Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process.

China's economy has been growing rapidly based on globalization of trade, but the country is only beginning to globalize its banking sector China's current banking reform includes partially privatizing three of its dominant Big Four state-owned banks and taking on minority foreign ownership of these institutions Other state-owned banks are also engaging in this practice Predicting the efficiency effects of these and other reforms is difficult because of little relevant background research evidence This paper helps to fill some of the gaps in the literature, analyzing the profit and cost efficiency of banks representing 95% of commercial banking assets in China over 1994-2003 with different majority and minority ownership structures The key findings are that the Big Four state-owned banks are by far the least efficient, and that minority foreign ownership of other banks is associated with significantly improved efficiency These and other findings suggest that minority foreign ownership of the Big Four and other reforms that allow foreign banks to play larger roles will likely improve the performance of the Chinese banking sector, with positive effects on economic growth

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1020583_code852818.pdf?abstractid=1020583&rulid=5230412&mirid=1

Bank Ownership and Efficiency in China: What will Happen in the World's Largest Nation?

This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks - China’s largest banks - have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.

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What Explains the Low Profitability of Chinese Banks

This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997–2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks – China’s largest banks – have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so-called Policy Banks), which are fully state-owned. Instead, more market-oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.

/pdf/what-explains-the-low-profitability-of-chinese-banks-gactiaa4v3.pdf

What explains the low profitability of Chinese banks

The aim of this study is to examine the bank-specific and macroeconomic determinants of the banks profitability in Turkey over the time period from 2002 to 2010. The bank profitability is measured by return on assets (ROA) and return on equity (ROE) as a function of bank-specific and macroeconomic determinants. Using a balanced panel data set, the results show that asset size and non-interest income have a positive and significant effect on bank profitability. However, size of credit portfolio and loans under follow-up have a negative and significant impact on bank profitability. With regard to macroeconomic variables, only the real interest rate affects the performance of banks positively. These results suggest that banks can improve their profitability through increasing bank size and non-interest income, decreasing credit/asset ratio. In addition, higher real interest rate can lead to higher bank profitability.

Bank Specific and Macroeconomic Determinants of Commercial Bank Profitability Empirical Evidence from Turkey

Employing the stochastic frontier approach, this paper investigates cost X-efficiency in China's banking sector over the period 1985-2002. The objective is to assess whether different ownership types and banking reforms affect X-efficiency. A two-stage regression model is estimated to identify the significant variables influencing X-efficiency. The results show that on average, banks are operating 50-60% below the X-efficiency frontier. The jointstock banks are found to be more X-efficient than the state-owned commercial banks, and it appears that X-efficiency was higher during the first phase of bank reform.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID903346_code617368.pdf?abstractid=903346&mirid=2

Cost X-Efficiency in China's Banking Sector

China's banking system has undergone gradual reform since 1978, with a view to improving efficiency and resource allocation. Recent reforms have focused on allowing banks to list some shares on domestic and foreign exchanges, greater foreign equity participation in Chinese banks, and the establishment of new rural financial institutions. To assess whether these objectives have been achieved, this study looks at how well different types of Chinese banks have performed between 1999 and 2006, and tests for the factors influencing performance. It also evaluates four measures of performance to identify which one, if any, is superior. The independent variables include the standard financial ratios, those which reflect more recent reforms (listing, bank type, the extent of foreign ownership) and macroeconomic variables. The results suggest economic value added and the net interest margin do better than the more conventional measures of profitability, namely ROAE and ROAA. Some macroeconomic variables and financial ratios are significant with the expected signs. Though the type of bank is influential, bank size is not. Neither the percentage of foreign ownership nor bank listings has a discernable effect.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1247713_code617368.pdf?abstractid=1247713&rulid=133326&mirid=4

The Determinants of Bank Performance in China

Resilience amidst a crisis is vital to survival in the turbulent contemporary business environment. Diversifying the supply chain has been proposed as an important means to build this capability. However, there is insufficient empirical evidence demonstrating the merits of supply chain diversification during a crisis. Sampling 1434 Chinese manufacturing firms amidst the COVID-19 crisis, our two-stage least squares (2SLS) regression analyses show that firms with a diversified supply base are associated with a larger supply stream (increased abnormal inventory) and increased profitability during the COVID-19 crisis, including both the disruption and recovery periods. In addition, firms with a diversified customer base are associated with a larger demand stream (reduced abnormal inventory) during the COVID-19 crisis (both disruption and recovery periods) but show increased profitability only during the recovery period. Our study contributes to the literature on supply chain risk, disruption, diversification, and inventory management. We also discuss the practical implications of supply chain structure design in building resilience.

The effects of supply chain diversification during the COVID-19 crisis: Evidence from Chinese manufacturers

This paper investigates the relationship between market structure and performance in China's banking system over the period 1985-2002. Using panel data and employing a random effects estimating procedure, both the market-power and efficient-structure hypotheses are tested. In addition, the model is extended to consider issues such as the impact of bank size/ownership effect and whether the big four banks enjoy a "quiet life". The results suggest the strategy of gradual reform affected the structure of China's banking market, but new policies should be directed at increasing the market share of the most efficient banks. No evidence was found to support the quiet life hypothesis, probably because strict interest rate controls prevented the state banks from earning monopoly profits. Thus the ongoing liberalization of interest rates should be accompanied by policies to reduce concentration.

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China: The Effects of Bank Reform on Structure and Performance

This study employs a recent national survey of over 1100 British financial firms to ascertain the determinants of financial innovation and their sales success using Logit and generalised Tobit models. We find the likelihood of financial innovation rises with the size of financial firms, employee education, greater expenditure on research and development, the availability of finance, and the extent to which firms cooperate with each other. R&D, cooperation, and appropriability are the main variables driving the success of financial innovation, measured by the percentage share of innovations sold. Firms in London/the south have a significantly greater tendency to innovate, though Scotland also does well. Stock broking, fund management and related activities are more innovative than firms in the financial intermediation and pension/insurance sectors.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1266125_code601636.pdf?abstractid=1266125&type=2

Maggie Fu

Papers

Cost X-Efficiency in China's Banking Sector

The Determinants of Bank Performance in China

The effects of supply chain diversification during the COVID-19 crisis: Evidence from Chinese manufacturers

China: The Effects of Bank Reform on Structure and Performance

Financial Innovation in the UK