Effects Of Capital Account Openness On Commercial Banks Of China

In December, 1996, China declared that it observed the eighth clause of IMF and its current account became fully open. On December 11th, 2001, China entered the WTO and the control of its financial market was gradually loosened. External pressures make the opening of capital account irreversible. The year 2005 witnessed many great events of domestic banks. The IPO of BOCOM and CCB succeeded in Hong Kong. BOC and ICBC made preparations for IPO. All of these indicated that the government and the commercial banks both realized the impending challenges as the protection period came to a close and the capital account gradually opened.Thus researchers have focused on the effects of capital account openness. However, many researches have only considered the influence of capital account openness on the macro economy other than the particular industry, commercial banks. And the entry of foreign banks must have great impact on domestic commercial banks. It is of great importance to study and discuss whether domestic banks could successfully meet the challenges and effectively introduce foreign strategical investors to develop. This paper retrospects to literatures on the study of effects of capital account openness and the entry of foreign banks. And then it brings forward the conception of capital account openness that is to release or cancel the control of sub-accounts which haven't been released or canceled under capital account. Afterward it analyzes the effects of capital account openness on commercial banks in China from three aspects. First it studies the welfare change, long-run return and risks brought by the free flow of capital. Then it discusses the competition effects of foreign banks. Finally it considers the influence of equity participation of foreign funds in domestic banks. During the analysis, it brings forward some countermeasures and suggestions according to the status of domestic banks. The conclusion is that capital account openness produces welfare effects and brings long-run return. But the influx of large-scale foreign capital and the instability of some macroeconomic variables will have influence on the stability of domestic commercial bank systems. Foreign banks take part in competition in many fields, which brings the effects of technical advancement, organization improvement and human resource enhancement. And equity participation of foreign funds in domestic banks can not only optimizeproprietary structure, but also brings advanced products, technology and management experience, which will enhance competition ability of domestic banks.