Study On The Impacts Of Foreign Banks Entry On The Competitive Behaviors Of Commercial Bank In China

As Chinese banking industry is opening up steadily, especially after the banking industry'scomplete opening-up at the end of2006, foreign banks are becoming increasingly involved inChinese market. The external competition environment has changed, as Chinese banks not onlyconfront with domestic counterparts' competition but also face the challenge from stronginternational companies. In this context, the research on the influence of the entering of foreignbanks on Chinese banks competitive behaviors not only attributes practically to theestablishment of regulatory policies that ensure the continuous development of Chinese bankingand the promotion of market competition, but also makes strategic sense to ensure foreign banks'positive effect on Chinese financial development and stability on the condition that nationalfinance safety is guaranteed.In this paper, we draw the following conclusions: First, China's banking industry is ofmonopolistic competition pattern between1996and2010, and the competition is more obvious.Further, the relationship between foreign banks entering and China's commercial bankscompetition shows U shape. It means that foreign banks entering will aggravate competition ofChina's commercial banks, and the scope of small and medium-sized commercial banks is higherthan large commercial banks. Only when the entering level becomes to a significant extent,competition degree will become weaken. Now China's banking industry is in primary phase offoreign banks entering, so the competition is on the rise. Second, the competition of loan marketis more intense than deposit market. The foreign banks entering aggravate the competition ofdeposit and loan market. After transitional period the competition is weaken, but it still moreintense than it was before china joined WTO. Third, the competition of large commercial banksis more intense than small and medium-sized commercial banks. Furthermore, the loan market oflarge commercial banks is close to perfect competition, and only loan business appears scaleeconomies. Finally, the impact of foreign banks entering on RMB transactions is unconspicuous,and the advantage of foreign banks is foreign exchange deposit business. Then, the entry offoreign banks in different ways has different effects on the competitive behavior of Chinesebanks loan business. When foreign banks enter with equity participation, it has the advantage in the screening of customer information. So it can choose good quality borrowers, and leave thepoor borrowers to Chinese banks. Therefore, Chinese banks choose product innovation ratherthan price change as the major competitive tool; when foreign banks enter with wholly-ownedmode, it tend to develop new customers, while Chinese banks pay more attention to themaintenance of old customers. Besides, the geographical change of foreign banks aggravatescredit competition of Chinese banks in the Midwest. The competitive pressures of foreign banksentering, increases the risk aversion of domestic banks whose management style is more prudentand capital is adequate, and makes credit supply to be conservative. Also, banks with lack ofcapital will be more aggressive in credit competitive behavior. In addition, in intermediarybusiness, the entering of foreign banks cause Chinese banks focus on price tool for marketregulation and promote the competitive strategy of the domestic banks to shift fromproduct-centric to customer-centric.