Financial openness and bank performance: The case of China

Abstract

Financial openness is one part of economic globalization, which has been a defining trend in the world. In this study, the aim of our research is to investigate the impact of financial openness on the performance of Chinese commercial banks. The data of the first 5 big Chinese commercial banks have been analyzed for the period of 1997–2013. Two approaches have been taken: one is PCA, which helps to build the Financial Openness Index; the other is PLS to estimate the impact of financial openness on Chinese banks performance. Result shows that a slightly positive relationship between financial openness and commercial bank performance. Furthermore, increasing the lever of bank deposits and controlling the scale of commercial banks can also play an important role in increasing commercial bank performance.