Foreign Banks Expand In China And Its Impact On Chinese Banking Efficiency

It has been over30years since the establishment of the first branch of Japanese bank in Beijing marking the begin of the foreign bank entrance into the Chinese market till the complete open to the foreign banks in the end of the year2006. During these years, foreign banks not only have grown a lot in terms of the scale and the practices, but have an increasing impact on the Chinese bank market. This thesis first reviews the theories about bank internationalization and financial openness, as well as introduces the ways and impacts of foreign bank’s entrance. In the third chapter, we overview the economical and financial background in the recent five years, analyze the measures that foreign bank use to explore Chinese bank market. The result shows that after the year2006, foreign banks greatly raised the investment in China, which increased the subsidiaries and transformed into corporate enterprises. In this chapter we also researched the Korean banks’activities in China, and discussed how new foreign banks could improve the performance in China.Based on the previous discussions, we then select panel data of16national banks which are listed in Shanghai Stock Exchange from the year2006to2010in Chapter Four, and carry out empirical analysis on whether foreign banks’ further expansion has influenced Chinese bank industry after the publish of Regulations of Foreign Banks in2006. We take the variable intercept model and fixed effect model to carry out GLS estimate of the impact of foreign banks’ entrance. In the light of the model of Claessens(2001), we use the financial indicators to investigate the effects. The result shows that in the whole observation period, the Marco effect is statistically significant with the bank performance, and the operating expense is negatively correlated with foreign banks’ entrance, the interest income and the loan provisions for doubtful debts positively, while the relationship with loan rate is not obvious. This shows that foreign bank’s entry has lowered the operating expenses and short-term asset quality, raised the non-interest income and risks of domestic banks, while has not obvious effects with liquidity.