Banking Sector In China Research Articles

Continuous improvement competence, employee creativity, and new service development performance: A frontline employee perspective

As an important source of competitive advantage, new service development (NSD) is widely used by service firms for new developments. Since creative ideas are crucial to NSD and service firms commonly involve frontline employees in the process of NSD, we argue that frontline employees’ creativity can enhance NSD performance. In addition, since the implementation of continuous improvement practices necessitates frontline employees to make changes and solve problems consistently, we argue that frontline employees’ operational improvement competence (OIC) (i.e., skills in implementing continuous improvement practices) can enhance their creativity. Furthermore, we draw on the contingency theory and argue that the relationships between OIC, employee creativity, and NSD performance are contingent on six relevant contextual factors. Based on the data collected from 146 frontline teams in the banking sector of China, we test our theory-driven model and the posited hypotheses. Our findings serve to advance the knowledge of multiple disciplines by showing the linkages among their core concepts (i.e., OIC, employee creativity, and NSD performance) and also ascertain the factors (i.e., OIC and employee creativity) that enhance NSD performance and the circumstances under which these factors are particularly effective.

Evaluating the effectiveness of China's financial reform—The efficiency of China's domestic banks

This paper estimates the cost and profit efficiency of the Chinese domestic banking sector to evaluate the effectiveness of China's financial reforms since 1978. We use the performance of foreign banks as the benchmark because foreign banks, subject to intensive worldwide competition, are perceived as possessing superior governing structure and organization, more advanced technologies and better trained labor force. On the other hand, competition in China's banking sector is mainly in the form of nonprice measures, thus putting foreign banks at a disadvantage. We find domestic banks have gradually caught up the cost advantage of foreign banks in a manner consistent with the increased competitive pressure. On the other hand, the profit advantage of domestic banks over foreign banks is widening because of institutional arrangements, cultural and social networks as well as the profit scope and revenue scale economy.

Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control

​The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.

Operational improvement competence and service recovery performance: The moderating effects of role stress and job resources

Many scholars and service practitioners perceive service recovery as an important means to retain customer after service failures, but in practice many service recovery efforts are unsuccessful. Studies on service recovery suggest that recovery activities are the core process of service operations and frontline teams play an important role in performing such activities. So we propose operational improvement competence (OIC) as a new approach that is highly relevant to process improvement and frontline teams for improving service recovery performance. We also draw on role stress theory and conservation of resources theory to argue that frontline teams׳ peculiar characteristic (i.e., role stress) and two types of important resources (i.e., organization inducement and psychological resilience) moderate the effectiveness of OIC in improving service recovery performance. Based on data collected from 146 frontline teams in the banking sector in China, we test our posited hypotheses. Our study advances knowledge on service operations by establishing a link between OIC and service recovery performance. Our findings also contribute to the literature by showing that the process improvement approach can enhance service recovery performance, and ascertaining the intricacies among OIC, the peculiar characteristic pertinent to frontline teams, and service recovery in service firms.

Table of Contents: The Anatomy of China's Banking Sector and Regulation (Wolters Kluwer 2014)

The Anatomy of China’s Banking Sector and Regulation by Professor Shen Wei is an encyclopaedic survey, packed with information, of the stunning changes that have taken place over the past decade in China’s banking and financial sector. The Chinese Government has revamped its regulatory apparatus, including the creation of a new agency, the China Banking Regulatory Commission, to assume the bank supervisory activity previously undertaken by the central bank, adopted international capital requirements set out in the Basel Accords, modernised its commercial and corporate law, advanced the opening of its markets to foreign financial firms, and expanded cross-border lending and access to the renminbi, on a path to eventual convertibility of its currency. Yet, these fundamental policy transformations are little publicised or understood by non-specialists. Professor Shen Wei has provided an invaluable service by illuminating to an English-speaking audience this truly remarkable transformation. - Foreword by Professor Roberta Romano

Financial Performance, Ratio Analysis and Evaluation of Agricultural Bank of China

This paper formulates and investigates the financial performance, ratio analysis of Agricultural Bank of China banking sector for the period 2010-2014. The study concluded that financial performance of any firm or bank can be calculated with the help of financial ratios. Financial ratio plays an important role to check the condition of any bank or company either is in profit or loss.

Determinants of Foreign Entry Mode Choice in China's Banking Sector: Institutions and Resources

Determinants of Foreign Entry Mode Choice in China's Banking Sector: Institutions and Resources

State Ownership, Cross-Border Acquisition, and Risk-Taking: Evidence from China's Banking Industry

Does state ownership breed risk-taking behavior in commercial banks? This paper examines this issue using a panel of Chinese banks. We find that state-ownership is in general associated with higher risks. In addition, we find that banks controlled by the central government have the highest credit risk, while those owned by local governments have the lowest capital adequacy ratio and liquidity ratio. By compiling a complete list of cross-border acquisitions in China's banking sector, we investigate the impact of foreign acquisition on state-owned banks' risk-taking using differences-in-differences and matching estimators. We find that foreign acquisition has a reducing effect on state-owned banks' risk-taking and this effect is particularly significant for banks that are controlled by central or local government. We also find that this risk-reducing effect depends on the percentage of foreign ownership, the local business involvement of the foreign investors, and the number of foreign members on the banks' boards of directors.

