Research On China’s Banking Competition And Relationship Lending

Relationship lending is defined as the lending technology that one financial institution obtains the private information of an enterprise through long-term and multi-channel contact with each other. It has the advantages of overcoming the information asymmetry, improving the technical level of lending and reducing the credit risk. However, the research conclusions on the relationship between banking competition and relationship lending have not been consistent, which makes it essential to discuss the problem deeply. In reality, the increasing banking competition has changed the loan market structure and then affected the banks’strategy choices of lending technology, which resulted in the challenge that the relationship lending technology applies in banking competition. Therefore, it is necessary to analyze the strategy position of relationship lending in banking competition.According to the previous literature, this paper finds that the related theoretical analyses have been comprehensive and the corresponding empirical researches have been more rigorous. The former means the theoretical analyses have expanded from the perspectives of banks behavior and enterprises behavior to that of the lending market structure. And the latter mainly reflects in the segmentation of banking competition and variable selection of relationship lending. Nevertheless, present literature lacks of the researches based on transition economies or developing countries and the comprehensive consideration on the factors like the level of financial development, legal system environment, banking structure and enterprise property right.Aiming at the shortcomings of the existing research, on the theoretical analysis, this paper analyzes the banks’strategy choice of loans in banking competition and concludes the strategic equilibrium of transaction lending and relationship lending in small banks competition and large banks competition respectively through extensional Hotelling model. The results show that relationship lending has a positive correlation with small banks competition but has an inverted U-shaped correlation with large banks competition. Besides, on the empirical research, with the consideration of the level of financial development, legal system environment, banking structure, enterprise property right and characteristics, this paper researches the relationship between China’s banking competition and relationship lending based on the panel data of469China’s A-share listed companies from2006to2011. It concludes that large banks competition in China increases the quantity of relationship lending briefly and decreases it finally, especially that of state-owned enterprises. On the contrary, small banks competition in China reduces the quantity of relationship lending for a long period of time but augments it finally, especially that of state-owned enterprises. Otherwise, China’s banking competition has no significant effect on non-state-owned enterprises’relationship lending.Based on the research conclusions, several suggestions should be proposed. Firstly, the government should perfect the financial system quickly and reform the financial institutions steadily and gradually, especially the banking system reform. Secondly, the bank regulators should make banking competition policy and countermeasures of systemic risk as soon as possible. Furthermore, large banks should be streamlined to save the cost of lending while small banks should use advanced technology to improve the production of soft information. Lastly, state-owned enterprises should strive to get more transaction lending from large banks and more relationship lending from small banks while non-state-owned enterprises should seek a variety of financing channels, such as equity financing, P2P financing, crowdfunding, etc.