Has minority foreign investment in China�s banks improved their cost efficiency?

Abstract

Since 2001, foreign investors have been permitted to acquire minority ownership stakes in China�s banks. This paper assesses whether there is any evidence of a cost efficiency payoff in those banks that have taken on foreign investment. Data Envelopment Analysis is first used to generate measures of cost efficiency for China�s banks over the period 2001-2006. A second stage regression is then performed to determine whether foreign investment has an impact on cost efficiency. The results indicate a positive impact, although one that is only marginally significant. Policy implications are discussed.