The Impact Of Banking Market Structure To Monetary Policy In China

Banking is the pillar of the financial sector, and the financial industry is the lifeblood of the national economy. Therefore, China’s banking industry as the dominant factor in the financial system, has played a pivotal role in the development of the national economy. What’s more, it becomes the focus in the social and economic development process.Since the beginning of reform and opening up in China, the reform of China’s banking industry has followed step by step forward. And its position has also been increased in the economic development. Meanwhile, the People’s Bank of China has began to exercise the real functions of the central bank. Therefore, monetary policy has also played a crucial role in regulating China’s economic development.In the the whole process from formulation to implementation, monetary policy is influenced by lots of factors. As a result, different market entities in each link will lead to different effects of the monetary policy. That banks dominate China’s financial industry determines that the conduction of the monetary policy is mainly based on the credit channel. Thus, different banking market structures will produce different effects on monetary policy. So it is necessary to study how the banking market structure plays a role in the effects of monetary policy transmission. Based on the above, this paper attempts to study and analyze how China’s banking market structure affects monetary policy transmission from theoretical and empirical perspectives.The research methods of this article is mainly norms and empirical combination, take an example by the empirical model from scholars at home and abroad, and investigate the influence of China’s banking industry competition level to the monetary policy transmission. Use H statistic Based on Panzar- Rosse model as banking competition degree, accumulated by establishing a VAR model, impulse response function on behalf of the monetary policy impact. Combining with the theory, combines quantitative and qualitative data combined with chart, and as examples, combine theory with practice.In the first part of this paper,relevant basic theories are introduced in detail. Firstly, this part makes a simple introduction to the origin and development of industrial organization theory. Secondly, it discusses the monetary channel and the credit channel of monetary policy transmission. Finally, it elaborates the mechanism of banking market structure that has an impact on monetary policy.In the second part of this paper, the development of the banking market structure since the founding of our country is combed. This part focuses on the influence of the series of banking reform to China’s economy since the reform and opening-up.From the founding of the PRC in 1949 to now, Chinese banking market structure can be mainly divided into three stages, which has been gradually transited from complete monopoly stage to monopoly competition stage. This part further analyses the effect of the evolution of Chinese banking market structure.In the third part, the model and analysis steps of the empirical analysis are introduced. Firstly,the Panzar-Rosse model is introduced,using which the banking market structure can be measured. The H statistic measuring the degree of competition is analyzed using the data in 2003-2012. The H statistic is increasingly measured from 2003 to 2012,which means the competition in this stage of China’s banking market structure is gradually enhanced.The accumulative impulse response function via VAR model represents the proxy variables under the impact of monetary policy. And then I make a regression analysis between H statistic representing the degree of competition calculated before and proxy variable representing monetary policy. It is concluded that Chinese banking market competition has a significant positive impact on monetary policy transmission.This means that as the degree of the market competition in China’s banking industry gradually increased more significantly enhances the conduction effect of the monetary policy in our country.In this paper, the fourth part makes a discussion combined with the reality in China on the basis of the above empirical results, and puts forward three rationalization suggestions including lowering the commercial banks market access barriers, improving the financial supervision legal system and making a market-oriented monetary policy transition.Thus we can continue to deepen the reform of the banking industry in our country, and increase the degree of competition of banking market in our country. Therefore, we can put forward new ideas for China’s financial reform in response to national policy called for the establishment of Inclusive Financial System that demands the increase of the competition degree in banking industry.