Banking Market Structure and Competition in China: An Empirical Study

In this study, the Panzar-Rosse model is used to analyze the banking competition in China. By using panel data for more than 10 banks, we find that the banking market in China is a monopolistic competitive one. The banking market structures are evolving with more competition elements from 2000 to 2010. Interestingly, the banking profitability and market competition move in the same direction, no matter big or small banks. The market competition also has impacts on the banking risk. We believe that the banking competition could help build more stable and healthy financial systems at the current stage. We will discuss the implications of our findings as well.