China's Commercial Banks Operating Mechanism Transformation

With an ever faster pace of the reforming and open up of finance industry, China's commercial banks are facing significant changes of both its market and system environment. The traditional operating mechanism of commercial banks is expected to be promoted with macro-economic transformation, rapid growth of social wealth, the deepening of financial disintermediation and the opening up of market and banking industry. It also facing a challenge from the accelerated pace of interest rate liberalization, increasingly hardening capital constraints and continued low operating efficiency. How to achieve the transform of operating mechanism according to the requirements of modern financial enterprise in the opportunity time of deepening financial system reforming and financial control release is now the major issue in the management of China's commercial banks.The transformation of enterprise operating mechanism is a process of institutional change. In this paper, the method of institutional change analyzing is used to analyze the low efficiency of the traditional commercial banking system in China. The method has also been used in the analyzing of business environment of China's commercial banks according to the assorting of supply and demand. It is pointed out in the paper that the transformation of China's commercial bank operating mechanism is an imperative combination of supply dominated changes and demand induced changes.that the transformation of China's commercial bank operating mechanism is an imperative combination of supply dominated changes and demand induced changes.Institutional change has a character of path dependent. This character requires China's commercial banks get out of the old path with external forces on one hand, make the aim of operating mechanism transformation clearly and choose a proper new path on the other hand. Financial disintermediation, market interest rates, capital constraints, and entrances of foreign banks provide the external forces of getting out the old path. The proper new path is the key to the transformation. The transformation of Hong Kong's banking industry is taken as a successful example to analyze its background, path and effectiveness and get some useful conclusions. The author believes that the operating mechanism transformation of Hong Kong's banking industry is the reflection of current prospect for mainland banking industry in a sense.Facing similar changes in the operating environment and motivation system, the author suggested that domestic commercial banks are required to learn the experience of Hong Kong banking industry and achieve the transformation in five areas of business concept, development strategy, operating structure, risk management and resource allocation with the aim of shareholders'value maximization under capital constraints. Some specific ideas and measures are also put forward in the paper.