| City commercial banks in China have gradually become full-fledged financial intermediaries through ten years of development. Many city commercial banks explored every avenue to expel non-performing assets left over from prior management, reduced their percentage of non-performing loans, changed their business type and then completed their shareholding reform while claiming possession of a high market share. This includes Shanghai bank which developed rapidly and had joint holdings of sound banks in the top 500 worldwide. City commercial banks are gradually developing and could become a bank class with as great a number and size; composing the body of the Chinese financial system along with State-holding banks and joint-equity banks. But, with the development of Chinese economy and the deepening of financial system reform, some city banks are confronted with the prospect of being marginalized. Lack of competitiveness is both the epitome of the problems left by former financial environment and the proximate cause leading these banks to face intense pressure merely to survive. Therefore, promoting city commercial banks' competitiveness is the primary motivation for getting through difficult, financial conditions and also their best option to cope with competition. This paper will study the competitiveness of city commercial banks.A commercial bank is an enterprise which operates monetary capital and manages financial risk. The peculiarity of their operating risk requires commercial banks to reinforce their risk management and abide by their requirements to be profitable while maintaining adequate liquidity and safety. Their capacity for risk management has become an important standard in evaluating the competitiveness of commercial banks. Being integral to the Chinese financial system, if commercial banks were to go bankrupt, it would not only directly affect the interests of the general public but also influence the stability of the entire Chinese financial system; perhaps even endanger national security. The externalities of operating risks forced commercial banks to comply with the demands of strict capital supervision and to structure an effective capital management system. The capacity for capital management has now become a prerequisite for the competitiveness of commercial banks. However, contemporary studies that evaluate the competitiveness of commercial banks focus primarily on profit-making while ignoring these vital risk factors and pay virtually no attention to the Capital Adequacy Supervision effect on commercial bank's competitiveness.Based on the above knowledge, This paper's basic theory is dependent upon "Corporation Competitiveness Theory", "Corporation Evaluation Theory" and other commercial bank competitiveness evaluation-related theories derived from the uniqueness of commercial banks and combine many relevant factors including: resources, environment and capacity, and the establishment of an evaluation system of commercial banks' competitiveness from the standpoints of operational performance, risk management and capital management so as to comprehensively evaluate Liaoning commercial bank's total market competitiveness.This paper contains eight chapters:The first chapter is an introduction and includes the value of relevant research from the perspectives of reforms history, current problems and its record of development. Then it introduces its framework, contents and methods. The second chapter is a literature review showing the current, common practice. It classifies and tidy existing researches from theoretical and practical. This was done to discuss the necessity and possibility of consummating the existing evaluation system of commercial bank's competitiveness from the standpoint of adequate risk management and capital availability. Chapter Three is basic theory analysis. Firstly, this chapter reviews the corporation competitiveness theory according to several schools of thought. Secondly, it reviews the corporation evaluation theory mainly from management control theory, target management theory and economic profit theory. This chapter takes into consideration the unique situation of commercial banks in order to establish commercial bank competitiveness evaluation systems through analysis of financial innovation theory and financial fragility theory. These systems are evaluations of commercial bank competitiveness based on performance, risk management and capital management. Chapter Four evaluates commercial bank competitiveness from a business performance perspective. This chapter evaluates Liaoning commercial banks'competitiveness from the aspects of asset quality, profitability, debt repayment ability, value creation potential and market share utilizing factor analysis, EVA methodology and market structure analysis. Chapter Five's subject is risk management and the evaluation of commercial bank competitiveness. This chapter utilizes contingent claims analysis to determine commercial banks'Credit Risk Default Probability in light of the fact that credit risk is still the primary risk associated with commercial banking in China. The subject of Chapter Six is capital management and the evaluation of commercial banks' competitiveness. This chapter evaluates their capacity for capital management by analyzing the changes in capital quantity and structure. It also analyzes the factors that influence these changes in order to provide a useful theory for refinancing and to optimize their capital structures. Chapter Seven addresses commercial bank competitiveness evaluation synthetically. Using the first six chapters as its basis, this chapter then goes on to use the Grey correlative degree analysis in comprehensive evaluations of Liaoning commercial banks'competitiveness. Chapter Eight is the conclusion and contribution. In this ending chapter, the conclusions are drawn based on the aforementioned study. Also it points out its contribution, weakness and the future study direction. According to the above, the conclusions can be drawn as following:(1) From the factors analysis we can find that the commercial banks' competitiveness is affected by the indicators of assets quality and safety more so than the profitability indicators. In other words, those banks with high assets quality and safety will be more competitive. This conclusion is joined with the commercial banks'operating principles of liquidity, safety and profitability so that profit can be realized on the solid foundation of liquidity and safety.