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Bank Reforms, Competition and Efficiency in China's Banking System: Are Small City Bank Entrants More Efficient?

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  • Hui‐Lin Lin
  • Chia‐Chi Tsao
  • Chih‐Hai Yang

Abstract

This paper analyzes technical efficiency in China's banking system by large banks and small city banks as well as the pre‐WTO and post‐WTO accession periods. Using an unbalanced panel dataset for 63 banks over 1997–2006 and employing the stochastic frontier function approach, the empirical results reveal that the new entrants, small city banks, experienced a slightly higher efficiency score than incumbent large banks, on average. Compared with the pre‐WTO accession period, the efficiency score is found to have improved significantly after entry into the WTO as a result of the competition effect. This competition effect is particularly relevant for small city banks. Finally, determinants of X‐inefficiency are examined.

Suggested Citation

  • Hui‐Lin Lin & Chia‐Chi Tsao & Chih‐Hai Yang, 2009. "Bank Reforms, Competition and Efficiency in China's Banking System: Are Small City Bank Entrants More Efficient?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(5), pages 69-87, September.
    • Handle: RePEc:bla:chinae:v:17:y:2009:i:5:p:69-87
    DOI: 10.1111/j.1749-124X.2009.01167.x
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    Cited by:

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    2. Francesco Aiello & Graziella Bonanno, 2018. "On The Sources Of Heterogeneity In Banking Efficiency Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 194-225, February.
    3. Masaki Yamaguchi, 2018. "Are Foreign Banks in China Homogenous? : Classification of their Business Patterns," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 3(1), pages 10-17.
    4. Francesco Aiello & Graziella Bonanno, 2016. "Efficiency in banking: a meta-regression analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 112-149, January.
    5. Jianxu Liu & Mengjiao Wang & Ji Ma & Sanzidur Rahman & Songsak Sriboonchitta, 2020. "A Simultaneous Stochastic Frontier Model with Dependent Error Components and Dependent Composite Errors: An Application to Chinese Banking Industry," Mathematics, MDPI, vol. 8(2), pages 1-23, February.
    6. Yufeng Xia & Peisen Liu, 2022. "Does Bank Competition Promote Corporate Green Innovation? Evidence from the Location of Bank Branches," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(2), pages 84-116, March.

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