The Empirical Analysis Of China’s Banking Market Power

Market forces are this paper’s basic theory of this paper, this paper use threemeasures of construction: the industry concentration rate, the Hofendal Hirshman indexand based on Klette model direct estimates market forces premium. First,this studyexamines empirically the banking industry concentration ratio, and the HofendalHirshman index, we draw the following conclusions: take the banking industryconcentration ratio and Hofendal Hirshman index as the indicators of market power,China’s commercial banks has some market power in assets, loans and business therevenue side, but market forces have been steadily declining trend. Combined with thepractical analysis of the banking industry, China’s banking industry market power ismainly manifested in the following aspects:the country shares in the commercial bankownership structure accounted for a relatively high, and the commercial bank markethas single property rights structure; state owned commercial banks market share is high;the level of commercial bank profits are highly; the banking practitioners income higherthan other industries. Rapid growth of banking reform, Chinese economy andgovernment banking regulation of the industry are three important factors that help thebanking industry has a certain market forces.But because regardless of industry concentration rate or Hofendal Hirshmanindex are based on logical chain structure-behavior-performance, they are unable toget the actual numerical value of markup, so the direct measurement of market power isvery necessary. This paper focuses on the combination of the actual16listed Chinesecommercial bank data, carries on the transformation to the Klette model, excluded theeffect of economies of scale difference and productivity differences between thecompany, the new model contains only a few parameters, it’s important in economy, thismodel use a translog form structure, makes our model can contain a flexible, technicalprogress factor, the model can also be productivity differences allows a company toexist between semi fixed capital stock and long lasting. The model is applied to studyon the difference of change of market power, economy of scale and inter company.In the empirical part, we using16listed commercial banks’ data between2009-2013years, the company level panel data which based on the new model can direct estimate markup and scale elasticity. The empirical results show, the commercialbanks have significant markup, but do not have the scale effect. That is, commercialbank’s markup is caused by trade barriers under the protection of administrativemonopoly, not technical progress and fierce market competition, China’s bankingmarket is a typical oligopoly market.Based on the conclusion of the study, this paper puts forward suggestions asfollows: the government should break the administrative monopoly of banking industry,improve the market competition degree; compression of deposit and loan interest ratesto promote market-oriented interest rate reform; strengthen the supervision, payattention to safety construction.At present, our country is working to prepare the new reform of the financial sector,the bank industry should choose innovation and transformation right now. The bankingindustry should focus on wealth management, small and micro finance, electronicbanking, diversification etc. By optimizing the business model upgrade to get rid ofdependence on the traditional path, banks should use these earnings potential to createdifferentiated competitive advantage, open up new space for future growth of value, inorder to realize the sustainable development of quality.