Research On The Effect Of Foreign Entry On The Domestic Banking In China

By the end of 2006,our country has cancelled all restrictions on the establishment of ownership and entitle of foreign banks,including the restriction on ownership.We also have allowed foreign banks to provide native clients with service of RMB transaction,having given foreign banks national treatment.The entry of foreign banks will bring domestic banking grim challenges and heavy stress,imposing large and deep effects on China's econmoy especially bank industry.Therefore,we should analyse the effect of foreign entry on the the domestic banking in China.Based on research result above,in the last part of this paper,we will suggest some policies on how to develop domestic banking for domestic commercial banks and government.So doing research in this area has theoretical value and practical significance.In the first part of this paper,I recall the history of development of foreign banks in China,then conclude and summerize their strategic charateristics of management in China.Based on the research achievement done by former scholars home and abroad,using panel data of 14 leading banks in the domestic banking market in 1994-2006 periods,I have an empirical and theoretical analysis on the effects foreign bank entry on the domestic banking industry in terms of profitability ability,liquidity,management level and development potential ability.The estimation results suggest that foreign bank entry leads to a rise in the non-interest income and has no magnificent effect on ROE.Foreign bank entry has a negative effect on domestic banks' liquidity,but during the period of 2000-2006 the effect is not so obvious.In the terms of domestic banks' security,because of China's unique bank structure,foreign bank entry and bad loans of native banks are not obviously correlated.Foreign bank entry and management fee have positive correlation.In terms of bank development potential ability,foreign bank entry have positive correlation with domestic banking,which is not signifisant during whole period,but during the period of 2000-2006,the observation is fairly obvious.Based on the research results above,in this paper I suggest some policies on how to develop domestic banking to government authority and commercial banks...