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Market structure, welfare, and banking reform in China

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  • Ho, Chun-Yu

Abstract

This paper examines the effects of market reform on consumers and state commercial banks in China, a large developing country. I jointly estimate a system of differentiated product demand and pricing equations under alternative market structures. Overall, China’s banking reforms have achieved mixed results. Although there is a welfare gain from more consumers participating in the deposit market, the existing consumers suffer welfare losses because of declined service quality. The welfare effects are unevenly distributed, with losses skewed toward inland provinces and certain consumer groups. There is no clear evidence that the pricing of banking services has become more competitive after the reform, and such pricing remains subject to government intervention. Encouragingly, the price-cost margins of some state commercial banks have fallen over time.

Suggested Citation

  • Ho, Chun-Yu, 2012. "Market structure, welfare, and banking reform in China," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 291-313.
  • Handle: RePEc:eee:jcecon:v:40:y:2012:i:2:p:291-313
    DOI: 10.1016/j.jce.2011.07.006
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    1. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1154-9 is not listed on IDEAS
    2. Dong He & Honglin Wang, 2013. "Monetary Policy and Bank Lending in China - Evidence from Loan-Level Data," Working Papers 162013, Hong Kong Institute for Monetary Research.
    3. Chun‐Yu Ho, 2015. "Switching Cost And Deposit Demand In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 723-749, August.
    4. Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 121-134.
    5. Yin, Wei & Matthews, Kent, 2014. "The determinants and profitability of switching costs in Chinese banking," Cardiff Economics Working Papers E2014/13, Cardiff University, Cardiff Business School, Economics Section.
    6. Yangsoo Jin, 2014. "Testing Oil Refiners' Conduct in Korea: A Differentiated Product Approach," Asian Economic Journal, East Asian Economic Association, vol. 28(2), pages 161-180, June.
    7. repec:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400288 is not listed on IDEAS

    More about this item

    Keywords

    Banking reform; Banks in China; Demand estimation; Market structure;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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