An Empirical Study On The Factors Affecting The Choice Of International Business Location Of China 's Commercial Banks

This paper empirically studies the factors that determine the location choices of Chinese banks’ internationalization. Initially we regress the number of Chinese banks’ foreign offices by3categories of measures. The result indicates that economic integration, namely FDI and bilateral trade, plays an important role in determining locations of Chinese banks’ foreign offices although bilateral trade seems to influence the locations of branches rather than subsidiaries. Institutional characteristics such as market concentration and regulatory restrictions also matter. As for local market opportunities, per capita GDP, inflation and country risk appear to be irrelevant which may be due to the choice of sample countries. However, notably, domestic credit size provided by banks positively affects location choices while M2/GDP as another measure of market size is completely irrelevant. This may result from the fact that Chinese banks has a low degree of market infiltration into local clients and that loan business is one of Chinese banks’ main businesses abroad. From this perspective Chinese banks do consider local market opportunities.Previous studies mainly focus on banks from developed countries. Our study enriches the existing literature by analyzing Chinese banks which are previously neglected. The result proves that existing theories may also apply to banks from underdeveloped financial markets. Besides, contradicting results regarding local market opportunity may due to different measures being adopted. The result may turn out to be satisfactory if we take into account the main businesses of banks’ foreign presences when deciding on which measure to represent the local market opportunity.