The Effects Of Multinational Banks' Entry On China's Banking Industry

Multinational banks have already entered China for 29 years. During the two decades, the multinational banks have experienced four stages. The first stage is from 1979-1982; the Chinese government began to allow the multinational banks to set non-profit organization--a branch. The second stage is from 1981-1991.The greatest breakthrough during this stage is that the multinational bank was permitted to set business operations in Shenzhen, Xiamen, Shantou, Zhuhai, Hainan and Shanghai. The third stage is from 1992-2001. During this stage the multinational banks developed deeply and fully. The Chinese government allowed the multinational bank opened the RMB business in Shenzhen and Shanghai in December of 1996. In the year 1998, the Chinese government reduced the constrictions and encouraged them to develop in the middle and west regions. The fourth stage is from 2001 till now. China became the formal member of WTO in December of 2001, which symbolizes that the multinational banks would get into a new and fully opening stage. 2007 was the sixth year that China entered into WTO and China gave multinational banks access to more business in banking industry. The development of multinational banks entered into a new period.How does multinational banks' entry affect China's banking industry? What policies should we take to cope with the challenges and threat posed by the multinational banks' entry? These questions are closely related with the multinational banks' entry and received the attention researchers, which lies in the significance of the paper.This thesis did research on the multinational banks' entry effects on Chinese banking industry. First, by comparing the effects of multinational banks' entry on the domestic banking (developed countries and developing countries), we got some meaningful enlightenment. Second, we looked back the process and ways of multinational banks' entry into China and summarized their status and characteristics. Third, we expounded the positive effects and negative effects of the entry of multinational banks on China's banking industry in the perspective of theory. Based on the related theory, we verified some theoretical effects empirically with the econometrics tools. Finally by integrating the conclusion into the reality of China, this thesis tried to propose some suggestions to the improvement of the efficiency of China banking.In the views of theory, on one hand the multinational banks can bring competition effect, overflow effect, human resource effect, marketed reform effect and system innovation effect. On the other hand, the entry of the multinational banks may increase the difficulty of supervision, weaken the effectiveness of the monetary policies and pose a challenge to the ability of supervision thus threatening the financial safety. In the short run, it may increase the operational costs of the Chinese banks and impact the China's childish banking industry.In the empirical analysis, based on the correlative theories, the paper looked into the impact of the entry of multinational banks on the ability to make profit and manage of domestic banks by using the empirical analysis on net interest margin rate, expense rate and profit margin before tax. The samples of these three indexes were chosen from the data of the big four and eight commercial banks from 1995-2005.We find that the domestic banks are not sensitive with the number of the multinational banks; the entry of multinational banks barely have effect on profit before tax; the share of the multinational banks is positively related with the net interest margin and the operation cost of domestic banks; the study proved the competition effect, overflow effect, reform effect though not obvious which it is caused by the factors such as the extent of multinational banks' entry, the development of China's banking industry and the market concentration and etc.This thesis employs the analysis method in standard analysis and empirical analysis. The effect of entrance of the multinational bank should be based on a certain value judgment. The entrance management policy is also based on a certain value judgment. When judging and analyzing the problems we cannot do without the facts. So we should use empirical analysis. This thesis employs the analysis method in quality and quantity. We can see the good and bad effects of the multinational bank. From the analysis in quantity we can see what aspects and how much the entrance of the multinational bank affects the China's banking industry, thus we can make scientific conclusions.