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The Rise of Foreign Investment in China’s Banks—Taking Stock

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  • Lamin Y 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.

Suggested Citation

  • Lamin Y Leigh & Richard Podpiera, 2006. "The Rise of Foreign Investment in China’s Banks—Taking Stock," IMF Working Papers 06/292, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/292
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    References listed on IDEAS

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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, vol. 13(2), pages 379-408, May.
    2. Enrica Detragiache & Thierry Tressel & Poonam Gupta, 2008. "Foreign Banks in Poor Countries: Theory and Evidence," Journal of Finance, American Finance Association, vol. 63(5), pages 2123-2160, October.
    3. 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, vol. 36(3), pages 593-622, June.
    4. Detragiache, Enrica & Gupta, Poonam, 2006. "Foreign banks in emerging market crises: Evidence from Malaysia," Journal of Financial Stability, Elsevier, vol. 2(3), pages 217-242, October.
    5. Barajas, Adolfo & Steiner, Roberto & Salazar, Natalia, 2000. "The impact of liberalization and foreign investment in Colombia's financial sector," Journal of Development Economics, Elsevier, vol. 63(1), pages 157-196, October.
    6. Van Tassel, Eric & Vishwasrao, Sharmila, 2007. "Asymmetric information and the mode of entry in foreign credit markets," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3742-3760, December.
    7. Dietrich Domanski, 2005. "Foreign banks in emerging market economies: changing players, changing issues," BIS Quarterly Review, Bank for International Settlements, December.
    8. Richard Podpiera, 2006. "Progress in China’s Banking Sector Reform; Has Bank Behavior Changed?," IMF Working Papers 06/71, International Monetary Fund.
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    Citations

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    Cited by:

    1. James Laurenceson & Zhao Yong, "undated". "Efficiency Amongst China’s Banks:A DEA Analysis Five Years after WTO Entry," EAERG Discussion Paper Series 1605, School of Economics, University of Queensland, Australia.
    2. James Laurenceson & Fengming Qin, "undated". "Has minority foreign investment in China�s banks improved their cost efficiency?," EAERG Discussion Paper Series 1305, School of Economics, University of Queensland, Australia.
    3. Prasad, Eswar S., 2009. "Is the Chinese growth miracle built to last?," China Economic Review, Elsevier, vol. 20(1), pages 103-123, March.
    4. Ramkishen S. Rajan & Sasidaran Gopalan, 2009. "Sales to Foreign Banks in Emerging Asia," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(3), pages 29-33, October.
    5. Robert M. Stern, 2010. "Trade in Financial ServicesÑHas the IMF Been Involved Constructively?," Working Papers 613, Research Seminar in International Economics, University of Michigan.
    6. Priscilla Liang, 2016. "Comparing Chinese and Indian Banks and their Socialist versus Capitalist Reforms," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1310-1320.
    7. 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.
    8. repec:ces:ifodic:v:7:y:2009:i:3:p:14567066 is not listed on IDEAS
    9. Katharina Pistor, 2012. "The Governance of China's Finance," NBER Chapters,in: Capitalizing China, pages 35-60 National Bureau of Economic Research, Inc.

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