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Economic Change and Restructuring

, Volume 45, Issue 4, pp 337–358 | Cite as

Market structure, performance, and efficiency of the Chinese banking sector

  • Qichang Ye
  • Zongling Xu
  • Dan Fang
Article

Abstract

The Chinese banking system is evolving from a mono-bank system to one involving many banks of varied types and functions and there is a heated debate on whether competition can help to improve the performance and efficiency of the banks. This paper tests five hypotheses that have been proposed in the literature on the relationship between market structure, profitability, and efficiency using data envelopment analysis with a panel data of the 14 largest nationwide banks in China during the period of 1998–2007. The empirical results show clearly that neither the structure-conduct performance nor the efficient structure hypotheses hold in China. The strongest support is for the relative market power hypothesis that suggests that banks with differentiated services and products are those with higher market shares, and that they are able exercise their market power to obtain higher profits by setting higher prices. Technical efficiency has a significant effect upon bank profitability and the policy makers should promote further competition in the Chinese banking sector.

Keywords

China Banking Market structure Efficiency 

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Shantou University Business SchoolShantou UniversityShantouPeople’s Republic of China
  2. 2.Hong Kong Hunter Development Company LimitedHong KongPeople’s Republic of China

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