Empirical Studies Of Competition And Efficiency And Their Relationship In China Commercial Banks

Along with China economy unceasing development, the financial industry highlightsthe increasing importance to China economy. And the banking sector is the core of thefinancial sector, so the banking industry benign development has a crucial role in thestability and prosperity of China economy. Since the beginning of21st century, with thefull liberalization of China’s banking industry and economy market restructuringcontinuously push forward, China’s banking market structure, competitive conditions andbank behavior has also undergone considerable changes. To study the relationship betweencompetition and efficiency of China’s commercial banks in this process is of greatsignificance for the promotion of the healthy development of China’s banking industry andcontinue to improve the financial market.Based on reading the relevant literature, this paper researched the competition statusand efficiency of China’s commercial banking and their relationship from2001to2010.First, this paper studied the competition state of China’s commercial banks in the10yearsby using the structure method (concentration ratios) and non-structural method(Panzar-Rosse statistic).The results show that China’s banking industry is monopolisticcompetition and competitive parameter showed a declining trend. It suggests that bankingsystems is becoming more and more competitive. But different methods have differentconclusions, and the competition degree is different between the state-owned commercialbanks and non-state-owned commercial banks. Second, Using DEA method to study thescale efficiency and technical efficiency of China commercial banks, the results seem tosuggest that the level of efficiency of China’s banking industry is not high, and differentcommercial banks have different scale efficiency and technical efficiency. The state-ownedcommercial banks are more efficient and more stable than the non-state-owned commercialbanks. Finally, the paper discusses the relationship of bank competition, concentration andefficiency in China commercial banking market. The results show that there is a clearnegative relationship between the degree of China’s current commercial bank competitionand the degree of bank concentration. Because the China economic environment andpolicies have changed quickly from2001to2010, the relationship between the degree ofcompetition and efficiency is not a straightforward one. They are negatively related from2001-2005and positively correlated from2006to2010.This paper gives some advice to the government and bank itself based on the previous chapter analysis in the concluding part. For example, strengthening the role played by thegovernment in the development of the banking system, using high technology in operationand management of commercial banks, highlighting the importance to the banking sectoritself operating prudent and so on.