The Influence Of Foreign Banks To Enter The Chinese Banking Industry

The domestic banking reform has been established for a long time. After joining the WTO in the end of2001, Chinese financial market opens to foreign banks gradually. The impact of foreign banks into China is always a hot issue in academic and practical areas. In the past literature, the research exploring foreign banks entry most focused on whether the efficiency of domestic banks will increase or foreign strategic investments are valuable to Chinese banking system. This thesis is different from the past research. It is studied to explore the impact of foreign banks into China by three different perspectives, including banking industry, banking service, and financial market investors.Academically, through the literature review in theoretical and empirical research, this paper analyzed the reasons of transnational banks overseas expansion, the impact of foreign banks entry into the host country, the spillover effects, and the recent studies regarding the Chinese banking. Practically, it is studied to introduce the domestic banking reform and the development of foreign banks in China. In addition, the influence of joining the WTO is completely discussed. In the observation of foreign banks in China, it is found that the Chinese financial market is prosperous in the recent and future years. After complete reviews in academic and practical situation, this paper uses three topics to explore the impact of foreign banks in China respectively.The first topic is researched by the overall banking industry in the macro economy. It is examined that whether the productivity spillover effect exists in Chinese banking industry. Based on the production theory of economics, this study adopted the spillover effect model to measure the results of input and output elements in Chinese banking industry. The study found that the entry of foreign banks does not significantly result in productivity spillover effects. There is no finding while fully opening to foreign banks after2006. Observing the influence of various elements in the resources allocation, local banks are less efficient than foreign banks in labor element input and are more efficient in capital and investment elements. However, it is also found that the local banks’ technological progress is in the negative growth.The second topic is studied from the perspective of banking service. Using the method of case study, this paper gives a comprehensive and systematic introduction of domestic private banking development. Since2007, with the mature experience of foreign private banks, the China’s wealth market is booming quickly. It is found that the local private banks have advantages of localization and government policies, while the foreign ones have advantages of highly globalization and customization abilities. Besides, this study found current problems of domestic private banks, such as the shortage of professional private bankers, high homogenization of products and services, weak risk management systems, as well as low global assets allocation. Furthermore, it is recommended to accelerate Chinese banks internationalization, to modernize financial products and services, to focus on market segments, and to cooperate with international financial institutions. Finally, taking China Merchants Bank as an example, this study explores successful private banking services through its business and marketing strategies.The third topic is to observe investors’ reaction to share acquisition announcements in Chinese stock markets. Using the event study methodology, this research investigates announcement effects by three steps. At first, the empirical result shows that people have significant positive responses to foreign banks share acquisition announcements and the news seems to be leaked before the announced date. In addition, according to the different types of domestic banks, the study found that the events of state-owned banks have higher performance than others. Moreover, the size of share acquisition has no positive relationship with the announcement effects. Specially, the state-owned banks may play an important role in Chinese banking reforms. Investors will consider foreign ownership in Chinese banks as the prospects of the domestic banking reform.In conclusion, combining quantitative and qualitative research methods, this thesis investigates the impact of foreign banks in China from three different perspectives. After analyzing and arranging the main findings, the thesis provides some important implications and suggestions for government regulators, bank managers, and financial market investors.