Abstract
This paper analyzes productivity with a directional distance function model by investigating convexity and non-convexity in the Chinese banking sector. Two primary findings are summarized. First, there is a distinct change in productivity between large versus small banks and public versus nationwide joint-stock banks; the economies of scale and public orientation of the Chinese economy affect the performance of nationwide joint-stock banks. Second, the number of banks that experience local versus global technological change is small, indicating that productivity changes are driven by national rather than regional dynamics, although minor regional dynamics exist in the data.
Highlights
The People’s Bank of China (PBC), the Central Bank of China, was established in 1948 and functioned as a central bank as well as a commercial bank; in other words, it can be characterized as a monobank (García-Herrero et al, 2006)
It is verified that the convex production technology (CPT) and nonconvex production technology (NCPT) models display a similar visual evolution
The CPT model highlights the changes in the series, presenting more decreases or increases than the nonconvex model
Summary
The People’s Bank of China (PBC), the Central Bank of China, was established in 1948 and functioned as a central bank as well as a commercial bank; in other words, it can be characterized as a monobank (García-Herrero et al, 2006). All of the aforementioned banks were separated from the PBC (except for the CCB from the Ministry of Finance) and operated in the agricultural area, foreign exchange area, fixed-asset investment area, and industrial and commercial areas, respectively. They were not entirely profit oriented and had to conduct policy-related business while being hampered by government intervention. In 1994, the government founded three policy banks to take over the policy-related business from the four SBs to transform the latter into commercial banks, which are characterized by market-functioning and profitable institutions (García-Herrero et al, 2009)
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