The Impacts Of Foreign Banks Entry On The Efficiency Of Domestic Commercial Banks In China

Since 1980 China began to open domestic financial market to the outside world. Foreign banks have achieved quite amazing development in institutions, asset size and business. Especially in 2001 China joined the WTO, foreign banks build full confidence of China market. They accelerated the pace of entrance in China. In 2006 China's financial industry ended five-year period of protection after the entrance of WTO. China opened its financial market completely by the end of 2006, foreign banks have more room for development in Chinese financial market.In view of the affect foreign banks entry into the host country, the domestic and foreign scholars have carried on the considerable amount theoretical and empirical studies. Conclusion can be divided into two sides:one opinion believes that foreign banks entry can improve the efficiency of the host country bank while the other thinks that the impact is uncertain. Since the entry to the WTO, foreign banks have experienced nine years. The main purpose of this study is to research the affect of foreign banks entry and confirm whether four transmission channels of foreign banks entry into host country are present or not.This paper analyzes the impact of foreign banks entry from the theoretical and empirical aspects. In the course of theoretical analysis, this paper investigates the relationships between the efficiency of banks and economic development, market structure, property rights and financial innovation. Then this paper analyzes how four transmission channels of foreign banks entry are reflected in the these four factors. From the empirical point of view, the paper uses SFA approach to measure the value of the efficiency of the banks from the year 1998 to 2007. Then I use the panel data model to make a regression analysis between the efficiency and the index of foreign banks entry. The paper comes to the conclusion that it is positive correlation between the efficiency of banks and foreign banks entry. The conclusion also reveals that the current influence of foreign banks entry into China is bigger than delay entry to the efficiency of Chinese banks. At last I choose some indexes representing four transmission channels to test whether these channels are reflected in our country. The empirical results suggest that:(1) the main channels of foreign banks entry affecting our country are the market competition effect and resource allocation effect. (2) Spillover effect and financial stability effect need some time to appear, so these two effects are not significant. Last based on the research above, this paper provide the targeted recommendations for four transmission channels...