Bank Ownership and Efficiency in China: What Will Happen in the World's Largest Nation?

40 Pages Posted: 16 Aug 2006

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Mingming Zhou

University of Colorado, Colorado Springs - College of Business

Date Written: June 2006

Abstract

China's economy has been growing rapidly based on globalization of trade, but the country is only beginning to globalize its banking sector. China's current banking reform includes partially privatizing three of its dominant Big Four state-owned banks and taking on minority foreign ownership of these institutions. Other state-owned banks are also engaging in this practice. Predicting the efficiency effects of these and other reforms is difficult because of little relevant background research evidence. This paper helps to fill some of the gaps in the literature, analyzing the profit and cost efficiency of banks representing 95% of commercial banking assets in China over 1994-2003 with different majority and minority ownership structures. The key findings are that the Big Four state-owned banks are by far the least efficient, and that minority foreign ownership of other banks is associated with significantly improved efficiency. These and other findings suggest that minority foreign ownership of the Big Four and other reforms that allow foreign banks to play larger roles will likely improve the performance of the Chinese banking sector, with positive effects on economic growth.

Keywords: China, Banks, Efficiency, Foreign ownership

JEL Classification: G21, G28, G34, F23

Suggested Citation

Berger, Allen N. and Hasan, Iftekhar and Zhou, Mingming, Bank Ownership and Efficiency in China: What Will Happen in the World's Largest Nation? (June 2006). Available at SSRN: https://ssrn.com/abstract=924246 or http://dx.doi.org/10.2139/ssrn.924246

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Mingming Zhou

University of Colorado, Colorado Springs - College of Business ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80933-7150
United States
1-719-255-5153 (Phone)

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