The Effects Of China Commercial Bank Market Structure On Bank Profitability Performance

Since the opening to the outside world, multi market structure in China banking business has been instituted but, the efficiency of banks are restricted due to the high extent of market monopoly. In 2001, after China's entry into WTO, in which china committed to open banking business to the world in 5 years, foreign banks are more involved gradually in the bank field and regions. Accordingly foreign banks become important factors in influencing domestic commercial bank market structure and efficiency. It is necessary to investigate the commercial bank structure, market structure and bank operations benefits and the effects of foreign investments on the market structure and operations benefits for the past ten years.The paper analyses the development and the current conditions from the aspect of structure-conduct-efficiency theory, such as market shares, market concentration and entrance barriers. It summaries the conditions of foreign banks in recent 10 years and considers its effects of entrance in China upon the commercial bank market structure according to this idea. On the conditions, by selecting data between 1996 and 2005 of domestic commercial banks, utilizing penal-data model to investigate the correlation between the market structure and operations benefits, and introducing foreign banks entry indicator, to investigate the market structure and operations benefits and the effects of the entrance of foreign banks upon the operations benefits of commercial banksThis paper argues that the market structure of the commercial bank market have been growing towards multi development, from hight monopoly to monopoly competition, but the degree of monopoly remains high. And higher degree of monopoly structure will not lead to relative monopoly profits, evidenced by the estimation; there is no significant correlation between market structure and the performance of commercial banks. Competition among commercial banks has been very strong, but closed-door competition will result to low efficiency. At present, the entrance of foreign banks have deepened the competition, but in a short run, foreign banks will not influence the market structure and operations benefits, but in a long run, they will promote extent of competitions. Therefore, the paper put forward several suggestions: to optimize the market structure, to absorb foreign banks into China to stimulate the innovation and development in the new off-balance-sheet business of domestic commercial banks with the purposes to promote effective competition in domestic banks and raise operations benefits.