The Comparison Of Main Banking Sector Cost Between America And China

After the third plenary session of the18th session of the National People’s Congress,China will deepen it’s financial reform. Banking sector’s reform is especially important asit’s the pillar of China’s financial industry. The marketization of interest rate and globalcompetition which caused by economic integration will bring huge challenge to China’sbanking industry. Along with challenge are opportunities. Figuring out our weakness andpursuing development during reform will make Chinese banks better. The essay figures outChina’s banking sector’s problem and gap by comparing the cost between Chinese andAmerican banks. By dong this, the dissertation makes suggestions for banks and it’smeaningful for China’s financial reform and economic development.The essay use direct and efficiency comparison method, efficiency comparison methodinclude HSBC’s method and SFA(stochastic frontier analysis) method. The direct costcomparison method compares five American banks(Bank of America, JPMorgan, Citigroup,Wells Fargo and HSBC) with eight Chinese banks(ICBC, ABC, Bank of China, CCB, Bankof Communication, CMBC, SPDB,(China Minsheng Banking Corp), refering to6years’annual report of each of the banks, classifying and comparing the data to get conclusion.The most important conclusion is that the cost of interest in American banks are growingwhile non-interest cost is declining in contrast to China’s growing proportion of interestcost. This further confirms the necessity of China banking sector’s reform. HSBC costefficiency comparison method measures (percentage) total operating expenses divided bynet operating income before loan impairment and other credit risk provisions(the totaloperating expenses does not include fees and default loss while net operating income isoperating income minus loan impairment and policyholder benefit and claim). Bycomparison, the essay finds out that the percentage number of American banks are higherbecause of financial crisis in2008and expansion requirement while the percentage numberof Chinese banks are lower because of not enough access to international market whichreflect the necessity of Chinese banks’“going out” policy. SFA method involveseconometrics and mathematics, which prevails in international academic community. Bythis method, the essay comes to a conclusion that Chinese banking sector’s efficiencynumber is a little lower than American’s. The dissertation also points out the deflect of SFAmethod in this paper.The innovation part of this paper is multiple comparison between representativebanks of China and America, specifically, the essay choose five American banks and eightChinese banks, combining the data of revenue and cost from financial reports withmacroeconomic data comes to the conclusion of American banks’ traditional business is winding down and it’s efficiency. In the mean time, giving advice for China’s tax reform onbanks under three assumptive scenarios. Moreover, this paper adjusts the SFA methodinnovatively to calculate the efficiency number of each bank and applies HSBC method toother twelve banks and makes comparison. There are some deficiencies for theseinnovations, but the conclusion basically aligns with other prevailing reports and realitiesIn a word, Chinese banks should promote innovation and positively participate ininternational competition to enhance cost efficiency. By this, make contributions to China’seconomic development.