The Influence Of Foreign Banks’ Entry To The Competition Degree Of Chinese Banking Industry

Since China’s reform and opening up, China’s economy has maintained strongeconomic development momentum, but the development of the financial sector stillrelatively lags behind. Under the background of the planned economy systemdomestic banking industry present the dominance of state-owned banks in the longterm. Even after the stock reform, domestic commercial banks has a greatdevelopment, however, compared to foreign Banks in our country from financialdeveloped countries, our banking is quite weak in the company structure, mode ofoperation, risk management, technology and product innovation. With the expandingof China’s opening to the outside world, foreign Banks may bring great influence inthe domestic banking market competition, which results in industry cost reductionand greatly improvement in the performance of our country’s banking sector.Therefore, our goal should be introducing the foreign Banks while trying to absorbthe advanced experience from them and enhancing the domestic banking marketcompetition degree to improve the overall performance of the banking sector.In this paper I use the Panzar-Rosse model to analysis the competition degree inChinese banking industry, and compare the H-statistic between two subsample2001-2006and2007-2012. After that, I also use this model to get annually H-statisticfrom2001to2012, and use these H-statisctics to analysis the influence of foreignbanks’ entry to the competition degree of Chinese banking industry. Conclusions ofthis paper are as follows.Firstly, Chinese banking industry is still in a monopolisticcompetition market, and the competition degree has increased from first subsample tothat in the second one.However, in2008and2009, the degree turns to decrease, thismaybe due to the financial crisis happened at that time. In terms of the relationshipbetween foreign banks’ entry and the competition degree of Chinese bankingindustry, the degree of foreign capital into a coefficient is not significant in theregression analysis of the level of foreign banks’entry for the banking marketconcentration, but significant quadratic coeffcient, which indicates that degree offoreign banks’entry for the banking industry concentration showing a U-shapednon-linear relationship.