A Research On The Efficiency Of Policy Banks During Transitional Reform

Since their establishment two decades ago, China’s three policy banks have contributed significantly to the social and economic development of China. In2007, China’s State Council demanded the transitional reform of policy banks to commercial banks and China Development Bank as a pioneer. CDB’s reform has stepped into the seven-year itch period and it is time to review and reflect on the products and problems of it transitional reform.On the perception of Efficiency, this dissertation investigates the CDB’s efficiency during the period from2007to2013. Data Envelope Analysis is employed to measure its technological efficiency, pure technological efficiency and scale efficiency during this period. The analysis also includes17other banks so as to run the DEA programme. Statistics show that CDB is among the most technologically efficient banks and its pure technological efficiency along with scale efficiency is also second to none. The intro-industrial comparison indicates that CDB excels in internal organizational management as well as in scale expansion.Malmquist index is then adopted to gauge dynamic efficiency of the sample banks in terms of total factor productivity change. On the whole, the dynamic efficiency of the bank industry in on the increase from2007to2014, with Malmquist index averaged1.039. The decomposition of Malmquist index into technological efficiency change index and technological progress index shows that TFP of China’s bank industry is mainly driven by technological progress. In regard of pure technological efficiency change and scale efficiency change, China’s bank industry exhibits increase in resource allocation efficiency, but no economics of scale. The average Malmquist index for CDB is low at0.98, as a result of sudden fall to0.745on the first year of its reform. In this study, the economic essence of a bank’s technological efficiency change and technological progress is revealed as its internal institutional efficiency and external institutional efficiency respectively. Regarding that CDB’s technological efficiency change index remains constant at1, CDB’s Malmquist index is confined by its technological progress index. Alternatively, CDB is operating efficiently internally, but the external institutional environment is unfriendly to CDB.Due to the fact of CDB’s high internal institutional efficiency and low external institutional efficiency, the author summarizes five internal reasons for CDB’s competence, claiming that CDB’s high technological efficiency is not the result of the reform but the premise of its reform. On the other hand, the author also points out three external institutional constraints together with three pieces of pertinent advice for further reform and development of CDB.