessibility to more efficient firms,especially highly efficient private firms.While for state-owned firms,interbank competition has not introduced any efficiency in the best sense,in that more credit funds are channeled into state-owned firms with poor performance.On the credit price,the results suggest that interbank competition decreases some private firms'loan interest rate,relieving them from the suffer of expensive fund to some degree.However,state-owned firms'loan interest rate is unaffected.Secondly,interbank competition increases firms' R&D expenses significantly,and for private firms,it also improves the positive effects that informal finance has on these firms'R&D investment expenditures.To begin with,the model identifies that interbank competition exerts a significant positive effects on firms'R&D expenses.What' s more,it does this by encouraging banks to develop more close relationships with firms and lend out more relationship loans.Delving into firms' R&D investments' financial structure,more results present themselves:for state-owned firms with poor performance,interbank competition decreases their credit accessibility for R&D investment significantly,so the positive effect of interbank competition is manifested in the improvement of credit resources' allocation efficiency.While for private firms with high ROA,interbank competition not only increases their credit accessibility but also enhances their ability of making use of stock market and informal finance for R&D investment through complementary effects.Lastly,interbank competition largely promotes advanced development of industrial structure as well as industrial value chain upgrading.It is conjectured that it is by making banks more focus on differentiation relationship lending,which contains more firms' soft information so that banks can extract more information rents from it,better satisfying high-level manufacturing firms'financial needs,that contribute to technological complex firms' development as well as industrial upgrading therein.As the empirical results demonstrate,industries that are more technological complex and R&D-intensive have higher output/employment share and new product share in provinces where interbank competition are fiercer.Therefore,interbank competition changes banks' behavior and promotes credit resources' allocation efficiency and is an important financial power in shaping China' s industrial structure as well as promoting industrial upgrading.In the end,this thesis offers some policy suggestions to make banking system more efficient,including deepening market-oriented reforms,being more supportive to middle and small banks,as well as opening banking industry to foreign investors further.