The Impact of Foreign Bank Penetration on the Domestic Banking Sector: New Evidence from China

Abstract

This study proposes a foreign bank branch networks index (FBBNI) to capture bank-level exposure to competition from foreign banks in terms of geographical proximity. The index takes account of the rapidly expanding branch networks of both foreign and domestic banks in China. Based on data from a sample of three types of Chinese commercial banks from 2002 to 2011, we find that exposure to the branch networks of foreign banks is associated with improved profitability at domestic banks, higher efficiency, and increased non-interest income, consistent with knowledge transfer from foreign banks. These relationships are most pronounced for jointstock domestic banks (JCBs) presumably because their ownership structure fosters knowledge transfer.

Post-crisis regulatory reforms and bank performance: lessons from Asia

“…Privatization policies and the opening to foreign bank entry are instead essential in promoting innovation in banking services and allowing spill-over effects across countries. This result is consistent with the findings of Luo et al (2015) and is in line with the more recent analyses of the banking reforms in China reviewed in Section 3. More generally it supports that large theoretical literature that emphasizes the innovation-inducing effects of private ownership and foreign bank entry.…”

“…Foreign banks from more developed banking systems are expected to have superior management skills, screening and production technologies, efficiency and profitability. This can benefit host countries via technological improvements, increased competition and improved stability (Althammer and Haselman, 2011;Luo et al, 2015). On the other hand foreign banks might suffer from cost and informational diseconomies due to operating from a distance and from their different modes of entry (Naaborg and Lensink, 2008;Claeys and Heinz, 2014); or they might cherry pick the best customers thus damaging the profitability of local institutions 2 .…”

Evaluating the performance of Chinese commercial banks: A comparative analysis of different types of banks

“…However, the global financial crisis harmed foreign banks' reputations in China and their profitability has deteriorated in the last few years (the Economist, 2014). Despite this, foreign banks are expected to play a more important role in the future, by attracting foreign capital, intensifying competition in the Chinese banking sector, introducing advanced management techniques and expertise, and promoting efficiency improvements and corporate governance in Chinese banks (Luo et al, 2015).…”

The Influence Mechanism and Effect of Foreign Capital Entering to the Changes of China's Industrial Sectors Price

“…In recent years, many scholars also attributed the phenomenon of "price manipulation" and "mutually negotiated price" frequently reported in the media to the control of foreign companies in the industry [4][5][6][7][8][9][10]. However, there are also some scholars who held the opposite view that the expansion of market share of the industry occupied by foreign-invested enterprises should not be simply equivalent to foreign monopoly [11][12][13]. Although there is a higher share of foreign-invested enterprises in the market of a few industries, none of the foreign-invested enterprises has established a monopoly in their industries and raised prices of their products.…”