The influence of the market power of Chinese commercial banks on efficiency and stability

Purpose – The purpose of this paper is to estimate the cost and profit efficiency (PE) of Chinese commercial banks in the last ten years and investigate how market power affects bank efficiency and stability. Design/methodology/approach – The paper builds a stochastic frontier analysis model to evaluate the cost and PE of commercial banks. The paper then uses a Lerner index and Z-index to represent market power and stability, respectively. In addition, the paper empirically analyzes the relationship between market power and bank efficiency, stability in the last ten years. Findings – The results show that the efficiency of banks on the Chinese mainland increased during the study period, but is still lower than that of banks in Hong Kong; moreover, the efficiency of four state-owned commercial banks is lower than that of medium and small banks. Market power has a negative relationship with efficiency while its relationship with stability varies among Chinese banks. Research limitations/implications – The results imply that the promotion of financial liberalization and banking reform to introduce an appropriate competition mechanism has had a positive effect on the efficiency and stability of Chinese commercial banks. Practical implications – Thus, the paper will contribute to deepen reform and opening up the banking sector in China. Social implications – The healthy development of banking can enhance the ability of banks to withstand financial risks, to promote the harmonious development of society. Originality/value – The paper estimates the cost and PE of Chinese commercial banks using SFA model and investigates how market power affects bank efficiency and stability. The study design has a certain novelty, where Lerner index and Z index are used, respectively, to measure market power and stability and management efficiency of commercial banks is investigated from two aspects – PE and cost efficiency – by the translog cost function, instead of Douglas production function. In addition, the paper tries to put some of Hong Kong banks included in the study sample, and has a certain reference value.

Role of off-balance sheet operations on bank scale economies: Evidence from China's banking sector

This paper investigates product-specific scale economies of banks with respect to off-balance sheet operations. The cost benefits from the non-separability of outputs available to banks that imply the role of OBS activities on bank scale economies are also examined. We further test whether the role of OBS operations on bank scale economies changes across heterogeneous banks. Results suggest that banks can realize more scale economies by increasing OBS operations and that scale economies can be reaped particularly for non-state-owned banks. Therefore, diversification and deregulation should be included in the policy agenda for the subsequent marketization reform of China's banking sector.

Competition and profit hiding: evidence from banks in China

Purpose – The purpose of this paper is to investigate the quality of financial reporting by banks in China, and the profit hiding behavior of banks in particular. Design/methodology/approach – Reported profit is compared with actual profit using multiple regression analysis. The identification strategy allows the authors to quantify the degree of profit hiding in banking institutions. Findings – Profit hiding exists in the whole banking sector in China regardless of the ownership structure of individual banks, though joint-stock banks have higher degree of profit hiding. Banks that are more financially constrained hide more profit than those less constrained ones. The competition in the banking industry competition impacts the extent of profit hiding, with higher competition being associated with lower degree of profit hiding. Research limitations/implications – This paper documents the prevailing behavior of profit hiding in Chinese banks. It raises issues regarding the conventional methods of measuring bank efficiencies using accounting information reported by banking institutions. Originality/value – This paper empirically examines the profit hiding behavior of banks in a transitional country.

Investment of Foreign Financial Institutions in China Banking Sector: A Survival Model Analysis

This article applies Cox's proportional-hazard survival model to analyze foreign financial institutions' strategic equity investment decision in Chinese banks and obtain the optimal probability hazard threshold as a criterion. The results confirm that the objectives of foreign strategic investments are to increase the profitability and market values of the target Chinese banks. In general, high earning and asset quality foreign financial institutions and high asset quality Chinese banks are both highly motivated to engage in strategic investment transaction.

Interest-Rate Derivatives and Bank Lending in China

With interest rate liberalization, China’s commercial banks expose to more interest rate risks and use interest-rate derivatives to manage these risks. This paper develops a theoretical model, capturing the main characteristics of the banking sector in China, to analyze the effect of interest-rate derivatives on bank lending. In our model, banks choose lending activity in a way analogous to Cournot competition commonly described in industrial organization. We find the positive effect of interest-rate derivatives position on the total loan volumes in the credit market under the condition that the von Neumann-Morgenstern utility function of bank using derivatives displays either constant or decreasing absolute risk aversion and the derivatives market is unbiased. In the empirical section, we use Vector Autoregression (VAR) model with China’s monthly data over the period from Jan 2007 to Jun 2014. Based on techniques commonly used in the VAR literature, the main results suggest that the interest-rate derivatives market transaction has bi-directional Granger causality with bank loan growth, and derivatives transaction has a significantly and persistently positive effect on loan growth. Moreover, we find that derivatives transaction accounts for 20 percent of variations in bank loan growth in the long run.

