Competitive Ability Contrast Between Foreign And Local Commercial Banks

Dec 11 th,2006, China had opened their banking industry to the world, by giving the permission of running RMB business to some branches of foreign commercial banks. That means China had went their commitments to offer foreign commercial banks National Treatment, including non-restriction of operation rights, location and business establishment modes, according to the rules of WTO.Chinese commercial banks have been experienced fierce competition with foreign commercial banks. Certainly, it is true that foreign bank entry is a "two blades sword" for Chinese banks. Definitely, foreign bank entry can improve the development of local financial market and make them more efficient. On the other side, foreign bank entry also brings some negative affects to the local commercial banks, such as increasing the banking regulative and controlling difficulty and bringing some impact to domestic banks. So it is necessary to analysis the differences between foreign and local commercial banks.If the competitive ability of the whole Chinese commercial banks could not be effectively enhanced, some serious problems that affect the stability of commercial banks even general development of economy may occur. In this sense, by using the comparative analysis techniques and the principles of economics and finance, this paper gives the brief statements of local environment of banking industry and compares the performances of both foreign and local bank. As what is shown in this paper, foreign banks have advantages in many aspects, such as corporate governance and risk management. So, there are much to learn from those large multinational financial companies for local banks, with well knowing about the newest development of foreign banks in China. Therefore, some effective strategies should be made to promote competitive ability of the local banks in China and undoubtlessly that is of great importance both for the banks themselves and the Chinese finance authority. Firstly, this paper gives the reason why foreign banks choose to enter Chinese financial market and the running modes of foreign bank in China. According to the presidential academic results, the most possible reasons of foreign banks entry are the scale of the bank, trade relationship and geography differences. And the running modes of foreign bank in China are diversification, like investing their own branches or acquiring shares of the local banks.For establishing a clear vision of the foreign banks in China, this paper uses the a lot pieces of existant data of the foreign and local banks, like numbers of branches and institutions, market and profit shares, scope of business activities etc. Through the comparative analysis, we can draw a conclusion that those multinational financial corporates, most of them have long histories, have the great advantages above the local banks. Then, this paper gives the brief statements of the environment of banking industry in China, with the booming economic development in China, there are more multinational finance cooperates opening their branches in China. Also, the rising individual income and appreciation of RMB are the vital factors that affect them to make the entering decision. Although, there are some financial restriction in the banking industry in China, especially to foreign banks in China. It can not prevent the speedy step of multinational banks into the new economy which holds promises of new opportunities.Based on the concept of competitive ability and general theories of enterprise's competitive ability, this thesis tries to compare the differences of competitive ability between Chinese commercial banks and foreign banks, providing theoretical support for the empirical analysis in the following text. On the existed achievements of authoritative institutions and domestic and foreign academic scholars, this thesis designs an operative and scientifical judging quota system towards Chinese and foreign commercial bank' s competitive ability, including market possession ability quota, operating scale quota, property's quality and safety quota, profit-earning ability etc. Moreover, this paper gives detailed introduction of major factors that influence the competitive ability of local commercial bank, which are corporation managing structure and risk control management. At the end, considering the facts of foreign bank entry in china, I also provide some suggestions for the local bank industry for the changing economy background and fierce competition facing with the foreign banks'entry.