Banking Reform and Efficiency in China: 1995-2008

Employing the one-step stochastic frontier analysis (SFA) approach, this paper examines bank efficiency in China, paying special attention to the ownership, selection effect and dynamic effects of governance changes on bank performance. Bank efficiency has improved over the data period 1995-2008. The estimated average cost and profit efficiencies are 74% and 63% respectively. Joint Stock Commercial Banks (JSCBs) and City Commercial Banks (CCBs) outperform State-owned Commercial Banks (SOCBs). The results suggest a strong selection effect for foreign investors. Foreign ownership participation has a negative effect on profit efficiency in the long-term while initial public offerings (IPOs) improve bank profitability in the short-term. The research findings have important implications on future bank reforms in China in the aftermath of the current financial crisis.SFA, Efficiency, Banking, China

Airport Development and Regional Economic Growth in China

Air transport has experienced phenomenal growth in China over the last 30 years, but studies on China’s airport development are few. This paper aims to fill in this literature gap by focusing on the determinants of airport development in the Chinese regions using the most up-to-day and comprehensive data on China’s airports and their related economic and geographical variables. The empirical results based on an augmented production function indicate that airport development is positively related with economic growth, industrial structure, population density, and openness, but negatively related with ground transportation. The growth of airport transportation in the eastern region is slower than in the inland areas, implying a more significant substitution effect of air transport on ground transport in the less densely populated areas, irrespective of economic activities. The results have useful policy implications as any regional transportation development plan has to simultaneously consider the competitive and supplementary effects of both air and land transports in a specific location.Airport Development, Regional Economic Growth, China

The effects of governance changes on bank efficiency in China: A stochastic distance function approach

China has accelerated and deepened bank reform since it joined the WTO in 2001. Employing a stochastic distance function, this paper investigates the technical efficiency of banks and examines the static, selection and dynamic effects of governance changes on bank efficiency in China for the period 1995-2005. Our results show that bank efficiency has been improved and state-owned banks still perform poorly except for a noticeable improvement from 2003. Strong selection effects are found from both the foreign acquisition and going-public reform strategies. Foreign acquisition may benefit bank efficiency in the long run, but going-public appears to have just some short run effects. One obvious policy implication is that foreign competition is beneficial to China 's on-going bank reform, and going-public is just a means to allow effective foreign competition.Distance function, Efficiency, Banking, China

Foreign Direct Investment and Regional Inequality in China

China?s economic miracle over the past three decades has been featured with its open-door policy, especially the absorption of foreign capital. One downside effect of economic reform has been the ever rising interregional inequality. As FDI is highly unevenly distributed across regions, many scholars and policymakers have blamed their inflows as one of the main factors driving the Chinese regions apart. If this logic were true, then controlling the scale of FDI could be a solution to reduce regional inequality. However, it is difficult to reconcile the positive effect of FDI on economic growth with its potential ?negative? effect on regional inequality. This is a controversial and provocative issue in the economic development literature. Using the largest panel dataset covering all the Chinese regions over the entire period 1979-2003 and employing an augmented Cobb-Douglas production function, this paper proves that FDI has been an important factor responsible for regional growth differences in China. However, it suggests that FDI cannot be blamed for causing regional inequality; it is the uneven distribution of FDI instead of FDI itself that has caused regional growth differences. The key policy issue is that FDI should be guided towards the inland areas with preferential policies in order to improve the spatial allocation of investments as a means to reduce regional inequality.foreign direct investment, regional inequality, China

Impact of the US Credit Crunch and Housing Market Crisis on China

There are many similarities between the US, the UK and the Chinese housing markets, including the movements of interest rates and house prices. Some Chinese banks, especially the Bank of China, have been exposed to the US mortgage securitization market. These have triggered a serious concern as to whether the US credit crunch and housing market crisis may be replicated in China. This paper shows that there are some significant differences between China and the West, especially the US and the UK. Compared with the US and other western industrialized economies, the booming house market in China has been supported by fast economic growth, rapid urbanization and high domestic savings. In addition, Chinese banks are less exposed to mortgage defaults than their western counterparts because house buyers are mainly urban and high income residents who are required to have high down payments. These Sino-Western economic and social differences suggest that the US credit crunch and housing market crisis may have some negative impacts on Chinese commercial banks and the overall economy but are unlikely to cause a similar financial and housing crisis in China despite the current struggling Chinese stock markets and a slowdown of house price growth.US credit crunch, housing market crisis, China

