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The Rise of Foreign Investment in China's Banks

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Author Info

  • Lamin Leigh
  • Richard Podpiera

Abstract

The recent wave of foreign investment in China''s banks and the prospects of further opening of the banking sector under the WTO agreement suggest that foreign banks are likely to play an increasingly important role in China. This paper takes stock of the involvement of foreign banks in the Chinese banking sector in the perspective of international experience. While in most other countries foreign bank entry took the form of direct takeover or majority shareholding, foreign investments in China''s banks have been minority shareholdings with very limited management involvement. The paper concludes that China appears to be well positioned to benefit from further opening of the banking sector to foreign investors. International experience suggests that greater competition from and participation of foreign banks can in general bring important benefits if appropriate incentives and sufficient opportunities are created.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/292.

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Length: 14
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/292

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Keywords: Foreign investment; Banks; Bank reforms; World Trade Organization; banking; foreign banks; banking sector; foreign investors; foreign bank; foreign ownership; bank entry; banking system; foreign investor; investment banking; banking reforms; banking corporation; banking business; foreign investments; banking market; banking sector reform; foreign currency; foreign participation; foreign competition; banking services; market structure; banking assets; industrial bank; bank interest; bank interest margins; banking systems; bank behavior; direct investment; industrial countries; bank capital; central banking; credit markets; credit availability; corporate banking; international standards; internal control; foreign investment banks; host country; banking operations; bank branches; bank spreads; banking institutions; return on investment; market access; investment bank; credit risk management; banking crisis; bank of korea; banking sector reforms; agricultural bank; fdi;

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References

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  1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 379-408, May.
  2. Enrica Detragiache & Poonam Gupta, 2004. "Foreign Banks in Emerging Market Crises," IMF Working Papers 04/129, International Monetary Fund.
  3. Eric Van Tassel & Sharmila Vishwasrao, 2006. "Asymmetric Information and the Mode of Entry In Foreign Credit Markets," Working Papers, Department of Economics, College of Business, Florida Atlantic University 06002, Department of Economics, College of Business, Florida Atlantic University.
  4. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries," IMF Working Papers 06/18, International Monetary Fund.
  5. Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(3), pages 593-622, June.
  6. Dietrich Domanski, 2005. "Foreign banks in emerging market economies: changing players, changing issues," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, December.
  7. repec:nbr:nberwo:9710 is not listed on IDEAS
  8. Richard Podpiera, 2006. "Progress in China'S Banking Sector Reform," IMF Working Papers 06/71, International Monetary Fund.
  9. Barajas, Adolfo & Steiner, Roberto & Salazar, Natalia, 2000. "The impact of liberalization and foreign investment in Colombia's financial sector," Journal of Development Economics, Elsevier, Elsevier, vol. 63(1), pages 157-196, October.
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Citations

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Cited by:
  1. Katharina Pistor, 2012. "The Governance of China's Finance," NBER Chapters, National Bureau of Economic Research, Inc, in: Capitalizing China, pages 35-60 National Bureau of Economic Research, Inc.
  2. Robert M. Stern, 2010. "Trade in Financial ServicesÑHas the IMF Been Involved Constructively?," Working Papers, Research Seminar in International Economics, University of Michigan 613, Research Seminar in International Economics, University of Michigan.
  3. James Laurenceson & Fengming Qin, . "Has minority foreign investment in China�s banks improved their cost efficiency?," EAERG Discussion Paper Series, School of Economics, University of Queensland, Australia 1305, School of Economics, University of Queensland, Australia.
  4. Yin, Haiyan & Yang, Jiawen & Mehran, Jamshid, 2013. "An empirical study of bank efficiency in China after WTO accession," Global Finance Journal, Elsevier, vol. 24(2), pages 153-170.
  5. Prasad, Eswar, 2007. "Is the Chinese Growth Miracle Built to Last?," IZA Discussion Papers 2995, Institute for the Study of Labor (IZA).
  6. James Laurenceson & Zhao Yong, . "Efficiency Amongst China’s Banks:A DEA Analysis Five Years after WTO Entry," EAERG Discussion Paper Series, School of Economics, University of Queensland, Australia 1605, School of Economics, University of Queensland, Australia.
  7. Ramkishen S. Rajan & Sasidaran Gopalan, 2009. "Sales to Foreign Banks in Emerging Asia," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 7(3), pages 29-33, October.

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