An Empirical Study Of China's Banking Industry Structure And Economic Growth

Banking system takes an important part in not only in banking-oriented finance countries like Japan and Germany but also in market-oriented finance countries like America. And it weighs much more in developing countries. Each country has different banking structure at each stage of the economy, which effects on economic growth. When we take a look on banking concentration rate with banking structure evolution, it changes gradually. Some countries with high monopoly banking industry now introduce competition to greater extent, and others with high free competition just come into more acquisition. In this paper, firstly we summarize the existing literature; secondly we look back to see the evolvement of China's banking structure to make it clear about what it is and what kind of problems it has; then we aim to find the relationship between banking structure and economic growth. The article analyzes the data of China from 1989 to 2003, and makes an ADF test, co integration test and correlation analysis and Granger causality test. This paper points out that there is a very close relation between banking structure and economic growth, it concludes from the demonstration analysis that banking concentration rate is the Granger cause to economic growth in China, but economic growth is not the Granger cause to banking concentration rate. At last, it tries to find out a favorable banking structure based on the empirical analysis and demonstration analysis. A favorable banking structure should firstly match the economic structure so that it can meet the need of each individual and each firm. Secondly, it will fit the international economic environment in order to be able to compete with the big banks in the world especially after China's entry into WTO. Thirdly, it must change gradually with the economic development under the market operating law but not the government control. Whether banking sector should concentrate or not, and in what extent bank should be concentrated, depends on thedemand of market.