On China's State-owned Commercial Bank Scale Non-economic Causes And System Improvement

Since Marshall, the English economist put forward the concept of "Scale Economy" in late 1890's, entrepreneurs began to focus on the problem about how to realize the most optimum scale of production and operation, how to make full use of scale economy to enhance working performance of the whole enterprise. To improve various industries' competitive power, many government authorities also devote to the research on how to get well balanced between scale profit and proper competition.Finance and banking industry is the core of national economy, while banks dominate in Chinese financial system. In quite a long time domestic banks have been showing the character of monopoly and low efficiency. In the face of fierce contest from foreign banks after China's entering WTO, searching for the countermeasures about this issue become an important and impressive task, which aroused comprehensive discussion among scholars and entrepreneurs. Therefore, I think the topic has both theoretical and practical significance.During the economic system transforming period, lots of non state-owned enterprises were established and the market competition became fierce. Some inefficient SOEs enjoying long-term governmental protection encountered the threat of being eliminated. The breakdown of SOEs meant expensive reform cost of workers' laid-off, and endangering the stability of the whole society. In order to reduce the negative impact of social reform, the government kept the existing of inefficient SOEs by affording financial support. Strict finance mechanism is against the direction of social reform, while effective taxation mechanism is not available. In comparison, the bank system is effective instrument to gather dispersive capital and allocate it according to the government's intention. Therefore, state-owned banks acted as the substitute for finance and taxation.With the support of the government, state-owned banks began to broaden their scale all over the country. However, due to lack of profit stimulation, their performance is very bad. SOEs' loss produced large amount of non-performing loan, which accumulated great financial risks. Non economy of scale of SOBs prevailed.Heavy centralized market structure and bad market performance challenged the traditional SCP mode.It's not helpful to solve the problem by simply setting SOBs apart or introducing many rivals, moreover, this solution can't bring specific scale profit of bank industry. Therefore, I believe that the current scale level and market structure should be kept and market efficiency should be improved. On one hand, domestic banks' competitive idea should be improved, on the other hand substitute financial market should be built up as soon as possible. In order to exert pressure on SOBs, some measures should be taken: rate restriction should be relaxed so that small and medium sized banks can set proper loan rate to compensate risk; the property right reform should be taken to perfect governance structure; the capital market should be developed to enrich people's alternative financial assets; supervision system should be strengthened to avoid financial risk due to competition.I dwell on the questions as follows: Whether or not there exists non-economy of scale; Why is the monopolistic banking market lack of efficiency; How to gain the scale profit of commercial banks.The article includes four parts: I .Summarize of concerning theories. II .Demonstration of interrelationship of market structure and performance of domestic banks. III.Reason analysis in terms of system. IV.The way to cultivate workable competition in bank market.There are all kinds of research methods such as demonstration, historical analysis, case compare, induce and deduce used in the article.