Study On Economies Of Scale And Economies Of Scope In China’s Banking Industry

With the advancement of economic globalization and financial liberalization, the business environment and operation mode of international bank system has greatly changed and will continue to change. As the backbone of the financial system, the reform and development of banking has directly influence on finance and on the pace of the socialist modernization. In recent years, as more and more foreign banks had been quartered into China, banking business was widely expanded, the financial institutions, the asset size and the number of loans index was increased year after year. The Increasingly intense competitive situation and diversified market demand greatly challenged the international competitive ability of the commercial banks of China. Therefore, it is high time to improve the efficiency and international competitiveness of the commercial banks of China immediately.Scale economies of the banking reflects relationship between the scale of enterprises and the cost-effectiveness, and the economy of scope reflects the cost benefit changes of a bank after a variety of business have been offered. For a long period, the way of using scale economy and scope economy to measure a bank’s efficiency is in a dominant position. Thus, the study of scale economy and scope economy of Commercial Banks has multiple significances in increase its business efficiency, preventing financial risks, and promote the sustainable development of it.The current situation of Chinese banking industry, scales of four state-owned banks, continue to streamline the organization and redundancy to improve the profitability of banks. On the other hand, our joint-stock banks and other banks keep opening new outlets to expand market share and enhance its own power. In business, the shares of investment banking or fund management companies, insurance companies, financial leasing, trust companies and other financial services pace constantly forward. Present banking scale expands and the business scope gradually unloosening. So this paper empirically assumes that the state-owned commercial banks of our country have no scale economic phenomenon and share-holding commercial banks do, but at the same time there all have the scope of economic.Scale economies and scope economies are theoretical and empirical problems, which require theoretical analyses and the corresponding empirical tests. This text therefore started from general principle of the scale economics, considering the empirical result and the peculiar situation China’s banking faces, then explain analysis of the current international set off wave of bank mergers and acquisitions, also analyze the cost function of the banking scale economy and the scope economy, and how to measure the banking scale economy and the scope economy. At last, this paper estimates efficiency of the major banks in China in 2006-2010,this text make use of GTCF and the econometrics to research the economy of scale and scope.The empirical result shows that the banking economy of scale do not exist in the current size of the state-owned but exist in joint-stock commercial banks, and the modulus in China’s banking industry has enhanced. Such conclusion accord with long-term cost curve u-shaped theory.As in the scope economy, the state-owned banks and share-holding commercial banks both existed similar scope economy except the abnormal situation. The scope economy of state-owned commercial Banks is smaller than it of share-holding commercial banks in loan, while on the deposit, the scope economy of state-owned commercial banks is more obvious. But in the point of investment perspective, the state-owned banks exist unconspicuous scope economy overall while the share-holding commercial banks do not.