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Impact of Foreign Bank Entry on the Performance of Chinese Banks

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  • Chung‐Hua Shen
  • Chin‐Hwa Lu
  • Meng‐Wen Wu

Abstract

This study investigates how foreign bank/investor penetrations influence local bank performance in China. At the country level, foreign bank penetration is proxied by MacroFP, measured by the percentage of banks with foreign strategic investors (FSI) among total banks. At the bank level, foreign bank penetration is proxied by MicroFP, measured by the percentage shareholding of FSI in a bank. When foreign bank penetration is proxied by MacroFP, it is found to improve the profitability of local banks but not to reduce costs. Next, when foreign bank penetration is proxied by MicroFP, it is found to affect neither profitability nor costs. In sum, the present study demonstrates that the opening‐up policy is correct from a macro perspective. However, for banks that have introduced FSI, determining the reasons for improvements in performance being inhibited is more important than releasing more shares to foreign investors.

Suggested Citation

  • Chung‐Hua Shen & Chin‐Hwa Lu & Meng‐Wen Wu, 2009. "Impact of Foreign Bank Entry on the Performance of Chinese Banks," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(3), pages 102-121, May.
    • Handle: RePEc:bla:chinae:v:17:y:2009:i:3:p:102-121
    DOI: 10.1111/j.1749-124X.2009.01153.x
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    References listed on IDEAS

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    Cited by:

    1. Cheng, Maoyong & Zhao, Hong & Zhou, Mingming, 2020. "Foreign Strategic Investors, State Ownership, and Non-interest Activities: Evidence from China," Journal of Financial Stability, Elsevier, vol. 50(C).
    2. Süer, Ömür & Levent, Haluk & Şen, Süleyman, 2016. "Foreign entry and the Turkish banking system in 2000s," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 420-435.
    3. Sichong Chen & Muhammad Imran Nazir & Shujahat Haider Hashmi & Ruqia Shaikh, 2019. "Bank Competition, Foreign Bank Entry, and Risk-Taking Behavior: Cross Country Evidence," JRFM, MDPI, vol. 12(3), pages 1-26, June.
    4. Wu, Meng-Wen & Shen, Chung-Hua & Lu, Chin-Hwa, 2015. "Do more foreign strategic investors and more directors improve the earnings smoothing? The case of China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 3-16.
    5. Cheng, Maoyong & Geng, Hongyan & Zhang, Junrui, 2016. "Chinese commercial banks: Benefits from foreign strategic investors?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 147-172.
    6. Xu, Ying, 2011. "Towards a more accurate measure of foreign bank entry and its impact on domestic banking performance: The case of China," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 886-901, April.
    7. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
    8. Chin‐Hwa Lu & Chung‐Hua Shen & Meng‐Wen Wu & Zhi‐Wen Wu, 2010. "Cooperation Satisfaction and Performance: Empirical Evidence from Chinese Banks and Their Foreign Strategic Investors," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(6), pages 90-108, November.
    9. Yuhua Li & Konari Uchida & Tongsheng Xu & Zhaoyang Wu, 2016. "The Impact of Foreign Entry on Chinese Banks," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 74-86, February.
    10. Fang, Hao & Lee, Jen-Sin & Chung, Chien-Ping & Lee, Yen-Hsien & Wang, Wen-Hao, 2020. "Effect of CEO power and board strength on bank performance in China," Journal of Asian Economics, Elsevier, vol. 69(C).

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