A Study On The Effects Of Foreign Banks In China On Chinese Banking And The Countermeasures

Since the policy of reforming and opening , the economy of our country has grew so fast that it made China has been paid more and more attentions by foreign banks, especially with the soft monetary policy when China joined into WTO. At the end of 2006, the banking market totally opened to the foreign institutions, which means that foreign banks will have no restriction of region, business and customer in the future. Foreign banks bring with heavy competitive pressure to local banks when they enter our banking market, which will have an impact on finance and economy of our country. So, studying the influence on local banking system, searching for the solutions, and giving consults on the development strategy of the banks are meaningful for both realistic and theoretical study.The entry of foreign banks will accelerate the development and perfection of local banking system. This will be beneficial to attracting more direct foreign investment, introducing advanced technology and management experience, improving fathering structure of Chinese banking system, increasing the banking working efficiency in China and so on. But the entry of foreign banks will bring out tremendous challenge for our banking. The entry of foreign banks could lead to the following undesirable results: brain and customers drain, being raped intermediate operation with small risk, low cost and high profit, influencing the stable and healthy circulation of banking system in China, challenging our financial monitoring system and impacting our banking system.According to the theories of economics and finance, this paper makes a comprehensive analysis on the impact of the entry of foreign banks on our banking system, using the method of combining qualitative research and quantitative research, theoretical study and empirical study. 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 1996-2007 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 state-owned commercial banks and the joint-stock commercial banks. The entry leads to an increase in net interest income rate and operating expense rate of Chinese commercial banks, a decrease in non-interest income rate of the state-owned commercial banks, an increase in non-interest income rate of the joint-stock commercial banks, and it also raises their loan reserve ratio of bad debts. The entry of foreign banks has effects on efficiency and stability of Chinese commercial banks.Based on the above analysis, some suggests are made on the development of Chinese banking system: adopting"humanism"strategy, attracting excellent persons with ability, improving cooperation with foreign banks, perfecting the monitor on foreign banks, and improving external environment of Chinese banking system.