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WTO accession, foreign bank entry, and the productivity of Chinese manufacturing firms

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  • Lai, Tat-kei
  • Qian, Zhenjie
  • Wang, Luhang

Abstract

After China’s accession to the World Trade Organization (WTO) in December 2001, foreign banks are allowed to enter the Chinese banking market in phases. Using firm-level data from the National Bureau of Statistics of China which cover all state-owned and non state-owned manufacturing firms with sales over 5 million RMB, we examine the relationship between foreign bank entry and the industry-level productivity growth of China’s manufacturing sector. Our empirical results suggest that (a) on average, opening up a region for foreign bank entry has no impact on aggregate productivity growth, (b) however, industries more dependent on external finance grow faster after a region is opened up for foreign bank entry, and (c) these results are due to changes in technical efficiency rather than reallocation. Overall, this paper provides new evidence on the relationship between banking market structure and manufacturing productivity in a fast growing developing country.

Suggested Citation

  • Lai, Tat-kei & Qian, Zhenjie & Wang, Luhang, 2016. "WTO accession, foreign bank entry, and the productivity of Chinese manufacturing firms," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 326-342.
    • Handle: RePEc:eee:jcecon:v:44:y:2016:i:2:p:326-342
    DOI: 10.1016/j.jce.2015.06.003
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    2. Lin, Tse-Chun & Liu, Jinyu & Ni, Xiaoran, 2022. "Foreign bank entry deregulation and stock market stability: Evidence from staggered regulatory changes," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 185-207.
    3. Go Yano & Maho Shiraishi, 0. "Economic and Political Motivations in Debt Finance in China: Bank Lending and Trade Credit Offering," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 0, pages 1-42.
    4. Zhao Chen & Sandra Poncet & Ruixiang Xiong, 2016. "Local Financial Development and constraints on private firms' exports: EvACidence from City Commercial Banks in China," Working Papers 2016-27, CEPII research center.
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    6. Zhang, Xiaoqian & Huang, Bin, 2022. "Does bank competition inhibit the formation of zombie firms?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1045-1060.
    7. Gu, Leilei & Ni, Xiaoran & Peng, Yuchao & Zhang, Huilin, 2020. "Entry of foreign banks, state ownership, and corporate innovation," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    8. Shao, Shuai & Zhang, Yan & Tian, Zhihua & Li, Ding & Yang, Lili, 2020. "The regional Dutch disease effect within China: A spatial econometric investigation," Energy Economics, Elsevier, vol. 88(C).
    9. Lai, Tat-kei & Wang, Luhang, 2022. "Spatial disparity of skill premium in China : The role of financial intermediation development," BOFIT Discussion Papers 6/2022, Bank of Finland, Institute for Economies in Transition.
    10. Lai, Tat-kei & Wang, Luhang, 2022. "Spatial disparity of skill premium in China: The role of financial intermediation development," BOFIT Discussion Papers 6/2022, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Han, Xuehui & Epetia, Ma. Christina F. & Cheng, Yuan, 2021. "“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks," Journal of Asian Economics, Elsevier, vol. 76(C).
    12. Go Yano & Maho Shiraishi, 2020. "Economic and Political Motivations in Debt Finance in China: Bank Lending and Trade Credit Offering," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(4), pages 590-631, December.

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    More about this item

    Keywords

    China; Foreign bank entry; WTO; TFP; Technical efficiency; Reallocation;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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