A Study On The Market Power And Profit Rate About Chinese Commercial Banks After Entry Into The WTO

One of the purposes of banking reform is to introduce competition, change the long-time low efficiency of China’s "Big Four", make the banks really become lubricant for China’s rapid economic development. So after the entry into the WTO China gradually opens financial market, introduces foreign capital banks, Facing the potential threat of foreign capital, the "Big Four" carried out the stock system reform, city commercial banks performed the new set, reorganization, merger to enhance their enhance their risk resistance capacity, and improve efficiency. But there is a large gap on efficiency after2001between the "Big Four", domestic Banks and foreign capital banks according to scholars’study. The result shows that the average technical efficiency (TE) of the "Big Four" was0.45, while the Joint stock commercial Banks was0.85, the foreign capital banks was0.95, the gap is very obvious. This article chooses profit rate to measure bank efficiency, uses market power as a key affecting bank profits’factor, analyzes the factors affecting market power and profit rate, tests the correlation between market power and profit rate by empirical way, and propounds suggestions to promote the efficiency.PengHuan, LeiZhen (2010) have ever studied the market structure changes of our commercial banks under deregulation condition (after the entry into WTO,2001-2006), and analyzed the structure change influence on ROA based on the study of market structure. This article is a continue study about Lei’s by expanding the bank sample size.First, the author chooses market power as a key variable affecting bank efficiency, the reason is that there are two kinds of factors affecting bank efficiency, which can be divided into, external factors:market power, macro economy, policy factor; Internal factors:the bank size, bank assets of safety and profitability and asset structure, business innovation ability, and the management level, the management structure. Internal factors make each bank have its own market forces, and policy is often a historical reason to market power, while macro economy is an exogenous variable. The "market force" can use Lerner Index to describe, meaning the ability to control prices, the buyer or the seller, if LI is very small, the P and MC is close, so the market participants’market ability of price control is very weak, and the market structure is close to completely competitive market, competition is very high, market forces are; Conversely, if LI is big, P and MC is far, ability of price control is strong, it’s close to completely monopoly market, market competition is very low, the greater the market power is. we can calculate the Lerner Index on deposit and loan market according to MK’s (Monti, Klein)"incomplete competition model".Based on the above, the author finds the main factors affecting the market force. The factors include market concentration, entry and exit barriers, product differentiation, market demand price elasticity, market demand growth, short-term cost structure. Market concentration can use HHI to measure it, and China’s bank entry and exit barriers can be divided into economic barriers and policy barriers, economic barriers include absolute cost, scale economy, product differences and special resources. Policy barriers mainly display in banking market access conditions. Scholars’ research proves that the main barriers are policy barriers between the two. Among2001-2010years, the main policy our banking industry facing didn’t change, it always was introduction foreign Banks, increasing competition and improving the efficiency of the Big Four, establishing local commercial banks and so on. In our country, because banks and securities are separated operation, the product homogeneity tendency is serious, at least among2001-2010, we can consider that product differentiation form some market force in China’s banking industry market, but it’s not the major factor, so it wasn’t considered in the econometric model in this article temporarily.The market demand growth rates can be described on two aspects of saving and loan, for measuring the real demand is very difficult, and the actual saving and loan is just an amount incurred, but we can replace demand growth rates with saving and loan growth rates. About the market demand price elasticity, because our country’s "savings" concept is very strong, and personal finance concept is forming gradually, but it’s not strong, loan demand is very strong, the usury is long-standing, so it’s reasonable to consider that our saving and loan market demand price elasticity is close to "rigid". Short-term cost structure is unable to quantified, so this paper describe the main factors affecting our bank market power on three aspects:market concentration, saving and loan growth rate.In BankScope, there are a lot of indexes to describe profits rate of commercial bank, from a certain profits rate point of view on the management of the enterprise, or expenses, or income, or profits, or dividends, but most of the indexes can not reflect the reality of enterprise comprehensively, while ROAA and ROAE are two comprehensive indexes include cost, revenue and profit separately from assets and the owner’s equity to investigate the enterprise’net profit, They also reflect the profitability of assets, rate of return on investment, although can not reflect dividend level, but the bonus is not only relevant to enterprise management condition, but also itself relates to distribution policy, not an independent variables, from this aspect, ROAA and ROAE are more comprehensive indexes, so is the reason for this paper to choose them. This paper analyzes the relationship between market power and profit rate, first we investigate the whole banking industry, the evidence shows that the lower market forces it is, the higher efficiency of the bank it is, and the correlation coefficients of loan market is bigger, show that if we reform the current loan market, the effect is better than deposit market. Because our country loan market implements credit quota system, and the competition is very intense in deposit market, we can easily conclude that in a short term the effect of opening loan market is significant with marginal decline rule. Based on the model of market power and profit rate relationship, the author sort the Banks in China into Big Four and not Big Four, the empirical results show that during the10years after the entry into WTO the Big Four make a larger contribution on improving banking industry efficiency than joint-stock Banks, Foreign Banks etc., but the Big Four’s efficiency are still low now, so there is plenty of room for improvement, and continue to deepen reforming the Big Four will evaluate the efficiency of our banking industry.