Measure Of Competition Of China’s Commercial Banks And The Analysis Of Factors That Influence Competition

Since the reform and opening policy, China’s banking industry has conducted a series of reforms and stepped towards the path of marketization and liberalization. The data show that the banking industry is developing well. However, the banking market environment is becoming more complex. From domestic aspect, the state-owned banks are still occupying the dominate position, and other banks and financial institutions are actively participate in market competition. The banking concentration degree has declined. From International aspects, foreign banks are playing more and more important roles with the expanding of openness. However, there are different academic viewpoints about their effects on the host country. Therefore, it is of great significance to analyze the competition situation of China’s banking industry and factors that affect the competition. It can lead China’s banking industry towards a healthy and orderly development.The second chapter is literature review following the introduction part in chapter one. In this chapter, we mainly introduce the related research about the measurement methods of banking competition degree and influencing factors of banking competition degree. At present, there are mainly structural methods and non-structural methods to calculate the banking competition degree. The structural methods include the SCP hypothesis and the ESH hypothesis. While the non-structural methods mainly include the Iwata model, Bresnahan model and Panzar-Rosse model. Through the comparative analysis, this paper adopts the popular Panzar-Rosse model to analysis.The third chapter summarizes the development of China’s banking industry. The author first reviews the development process of China’s banking industry since the reform and opening policy, and then make comparative analysis of different types of banks institutions from three aspects including the scale, market forces, the profit level. What’s more, the author analyses the development of foreign banks in China.After the retrospect of the development of China’s banking industry, this paper establishes a revised PR model based on China’s national conditions. We use panel data of19banks in China from1998to2012, measuring the degree of competition in the banking industry of China. First, we measure the overall competition degree of the commercial banks in China from the static and dynamic angles. We draw the conclusion that China’s banking industry is in a monopolistic competition state in recent15years, and the competition is more obvious. Second, we make compare between large commercial banks and small and medium-sized commercial banks, finding that the competition in small and medium-sized commercial banks is more fierce than that in the large commercial banks, the cost of capital plays a more important role to small and medium commercial banks’revenue. Last, we analyze the competitiveness of China’s commercial banks in three stages according to the degree of our financial openness to foreign banks, finding that the competition degree is increasing and the range between stages is wider.Since the opening up of China’s banking industry is related to the policies of our financial reform, it is necessary to do further study to research the internal and external factors that affect the competition of our bank industry. We first calculate the competition degree of China’s banking industry each year since1998.On this basis, we do empirical study to explore the factors. The empirical results suggest that the competition in banking industry is increasing due to dropping concentration in the past15years. Moreover, the paper finds the evidence for a inverse U-shape relationship between foreign banks entry and the competition degree between1998with2012. At first, foreign banks entering will bring competitive pressure to China’s commercial banks. However, when the entering level increases to a significant extent, the competition degree will become weaken. Besides, the competition pressure from non-bank financial institutions is not significant, which means the financial disintermediation effect is not obvious now.According to the above analysis, this paper puts forward policy suggestions to promote the banking industry towards the direction of healthy development.