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Bank competition in China: a blessing or a curse for financial system?

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  • Chi-Wei Su
  • Meng Qin
  • Syed Kumail Abbas Rizvi
  • Muhammad Umar

Abstract

Owing to a lack of consensus on whether the competition among the banks brings stability, or vulnerability in the financial system, this research is aimed towards investigating the Chinese banking industry. For this purpose, we have used the Granger and sub-sample time varying rolling window, in order to estimate the dynamic causality of the competition in the banking sector, and the systematic risk factors that follow, in China. The purpose of exploring the two-way causality is to make the banking system more stable, and also to provide new and first-hand evidence that can aid in reducing the occurrence of systematic risks. The results show that the competition in the banking sector has a negative impact on the systematic risk. This means that the increased competition in the banking sector will eventually lead to a reduction in the systematic risk. The results of the study are supported by the competition-stability hypothesis. Also, following the results, the policy direction we propose is that the banks may aim at reducing their systematic risks. They may achieve this by increasing their market share and accelerating transformation, in order to improve their competitiveness, which will help the banking system in China to achieve a sustainable form of stability. Moreover, our findings will also be helpful for the Chinese Ministry of Commerce (MOFCOM), which has been, over the years, in the process of developing an assessment framework for bank mergers, while also trying to minimize the tradeoff between competition and financial stability.

Suggested Citation

  • Chi-Wei Su & Meng Qin & Syed Kumail Abbas Rizvi & Muhammad Umar, 2021. "Bank competition in China: a blessing or a curse for financial system?," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 1244-1264, January.
    • Handle: RePEc:taf:reroxx:v:34:y:2021:i:1:p:1244-1264
    DOI: 10.1080/1331677X.2020.1820361
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    Citations

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    Cited by:

    1. Javier Sánchez García & Salvador Cruz Rambaud, 2024. "The network econometrics of financial concentration," Review of Managerial Science, Springer, vol. 18(7), pages 2007-2045, July.
    2. Liu, Xiaohua & Zhao, Qiuhan, 2024. "Banking competition, credit financing and the efficiency of corporate technology innovation," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Sadiq, Muhammad & Paramaiah, Ch & joseph, Robinson & Dong, Ziguang & Nawaz, Muhammad Atif & Shukurullaevich, Nizomjon Khajimuratov, 2024. "Role of fintech, green finance, and natural resource rents in sustainable climate change in China. Mediating role of environmental regulations and government interventions in the pre-post COVID eras," Resources Policy, Elsevier, vol. 88(C).
    4. Lisha, Liu & Mousa, Saeed & Arnone, Gioia & Muda, Iskandar & Huerta-Soto, Rosario & Shiming, Zhai, 2023. "Natural resources, green innovation, fintech, and sustainability: A fresh insight from BRICS," Resources Policy, Elsevier, vol. 80(C).

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