Market Power Or Efficiency?

This paper focuses on the empirical analysis of market structure, efficiency and performance in Chinese banking industry. There are plenty of studies on this topic either abroad or domestic. Nevertheless, most of them can be summarized into two theories: market power hypothesis and efficiency structure hypotheses. Different theories bring forward different policy orientation. Therefore in this paper I first estimate the X-efficiency, scale economy and scope economy in Chinese commercial banking industry employing SFA method. Then I investigate the relationship among market structure, efficiency and bank performance. My main findings are: (1) there is no evidence in favor of the market power hypothesis; (2) as for the efficiency structure hypothesis, my result supports the scale efficiency structure hypothesis to some extent, but it is not statistically significant.