Research On The Effects Of Foreign Bank Entry On China's Domestic Banking Market And Relative Competitive Strategies

In consideration of market opportunities, capital cost and host country's control on economics, a mass of foreign banks have been established in developed cities in China. Among them, banks from Japan and Hong Kong are of greater portion. Although foreign banks are a small part of China's banking market, its rapid development is amazing. Using panel data from 1997-2005 of 14 commercial banks operating in China, the paper applies multiple linear regression method to test whether foreign banks'entry affects domestic banks on their performance. The result tells us that foreign banks entry have had effects on domestic banks, including profit, cost, liquidity but except interest earnings and risk-control.With the full openness of China's financial system, foreign banks will continue its concentration strategy, establishing institutions in developed cities. They will develop their competitive business and become a share holder in domestic banks. An empirical analysis is employed to indicate the impact of foreign ownership on domestic banks'performance. We find that if performance is measured by ROE, the impact is not obvious. Otherwise, if performance is measured by ROA, the impact is clearer. Generally, foreign ownership improves capital of domestic banks, and makes ownership multiple, but it couldn't make domestic banks'performance better.Therefore, this paper put forwards some relative strategies. On one hand, domestic banks should improve their competitive power by optimizing ownership structure, keeping away bad debits, cultivating talented people. On the other hand, foreign banks should be encouraged to enter into China's banking market. The government should take efficient supervision on them.