An Analysis of the Market Competition Characteristics of Chinese Banking Industry

The reform path of the gradual deregulation in China's banking sector differs from that in the western countries.Does this difference in the deregulation process necessarily lead to a difference between the market competition among banks in China and competition among banks in the western countries? If there are differences,what could have caused them? Since deregulation changed the market competition structure,whether there are differences between the competitions among banks with different ownership property? In other words,is the competition among the state-owned banks different from the competition among non-state-owned banks? What could have led to these differences and what behavioral gap are hidden behind these different market competitions due to different ownership structure? The answer to these questions helps to better understand the essence of the reform in China's banking industry and also contributes to the policy-making. Employing the globally-popular Panzar-Rosse model(PR Model) in measuring the competition of the banking industry,this paper applies the panel data of 100 Chinese banks to study the competition characteristics of China's banking industry.The empirical study presents a monopolistic competition in China's banking industry with the four big state-owned banks dominating.The competition in China's banking industry is positively correlated with the prosperity degree,while the gradual deregulation significantly strengthens competition.From 1994 to 2000,market competition of the industry showed little increase.From 1997 to 1999,the market competition even dropped.After the accession to WTO,from 2001 to 2007,market competition increased remarkably.Despite the fact that the world financial crisis in 2008 caused a slowdown in China's economic growth,China Banking Regulatory Commission(CBRC) approved cross-regional business operating in the same year,which fundamentally changed the existing market structure and maintained the ever-increasing market competition in the industry,ensuring the maximization of the stimulus effect of financial resources on the real economy. In order to see whether there are differences between the competitions of banks with different ownership property,the paper examined the four big state-owned banks and non-state banks with the PR model.The results show that the four big state-owned banks are demonstrating clear features of perfect competition despite the fact that whole banking sector is in a state of monopolistic competition.This may be attributed to the guiding logic of state utility function in the China's financial institution evolution,which dictates the maximization of national rent interests and economic growth and at the same times aims to usher in competition into a monopoly to improve resource distribution efficiency.Thus the policy to monopolize under the name of the state and to compete as a market player is made.The competition among non-state owned banks in China are monopolistic competition.But this monopolistic competition differs from that among the whole banking industry.The former refers to competition between the dominating local financial institutions commonly seen in east China with a highly developed private economy and foreign-funded businesses and other non-state banks,while the latter refers to the competition between the state-owned banks and non-state owned banks.Generally,the competition between non-states owned banks are less intense compared to that among state-owned banks.We see a full competition in economic developed regions among non-state owned banks but that in underdeveloped regions are fall less intense.An industry structure with non-state owned banks specializing and competing in off balance sheet market other comprehensive financial product market with the four big state-owned banks is gradually formed.