The Impact of Non-interest Income on the Efficiency of China’s Banking Sector

This paper investigates the impact of non-interest income on bank efficiency based on data from China banking sector during the period 1996~2010 by establishing DEA model and Panel-Tobit model. The efficiency levels of China banking sector are estimated by employing traditional DEA model, which only considers loans and investments as the output variables, and alternative DEA model, which considers non-interest income as an additional output variable. The results of parametric and non-parametric univariate tests on the efficiency scores show that there are no significant differences in mean and median efficiency calculated from traditional and alternative DEA models. In other words, the inclusion of non-interest income in output vector does not have a statistically significant influence on the efficiency of China banking sector. Additionally, we normalize each bank’s efficiency score under these two DEA models in order to avoid potential estimation bias due to the fact that the alternative DEA model has one more output variable than the traditional DEA model, and the findings suggest that only a small proportion of banks present an increase in efficiency level with inclusion of non-interest income, while no significant changes are seen on most banks’ efficiency levels. Also, further analysis by establishing Panel-Tobit regression model finds that the relationship between the share of noninterest income to the net operating revenue and the bank efficiency score is not significant, which suggests that the bank efficiency doesn’t increase significantly with the increasing non-interest income share. Furthermore, the bank efficiency also does not present a significant increase with the time. Overall, our findings suggest that the inclusion of non-interest income does not significantly increase the efficiency level of China banking sector.

Paternalistic Regulation in China's Banking Sector

Paternalistic Regulation in China's Banking Sector

Nash Equilibria on Soft Information Control Games--Based on Banking Industry in China

In the competition of banking sector in China, to maximize the amount of soft information control is an important goal. In an n-dimensional Euclidean space, there exists Nash equilibrium for two different banks in the competition of soft information control. Keeping the same competitive strategy is the best response to each other's actions of the two banks. Further analysis is based on the incomplete information dynamic game between various branches of the same bank. The Nash equilibrium solution for the first mover is to design strategy based on market information, while the followers’ optimal strategy is to imitate the first mover’s policy, whatever knowledge that they may obtain.

Exploring the Relationship between Human Resource Management Practices and Organizational Commitment: Empirical Evidence from the Banking Sector in China

The purpose of this paper is to measure the impact of human resource management practices individually and as a system on organizational commitment. Data were collected from 304 respondents from banking sector of China. A questionnaire survey for this purpose was conducted in different cities of China. Correlations and multiple regression statistics analysis were used to explore the relationship between the variables involved in the study. The findings of the study provide support for the variables (selection, training, performance appraisal, promotion, performance based rewards, information sharing, job security and human resource management system) and are confirmed by the results of the previous studies. The findings of the current study support the notion that the HR practices relates to organizational commitment, individually and as a system as well. These findings provide important avenues for the banking sector of China and for the debate regarding convergence of the human resource management practices regionally as well as internationally.

Regulatory capture in China's banking sector

This article critically reviews the extent of regulatory capture in China's banking sector. China's banking regulation has been captured by various levels of government, as well as by the regulated banks (both Chinese and foreign). An analysis of the relationship between the principal regulator, namely the Chinese Banking Regulatory Commission, its affiliates, the central government (the Government) and local governments provides an understanding of the delicate networks that connect the principal regulator to the economic and social policies and ambitions of various levels of governments, and which result in the politicization of banking regulation in China. The author also points out that government ownership of Chinese banks, and the role of those banks in implementing fiscal policy, together with a regulatory intention to encourage foreign banks with a view to leveraging on their expertise in order to develop the Chinese banking sector, have all given rise to regulatory capture by regulated banks.

The Anglo-Saxon paradox: corporate governance best-practices and the reform deficit in China's banking sector

Corporate governance is now a key concern in China's banking sector. Its importance is related to the important policy questions of how to foster economic growth without increasing inflation in an environment where monetary guidance does not function in a conventional manner and there exist few constraints on bank lending. Under such an environment top-down best practice models offer considerable appeal, but their implementation in China's banking sector suffers from a reform deficit. In this context, this study argues that innovative reforms that draw on existing institutions and expertise such as the reform of the China Postal and Savings Bank and the relaxation of restrictions on foreign banks in the rural sector indicate a unique and policy-driven response to this conundrum. Their advantage is that they provide the state with a ready-made platform to influence economic activity in the rural economy.

Beyond state-owned banks: Evidence from Shanghai bank customers

In light of a reformed and liberalized banking sector in China, this article sets out to examine the role of socio-demographic factors and customers’ banking experiences and priorities in customers’ selection of banks. As state-owned banks have long dominated the banking industry, the article also investigates the receptiveness of the Shanghai Chinese towards newer commercial banks, such as the joint-stock banks, and the penetration of foreign banks into China's banking industry. Comparing customers who use state-owned banks only and those who patronize joint-stock banks, it is found that education, income, age, occupation sector and location of hometown affects customers of state-owned banks only. Further, it is also found that state-owned banks remain dominant despite the opening up of the banking sector, and perception towards state-owned banks remains favourable.