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Banking Reform and Bank Performance in China

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Chinese Banking Reform

Part of the book series: The Nottingham China Policy Institute Series ((NCP))

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Abstract

One main objective of banking reform in China is to improve bank performance so that the banking sector could allocate capital more efficiently. While three decades of reform give rise to a number of important research questions, this chapter addresses the following three issues: Has the banking reform been motivated by the agency theory and the budget constraint theory? Has the banking sector become more efficient? What impact has the privatization strategy had on bank efficiency? This chapter starts with an introduction of the efficiency concept and a brief literature review on bank efficiency in Sect. 3.1. After outlining research methodology in Sect. 3.2, this chapter empirically tests for whether banking reform strategies have been motivated by the agency theory and/or the budgetary constraint theory in Sect. 3.3. The privatization of state banks has been the focus of banking reform to alleviate the agency problem and to harden budget constraints aiming at improving bank efficiency. Partial privatization has led to significant changes in banking, and this chapter examines how concrete privatization strategies affect bank cost and profit efficiency in the short run and in the long run in Sect. 3.4. Section 3.5 concludes.

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Notes

  1. 1.

    Berger and Humphrey (1997) provide a valuable survey on financial institutions efficiency studies.

  2. 2.

    SOCB ownership reform started in 2003 and was partially completed in 2005. The main reason for the sample period up to 2005 (instead of 2003) is to investigate the impact of WTO on the banking sector.

  3. 3.

    The 11 SOCBs include ABC, BOC, CCBC, ICBC, and seven banks ultimately owned by one of the state banks or state council, namely Kincheng Banking Corporation, Kwangtung Provincial Bank (The), National Commercial Bank Ltd., Sin Hua Bank Limited, Yien Yieh Commercial Bank Ltd., China & South Sea Bank Ltd., and (The) China State Bank Ltd.

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Authors and Affiliations

  1. Middlesex University, London, UK

    Chunxia Jiang

  2. University of Nottingham, Nottingham, UK

    Shujie Yao

  3. Chongqing University, Chongqing, China

    Shujie Yao

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  1. Chunxia Jiang
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Correspondence to Chunxia Jiang .

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Jiang, C., Yao, S. (2017). Banking Reform and Bank Performance in China. In: Chinese Banking Reform. The Nottingham China Policy Institute Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-63925-3_3

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  • DOI: https://doi.org/10.1007/978-3-319-63925-3_3

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  • Online ISBN: 978-3-319-63925-3

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