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Market structure, performance, and efficiency of the Chinese banking sector

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  • Qichang Ye

    ()

  • Zongling Xu

    ()

  • Dan Fang

    ()

Abstract

The Chinese banking system is evolving from a mono-bank system to one involving many banks of varied types and functions and there is a heated debate on whether competition can help to improve the performance and efficiency of the banks. This paper tests five hypotheses that have been proposed in the literature on the relationship between market structure, profitability, and efficiency using data envelopment analysis with a panel data of the 14 largest nationwide banks in China during the period of 1998–2007. The empirical results show clearly that neither the structure-conduct performance nor the efficient structure hypotheses hold in China. The strongest support is for the relative market power hypothesis that suggests that banks with differentiated services and products are those with higher market shares, and that they are able exercise their market power to obtain higher profits by setting higher prices. Technical efficiency has a significant effect upon bank profitability and the policy makers should promote further competition in the Chinese banking sector. Copyright Springer Science+Business Media New York 2012

Suggested Citation

  • Qichang Ye & Zongling Xu & Dan Fang, 2012. "Market structure, performance, and efficiency of the Chinese banking sector," Economic Change and Restructuring, Springer, vol. 45(4), pages 337-358, November.
  • Handle: RePEc:kap:ecopln:v:45:y:2012:i:4:p:337-358
    DOI: 10.1007/s10644-012-9123-6
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:ecopln:v:51:y:2018:i:3:d:10.1007_s10644-017-9203-8 is not listed on IDEAS
    2. repec:kap:ecopln:v:50:y:2017:i:2:d:10.1007_s10644-016-9183-0 is not listed on IDEAS
    3. Chan, Sok-Gee & Koh, Eric H.Y. & Zainir, Fauzi & Yong, Chen-Chen, 2015. "Market structure, institutional framework and bank efficiency in ASEAN 5," Journal of Economics and Business, Elsevier, vol. 82(C), pages 84-112.
    4. Aoife Hanley & Wan-Hsin Liu & Andrea Vaona, 2015. "Credit depth, government intervention and innovation in China: evidence from the provincial data," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 73-98, June.
    5. Martin Bod’a, 2017. "Stochastic sensitivity analysis of concentration measures," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(2), pages 441-471, June.
    6. Bashar Abu Khalaf & Hadeel Yaseen & Ghassan Omet, 2015. "The Evolution of Bank Competition: Have Conditions Changed in the Jordanian Banking Sector?," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(3), pages 100-107, July.
    7. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    8. Hou, Xiaohui & Wang, Qing & Zhang, Qi, 2014. "Market structure, risk taking, and the efficiency of Chinese commercial banks," Emerging Markets Review, Elsevier, vol. 20(C), pages 75-88.

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    Keywords

    China; Banking; Market structure; Efficiency;

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