The X-Efficiency Of Commercial Banks In China

The study of efficiency in commercial banks involves three aspects: scale-efficiency, scope-efficiency, X-efficiency, and recently X-efficiency has become the focus of both internal and external researches. X-efficiency, also called management efficiency, is a concept put forward by American economist Leibenstein when he was studying the inefficiency caused by non-competition. It refers to the overall technical and allocative efficiency with scale-efficiency and scope-efficiency excluded. X-efficiency measures the difference in bank management which includes the ability to control cost and to maximize production.In December 2001, China became a member of the World Trade Organization. The entry barrier and business limitation to the foreign banks will be eliminated step by step in the coming five years, and the foreign banks can enjoy the same treatment withdomestic banks. It is a great challenge facing our commercial banks-----including thestate-owned commercial banks, the stock-shared commercial banks, and the urban commercial banks. How to increase the efficiency of our domestic commercial banks, thereby improving their competitiveness, has become an urgent and important problem.This paper gives an empirical study of the X-efficiency in both state-owned and stock-shared commercial banks of China by applying the Distribution-Free Approach which is one kind of parametric frontier analysis. It estimates the X-efficiency of each bank and gets a rank among these sample banks. It then analyzes the relativeness between X-efficiency and some internal factors such as property right structure, rate of capital adequacy and non-performing loans, income constitution and human resources. Based on the financial theory of efficiency, this paper hopes to provide some reference for the improvement of efficiency in our commercial banks.