A Game Theoretical Model Of Chinese Banks’ Oversea Expansion

Chinese banks headed by Bank of China have speeded their expansion abroad by actively building overseas subsidiaries and branches in recent years. In the age of ―Going-out 2.0‖ in the banking field, landing model has become one of the most critical factors determining the success. This thesis is trying to answer the following questions: what kind of regional strategy China-funded banks should take as the guideline and how organizational models could adapt to local conditions in the current economic environment.The determination of area location on overseas expansion is the prerequisite of choosing organizational models. This thesis first sorts out classic theories of multinational operations’ motivations since multinational banks are one form of multinational corporations, and takes the Theory of International Production Eclecticism as the basic method of empirical research, and then summarizes the possible factors that affect the choice of area location for Chinese banks to expand abroad, and then further divides the affecting factors into three motivations: client-following, organization-learning and market-seeking. After that, by using R software to study the relevant data from 2001 to 2013 of main Chinese commercial banks with the random effects model and the panel data analysis, this thesis obtains the empirical results as the stability of client-following, the receding of organization-learning and the enhancement of market-seeking, and finally by combing the features of developed countries and emerging markets and China’s macroeconomic strategy and prospect of ―one belt one road‖, this thesis comes to the conclusion that China-funded banks should regard emerging markets as the expansion bases in the future.This thesis builds a two-stage progressive game model on model selection for China-funded banks to expand abroad under the prerequisite of taking the host country as an emerging market. First, this thesis proposes some modification and development on the bases of Hotelling model and studies the choice between mergers and self-establishments for Chinese-funded banks’ overseas expansion from the perspective of costs and benefits, and the result indicates that self-establishments costs, the technical differences among banks and consumer surplus will influence the selection of overseas investment models through acting on the factors such as merging costs, monopoly and self-establishment profits. After deciding to abandon the choice of mergers, self-establishments are further subdivided into cross-border lending and Greenfield investments and the game model proceeds to the second iteration. This thesis focuses on discussions about the influence path and scale of the factors such as loan costs gaps, surcharges, regular consumers’ accounts, switching costs as well as beginning entry costs to the model choice and also analyzes consumers differences. Based on the above analysis, the conclusion could be drawn that Greenfield investments are the optimization model for Chinese-funded banks to expand abroad when there are as much as Chinese-funded corporations overseas and Chinese banks would be apt to adopt cross-border lending when switching costs are high enough and the clients from host countries occupy higher proportion.The main contribution of this thesis: first, area location is defined before model selection, and three influencing motivations are taken into the empirical research and emerging markets are selected at last; second, new development is made on general researches for model selection, and deep talks on Greenfield investments and cross-border lending are taken besides mergers and self-establishments; third, exploration is made on the application of the game theory in banking expansion and multi-factors analysis is used creatively in the model.