The Competition and Equilibrium Condition among the China Banks

Xinyue Chu,Sitong Chen

doi:10.4236/ojbm.2021.95134

Abstract

Since the beginning of the financial crisis, no matter the domestic or the international environment of the bank industry has become more complex and the competition also becomes fiercer. After a series of financial system reforms, China’s banking industry has already actively participated in the fierce market competition. This paper examines the competitiveness and equilibrium of China’s commercial Banks from 2008 to 2017 by using the Panzar-Rosse model. At the end of this essay, some suggestions are proposed, so as to ensure that in the furious market competitiveness, the banking industry of China can develop healthily and placidly.

Highlights

Before the 2008 subprime crisis, the public believed that no financial crisis would greatly affect large banks, not to mention it will go bust
The sum of all input factors and the price elasticity of income in PR model were named as H value, and it is mainly used to indicate the degree of market competition
This paper uses PR model to test the competition degree of Chinese banking industry and finds that Chinese commercial Banks stay in a long-term equilibrium and monopolistic competition state

Summary

Introduction

Before the 2008 subprime crisis, the public believed that no financial crisis would greatly affect large banks, not to mention it will go bust. Confidence in the market has undermined, and about 400 banks failed during the subprime crisis period. Citibank of the United States, in 2008, its tier 1 capital was 118.8 billion dollars, ranking third in the world, and its tier 1 capital adequacy ratio was 11.9%. While it lost $53.1 billion that year, it raised $104.3 billion in capital, far more than it lost. Joint-stock Banks, on the contrary, have been developed and expanded, and participated in the market competition actively. Empirical research shows that commercial Banks of China stays in a long-term equilibrium, which means it can develop smoothly and healthily in the fierce competition

Literature Review

Theoretical Framework-Methodology

Empirical Analysis

Competition Test

Equilibrium Test

Conclusion