Effect Of The Entry Of Foreign Banks On The Efficiency Of China's Banking Industry

With economy integration and financial globalization, the financial industry is experiencing liberalization and internationalization. The entry of foreign banks into emerging markets will necessarily have significant effect on the economic function and financial system in host country. Among which the most direct one is the impact on the efficiency of domestic banking. With the reform of financial system and the complete open of banking to foreign competitors in the end of 2006, it became an important practical task to analyze the impact of foreign bank entry on the efficiency of Chinese banking and put forward effective measures.First, this paper summarizes the significant effects of foreign bank entry into host countries worldwide from theoretical and empirical perspective. Then it introduces foreign bank's history and performance in china, analyzing the positive and negative impact of foreign bank entry on the efficiency of domestic banking.Then this paper emphasizes to make quantitative research on the impact of foreign entry on the efficiency of Chinese domestic banking. Based on the former study, the author makes improvement on the model to make empirical analysis according to our country's condition. With panel data of 12 leading banks in china from 1996 to 2006 and Software Eviews5.0, the author carries out an empirical analysis on the effects. The estimation suggests the overhead and NINTINC and profit increase with the entry of foreign which implies that foreign bank entry brings a little positive effect but it still haven't changed the low efficiency in domestic banking. According to this conclusion, the author brings forward some suggestions which include strengthening our banking competitive ability and enhancing the supervision of foreign banks.