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  • P-ISSN 2586-2995
  • E-ISSN 2586-4130
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KDI Journal of Economic Policy. Vol. 38, No. 1, February 2016, pp. 53-70

https://doi.org/10.23895/kdijep.2016.38.1.53

× KDI Open Access is a program of fully open access journals to facilitate the widest possible dissemination of high-quality research. All research articles published in KDI JEP are immediately, permanently and freely available online for everyone to read, download and share in terms of the Creative Commons Attribution 4.0 International License.

How Competitive and Stable is the Commercial Banking Industry in China after Bank Reforms?

Kang H. Park

Author & Article History

Manuscript received 30 September 2015; revision received 14 October 2015; accepted 11 February 2016.

Abstract

This paper examines market concentration and its effect on competition in the Chinese commercial banking market. This study also investigates how changes in competition have affected the financial stability of Chinese commercial banks. To test the competitive conditions, we obtained the H statistic of the Panzar-Rosse model from a revenue function equation. The degree of financial stability is estimated by the Z-score formula. The Chinese banking industry has become an increasingly less concentrated market with an increased number of banks. Along with a decreased market concentration, competition in the Chinese banking industry has improved moderately. However, its market structure is still far from a competitive market. An individual bank’s ability to earn higher markup or charge a higher net interest margin contributes to its financial soundness, although a higher degree of market concentration may have negative effect on the financial stability of the entire banking system.

Keywords

Market concentration, Bank competition, PanzarRosse model, Bank stability, Chinese banks

JEL Code

G21, L10

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