Research On The Effects Of Foreign Bank Entry On The Efficiency Of Chinese Commercial Banks

With China's reformation and entry into WTO, the foreign banks'influences on our financial industry are more and more important. The worldwide experiences have showed that the entry of foreign banks have had significant effects on the banks of the host country. With the fully opening to the foreign banks, China's domestic banks will face more fierce competition and challenge. Efficiency is a represent of banks'competitiveness. Enhancing bank's efficiency is the basis of preventing financial crisis and bank's sustainable development. So the study on the effect of foreign bank's entry on the efficiency of domestic banking in China becomes an important topic in academic community.According to the theories of economics and finance, this paper makes a comprehensive analysis on the impact of foreign bank's entry on Chinese banking efficiency, using the method of combining qualitative research and quantitative research, theoretical study and empirical study. The paper also suggests some policies on how to develop domestic banking in China.First, this paper puts forward the problem and illustrates the meaning of banking efficiency and foreign bank. Next, it reviews some relevant researches from domestic and foreign scholars, according to different views. Then the paper introduces the situation of foreign bank entry into China's banking markets, including the history of its development, the form of access, distributions, features and strategies of development, advantages and disadvantages. The author makes qualitative and quantitative research on the effect of foreign bank's entry on the efficiency of domestic banking in China. In qualitative research, the paper studies the effects from both positive and negative aspects. In quantitative research, the author uses panel data of 14 leading banks in China in 1996-2005 periods, establishes a model and uses software to make an empirical analysis on the effects. The estimation suggests that the entry of foreign banks has different impacts on the share-holding system commercial banks and the state-owned banks. The entry leads to a decline in net interest income rate and operating expense rate of China's commercial banks, and it also raises their loan reserve ratio of bad debts. The foreign bank's entry, to a certain extent, has positive effects on China's domestic banks'operating efficiency. Also, this paper confirms that the level of financial development of the host country has something to do with the banking efficiency. Finally, based on the above analysis, some suggests are made on the development of China's banking industry.