Bank ownership and efficiency in China: What will happen in the world’s largest nation?

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by f...

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Bibliographic Details
Published in:Journal of banking & finance 2009-01, Vol.33 (1), p.113-130
Main Authors: Berger, Allen N., Hasan, Iftekhar, Zhou, Mingming
Format: Article
Language:English
Subjects:
Banks
Business ownership
China
China Banks Efficiency Foreign ownership
Economic efficiency
Economic reform
Efficiency
Foreign ownership
Studies
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Summary:China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2007.05.016