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The Performance of the Chinese Banking System Before and After the WTO Entry

The Performance of the Chinese Banking System Before and After the WTO Entry PurposeThis study examines the effects of China’s accession to the WTO in January 2002 on the efficiency levels, efficiency components (technological change and scale economy), and efficiency determinants of Chinese banks. Design/methodology/approachThis study employs a two-stage Stochastic Frontier Analysis (SFA) to estimate efficiency and its components and identify the efficiency determinants.FindingsChinese banks did not benefit from technological change and scale expansion in reducing costs in the pre-WTO period, but the reverse occurred in the post-WTO period. Chinese banks benefited from technological change in increasing profits to a lower degree in the post than the pre-WTO period. Cost efficiency declined while profit efficiency improved after China’s accession. Security investments positively drove profit efficiency in both pre and post-WTO periods. There was an efficiency gap between joint-stock banks and state-owned banks in the pre-WTO period, but this gap disappeared in the post-WTO period. Economic freedom was related negatively to cost efficiency and positively to profit efficiency in the pre-WTO period, but opposite relations occurred in the post-WTO period. Practical implicationsThese findings appear to favour gradual liberalisation in the Chinese banking system, gradual removal of restrictions on foreign banks, certain shift from non-security investments to security investments, technology investment and scale expansion.Originality/valueThis is the first study investigating the impact of the WTO on the efficiency, technological progress, economy of scale and efficiency determinants in Chinese banks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

The Performance of the Chinese Banking System Before and After the WTO Entry

China Finance Review International , Volume 6 (3) – Aug 15, 2016

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-1398
DOI
10.1108/CFRI-08-2015-0116
Publisher site
See Article on Publisher Site

Abstract

PurposeThis study examines the effects of China’s accession to the WTO in January 2002 on the efficiency levels, efficiency components (technological change and scale economy), and efficiency determinants of Chinese banks. Design/methodology/approachThis study employs a two-stage Stochastic Frontier Analysis (SFA) to estimate efficiency and its components and identify the efficiency determinants.FindingsChinese banks did not benefit from technological change and scale expansion in reducing costs in the pre-WTO period, but the reverse occurred in the post-WTO period. Chinese banks benefited from technological change in increasing profits to a lower degree in the post than the pre-WTO period. Cost efficiency declined while profit efficiency improved after China’s accession. Security investments positively drove profit efficiency in both pre and post-WTO periods. There was an efficiency gap between joint-stock banks and state-owned banks in the pre-WTO period, but this gap disappeared in the post-WTO period. Economic freedom was related negatively to cost efficiency and positively to profit efficiency in the pre-WTO period, but opposite relations occurred in the post-WTO period. Practical implicationsThese findings appear to favour gradual liberalisation in the Chinese banking system, gradual removal of restrictions on foreign banks, certain shift from non-security investments to security investments, technology investment and scale expansion.Originality/valueThis is the first study investigating the impact of the WTO on the efficiency, technological progress, economy of scale and efficiency determinants in Chinese banks.

Journal

China Finance Review InternationalEmerald Publishing

Published: Aug 15, 2016

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