Shanghai Stock Exchange Composite Index and Bank Stock Prices in China: A Causality Analysis

This paper analyzes empirically the relationship between the Shanghai Stock Exchange (SSE) Composite Index and the indexes of 10 Chinese listed banks to test whether the listing of these banks had played a role in leading the Chinese stock market. Using daily prices from 1 June 2006 to 15 November 2007, we applied the Granger causality test and found that a uni-directional causality relationship existed either way between most bank stock prices and the market index while the bi-directional relationship only identified among five of the ten banks. This research finding is in part consistent with previous studies showing that stock markets in great China region are integrated and are strongly influenced by the psychological factors of investors. In the following co-integration test, both AEG and Johansen’s methods concluded a long-run stable equilibrium relationship between majority of the banking stock prices and the SSE Composite Index.Shanghai Stock Exchange, VAR, Johansen co-integration tests, Granger causality tests

Foreign direct investment and regional inequality in China

One downside effect of rapid economic growth in China has been the ever rising inter-regional inequality. Foreign direct investment (FDI) has been blamed for driving the Chinese regions apart. It is difficult to reconcile the positive effect of FDI on economic growth with its potential ‘negative’ effect on regional inequality. Using the largest panel dataset for the Chinese regions over 1979-2003 and employing an augmented Cobb-Douglas production function, this paper proves that FDI has been an important factor of economic growth in China. It also suggests that it is the uneven distribution of FDI instead of FDI itself that has caused regional growth differences.Foreign direct investment, regional inequality, China

Ownership Reform, Foreign Competition, and Efficiency of Chinese Commercial Banks: A Non-Parametric Approach

Since China joined the WTO in 2001, the pressure for bank reforms has mounted as China ought to fully open up its financial market to foreign competition by 2006. Efficiency is key for domestic banks to survive in a liberalised environment, but it appears that the last hope for raising bank efficiency is through ownership reform. Whether ownership reform and foreign competition can solve China?s banking problem remains to be tested. This paper aims to answer this question through using a non-parametric approach to analyse the efficiency changes of 15 large commercial banks during 1998-2005. We find that ownership reform and foreign competition have forced the Chinese commercial banks to improve performance, as their total factor productivity rose by 5.6 per cent per annum. This coincides with the recent bullish Chinese stock markets led by three listed state-owned commercial banks. Despite such encouraging results, we remain cautious about the future of the Chinese banks, as the good results may have been artificially created with massive government support and the fundamentals of the banks may be still weak.data envelopment analysis (DEA), efficiency, banking, China

Housing development and urbanisation in China

Rapid urbanisation and rising income have led to a strong demand for housing in urban China. However, housing development has been distorted by speculation, income inequality and lack of government support for low-cost houses. In recent years, house prices become so high, making the vast majority of urban residents unable to afford, whereas rich families are able to buy many and leave them vacant. Income inequality is a major cause for rising house prices, which, in turn, exaggerates income inequality further. This vicious relationship has caused social tension between the rich and the poor and unhappiness among the middle- and low-income groups. This paper discusses the factors responsible for the housing bubble in China and recommends appropriate policies to resolve this problem

The Determinants Of Corporate Social Responsibility Disclosure: Evidence From China

Employing the content analysis approach, this paper aims to identify the determinants of corporate social responsibility disclosure (CSRD) in China using the annual reports of over 800 A-share listed firms on the Shanghai Stock Exchange. We find that CSRD is positively associated with firm size, media exposure, share ownership concentration and institutional shareholding. Moreover, firms in High-Profile environmentally sensitive industries tend to disclose more corporate social responsibility (CSR) information than those in Low-Profile environmentally sensitive industries, supporting the view that political cost is the primary constraint for Chinese listed firms. Our results provide important insights for academics interested in the CSR issue in emerging economies, for enterprise managers interested in exploiting the annual reports as a strategy to legitimize their corporate social conduct, and for government regulators committed to improving CSR activities and information disclosure