(2) The results of the EVA method are at variance with those of factor analysis. This can be explained by considering that the EVA method mainly considers shareholder return but there are big differences amongst the Liaoning city commercial banks with regard to their levels of capital. Another reason is that some commercial banks pay more attention to their financial indicators than they do their shareholder return and value creation. This means most commercial banks know little about the true concept of performance. It also means simple financial ratio analysis cannot present the city commercial banks'competitiveness objectively. It is, therefore, necessary to improve the competitiveness evaluation system in order to compensate for these shortcomings.(3) The market structure analysis shows that the operating pattern of most commercial banks still involves the traditional earning spread between depositor and borrower interest rates with a low proportion in non-interest income; exposing a lack of innovation of financial products. Six city commercial banks in Liaoning account for the majority of all assets, deposits and loans in their respective cities. This reflects the fact that the target market of most city commercial banks is localized. In fact, before 2007, all of Liaoning city commercial banks did not operate trans-regionally; they were required to operate within their own cities exclusively. Occupying the local market by providing financial support for local small to medium-sized firms was their main operation strategy.(4) From the analysis of default risk probability, we can find that as default probability decreases both risk management capability and competitiveness increases. This means that risk management has a strong influence on commercial banks' competitiveness. In general, the default risk probability of most commercial banks is relatively low. The change in the default risk probability over time and its difference between commercial banks reflect that banking reform has reduced risk. This is also an indication that the reform that instituted a stock holding system for banking has been effective in increasing the banks' risk management capability; also strengthening the competitiveness of city commercial banks.(5) The analysis of capital adequacy rate shows that the capability of capital management is a critical factor in the competitiveness of commercial banks and it has a positive effect on the performance of commercial banks. With the expansion of asset size, the commercial banks are exposed to the risk of insufficient capital and the increasing pressure of supervision. If the commercial banks don't improve their capability of risk management, unprecedented expansion will make the commercial banks more risky in the long-run. Therefore, the commercial banks which have met the requirement of capital adequacy rate can improve their performance by increasing loans. But for those which have not met the requirement of the capital adequacy rate, expansion of their credit base is not an option; its competitiveness would be under the influence of capital regulation.(6) From the analysis of Grey Association Degree, we find that simple performance evaluation cannot reflect the competitiveness of the city commercial banks objectively. The capability of risk management and capital management play important roles in evaluating the competitiveness of the banks, therefore, the comprehensive strength of commercial banks should always be taken into consideration. The analysis of Grey Association Degree also tells us that small banks with weak competitiveness should differentiate their competition strategy in order to survive and develop. This paper contributes in the following aspects:(1) Deepens the relevance of evaluation theory of commercial banks' competitiveness. Commercial banks are intermediaries of capital which means they must obey the operating principles of liquidity, safety and profitability while allocating economic resources optimally. Therefore their capacity for risk management and capital management are key factors in the competitiveness of commercial banks. But current research regarding the evaluation of commercial banks'competitiveness focuses on profitability at the expense of risk management and capital management thereby narrowing the concept of commercial banks' competitiveness. This paper not only uses financial ratios and EVA analysis, (which are used for general corporations to evaluate the competitiveness of commercial banks), but also considers the factors of risk management and capital management so as to enrich the theory and usefulness of the evaluation of commercial banks' competitiveness.(2) The object of study is the city commercial banking sector. Most current literature focuses on research of the state-owned commercial banks to the exclusion of city commercial banks. Research on the competitiveness of city commercial banks is insufficient. The reasons may include the following three points:(a) The state-owned commercial banks comprise the main body of the Chinese banking system and the key focus of the commercial banks'reform. (b) The financial data of city commercial banks are not available because of an unsound information disclosure system. (c) The diverse development history of the various city commercial banks makes it difficult to draw meaningful conclusions. Therefore, this paper chooses Liaoning city commercial banks for its research samples and focuses on the competitiveness of the city commercial banks so as to solve the problem of sample selection. Furthermore, this paper uses primary data through the first-hand investigation of the relevant government agency and the commercial banks themselves, making the research more empirical and the conclusions more reasonable, robust and reliable.(3) Establishing a multi-layered, stereoscopic evaluation system of commercial banks'competitiveness. Firstly, this paper establishes a multi-layered evaluation system which includes the three main factors of commercial banks'competitiveness: resources, capability and environment. Hence, it solves the problems of current evaluation systems which either focus on the financial performance of commercial banks or merely study the operation principles of liquidity, safety and profitability rendering the evaluation incomplete. Secondly, this paper draws on new value factors, (market structure and capital cost), into its evaluation index which reflect operating efficiencies of commercial banks. This compensates for the typical shortcoming of conventional research which emphasizes statement value, historical information and profit and neglects market value and capital. Thirdly, a variety of methods have been used appropriately in this paper. It adopts factor analysis, panel data model analysis, EVA analysis and contingent claims analysis; combining these methods to evaluate commercial banks'performance, market structure, value creation potential, risk management and capital management. It also uses the method of Grey correlative degree analysis to comprehensively evaluate Liaoning commercial banks' competitiveness in order to make the evaluation more empirical and reliable.
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