PROPUESTA A SER APLICADO EN FUTUROS POZOS

4.3.1. Review of current empirical study on measurement of banking performance in China

Despite the substantial difficulty in obtaining adequate and reliable data on Chinese banking2, a growing body of empirical research has shed light on various aspects of the effectiveness of this reform programme in recent years (e.g., Li, et al., 2001; Chen, et. al., 2005; Fu and Heffernan, 2007, 2009; Lin and Zhang, 2008). The literature to date has focused on the financial performance of the banking groups as a whole (Li, et al., 2001) and how the performance relates to the asset structure and ownership of individual banking groups as well as the structure of the Chinese banking market (Chen, et. al., 2005; Fu and Heffernan, 2007, 2009; Lin and Zhang, 2008). What has generally emerged from these studies is that, compared with banks of other ownership types, such as domestic joint-stock, foreign-domestic joint stock, domestic private and foreign ownership, the SOCBs are heavily burdened with problems of bad loans, low efficiency and poor financial performance. Despite the huge effort put into the reform

2 Such difficulties include very limited disclosure of financial information due to lack of regulatory requirement, inconsistent accounting standards across banking groups and misreporting of information even in official data sources (see a detailed discussion in Li, et al., 2001).

122 programme for nearly three decades, there is so far limited improvement in the relative inefficiency or underperformance of the SOCBs. It might be argued that if the Chinese SOCBs operated in a genuinely competitive market environment, they would perhaps have gone out of business a few years ago. It then becomes even more puzzling that the recent floatation of three of the four Chinese SOCBs received unprecedented levels of enthusiasm from both Chinese domestic and international investors. Various explanations might be offered that are based on the irrationality or rationality hypothesis of investors‘ behaviour, but it is also likely that the true nature and state of the competitiveness of the SOCBs are still not properly measured and understood. A sound assessment of the competitiveness and performance of the Chinese SOCBs in the broad context of the special characteristics and structure of the Chinese economy compounded by the forces of globalisation remains a challenge for analysts and policymakers. A comprehensive assessment of such issues is beyond the remit of the current study.

Insofar as specific research on the Chinese banking market is concerned, the empirical literature to date is rather limited and dominated by measurement of banking efficiency (see e.g. Huang, 1998; Chen, et. al., 2005; Fu and Heffernan, 2007), although systematic studies of bank conduct and performance have also been conducted recently (e.g. Fu and Heffernan, 2008; Lin and Zhang, 2008). In measuring banking efficiency in China, researchers have employed both non-parametric DEA (e.g. Chen, et al., 2005) and parametric SFA (e.g. Fu and Heffernan, 2007) to estimate

123 the efficiencies of individual banks, including SOCBs and the joint-stock banks, relative to their most efficient peers. In these studies, different concepts of efficiency such as cost efficiency, allocative efficiency, technical efficiency and cost-based x-efficiency have been adopted. The extant studies also differ in their selection of banks and the time periods for investigation. It is little wonder that the empirical results for banking efficiency in the Chinese banks also differ. For example, in their study of the big four SOCBS and ten joint-stock banks over the period 1985-2002, Fu and Heffernan (2007) estimated the cost-based x-efficiencies using the SFA. For the fourteen banks as a whole, the average x-efficiency for the whole period was between 0.41 and 0.52. The joint-stock banks were found to be significantly more x-efficient than the SOCBs. Chen et al. (2004) studied banking efficiency for forty-three Chinese banks (including the four SOCBs) during the period 1993-2000 using DEA. For the whole sample, the cost efficiency varied between 0.42 and 0.58; the allocative efficiency between 0.53 and 0.69; and the technical efficiency between 0.69 and 0.85 over the study period. Although their cost efficiency estimates were broadly in line with those of Fu and Heffernan, their findings concerning the technical efficiency were rather surprising: the SOCBs were significantly more efficient than the joint-stock banks – a result that is the opposite to the previous findings on the technical efficiency of Chinese banks by Wei and Wang (2000).

124 4.3.2. Review of research on relationship between market structure and

performance in China

The study by Fu and Heffernan (2009) provided the first attempt to empirically test the alternative hypotheses of structure, conduct and performance in the Chinese banking market. Adopting the same framework as in Berger (1995) and Goldberg and Rai (1996), and using data for the fourteen banks as mentioned above, Fu and Heffernan (2009) examined the Chinese banking market from 1985-2002. Their empirical results showed a declining trend in efficiency in the Chinese banking sector as measured by the cost-based x-efficiency index. They provided support to the RMP hypothesis during the first stage of the study period (1985-1992), but rather weak support to the ES hypothesis for the second stage (1993-2002). Moreover, they found no relationship between market concentration and bank efficiency. They also found that ―there were no dramatic change in market structure‖ (Fu and Heffernan, 2009, P50) though the JSCBs are relatively more X-efficient. They claimed the regulatory bodies should liberate interest rate and increase market entry to improve the competitive structure. Zou (2004) adopted the fixed effects models to examine the scale efficiency of China banking industry during period 1993-2003. He found that the efficiency of most banks had experienced a period of increase at first then a decrease afterwards during the study period from 1993 to 2003. He also noticed that there were distinct differences in the efficiency among the joint-stock commercial

125 banks. He concluded that total commercialisation does not always improve performance in efficiency.