X-efficiency In Commercial Banking Of China

A vast literature addresses the causes of inefficiency in financial services, particularly in banking .The goal of many of these studies is to ascertain whether scale or scope economies exist in banking .In addition to these traditional economic explanations of performance differences among firms, recent studies have focused on the notion of X-efficiency, a measure of the performance of an organization relative to the best practice in that industry. More precisely, X-efficiency describes all technical and allocative efficiencies of individual firms that are not scale/scope dependent. About the research of efficiency of the bank, domestic relevant documents are mostly preferred to use some routine single key element indexes. Though these indexes can reflect roughly the bank manage efficiency, for the further research of bank efficiency, they can only offer limited information. And it's difficult to reflect the improvement of the efficiency of the bank by these indexes. Important elements that impact on the effects of Chinese banking market relate to competition, efficiency and changes in market structure. Developments in Chinese financial services industry have been rapid and the level of competition has increased in recent years. New competitors have entered the industry as cross-border constraints have been abolished or decreased altogether and the demarcation lines between the various types of financial institutions have become increasingly blurred. Product and territorial competition has also heightened. In the light of these developments it is important to investigate and evaluate the efficiency issues. The strategic priority in banking has shifted away from growth and size alone towards a greater emphasis on profitability, performance and 'value creation' within the banking firm.This paper use DEA methodology to measure X-efficiency in commercial banking of our country. DEA methodolody, first introduced by Charnes, Cooper and Rhodes(1978), has been used to measure the empirically derived relative efficiency (e.g technical efficiency ) of non-profit-making organizations, where profit measure are difficult to calculate(particularly in the public sector) (Sueyoshi, 1991). Moreover, DEA can measure the relative efficiency of a group of organizations in their use of multiple inputs to produce multiple outputs, in which the efficient production function is not known or easily specified. This paper, through the previous analyses of commercial banking efficiency, paints a picture of what drive efficiency in our country's banking industry during the past years. The improvements of efficiency give the credit to the market-oriented system and the national competition pressures, but not from the better management. But the management and managerial decisions in organizations is the main factor of raising the efficiency. So if we want to raise the efficiency further, the alignment of technology, HRM, and capital investments appears to be the key in this industry. To achieve this alignment, banks need to invest in a cadre of "organizational architects" that are capable of integrating these varied pieces together to form a coherent structure to improve the bank efficiency.