Chinese State-owned Banks Research Articles

Research on the Impact of Digitalization on Bank Performance Based on BP Neural Network

With the promotion and development of digital finance, the degree of digitalization has an increasingly significant impact on the banking business, which cannot be ignored in the operation of commercial banks. Therefore, establishing a digitalization bank profitability system model is of great significance for the sustainable development of banks and digital finance. This article selects 6 Chinese state-owned banks from 57 listed banks in the A+H stock market as samples, constructs a digital indicator system and evaluation model for banks through the literature review method, and uses simulation training to explore the effectiveness of BP neural network in evaluating the impact of digitalization on bank profitability. The aim is to provide a reference for the evaluation of financial statement information of other banks and other factors affecting bank digitalization. The innovation of the article lies in the innovative use of the entropy weight coefficient of variation method to establish a digital evaluation system model, which utilizes the data itself to objectively establish an evaluation system, incorporate the established digital system into the black box model of the BP neural network model to study the impact of changes in digitalization on banking operations.

Chinese bank networks in Europe: FDI-oriented by legal and strategic design

ABSTRACT Chinese banks have been building an extensive network of branches and subsidiaries across the European Union, which they govern from their European headquarters in Luxembourg. This striking observation guides this paper’s research questions: Why do Chinese banks create such branch-cum-subsidiary structures across the EU, and why do they do it in Luxembourg? The paper dissects forensically these financial structures and mechanisms forged through the co-design of Luxembourg’s legal-business environment and Chinese banks’ internationalization strategies. We argue that Chinese banks facilitate Chinese FDI, and that this function determines the particular branch-cum-subsidiary structure of Chinese banks in the EU. It is a unique feature impossible to establish outside the EU. Chinese state-owned banks in Luxembourg are thus important, yet analytically widely neglected actors in the formation of global financial networks (GFNs). This research is particularly significant when considering the intensifying integration of the emerging Chinese market into global finance and, in particular, into the EU banking union. Empirical findings suggest that Chinese banks in Luxembourg use the specific branch-cum-subsidiary structures to (i) finance both their large Chinese and European corporate clients, which (ii) allows Chinese banks to circumvent specific regulatory and operational constraints in other EU member states, especially when (iii) serving Chinese corporations in their FDI to the EU. The internationalizing Chinese bank networks in the EU can thus be defined as FDI-oriented by legal and strategic design. This research highlights their constituent features and the resulting capabilities of GFNs that affect regional investment activities.

High-performance work systems in public service units: examining the social capital and ambidexterity as mediating process

PurposeThis study clarifies how intra-organizational social capital (IOSC) and unit-organizational ambidexterity (UOA), using resource-based view and dynamic capability theory, together support organizational value creation. While there is research in strategic human resource management (SHRM) exploring the role of resources and its uses, there remains limited understanding of how resources are linked and their effective utilization in the service sector. This study aims to examine the mediating process linking employee-experienced service-oriented high-performance work systems (SHPWS) experienced by employees and service performance by integrating IOSC and UOA.Design/methodology/approachThis study uses time lagged data from managers and employees of different branches of Chinese state-owned banks. To test the proposed hypotheses, path analysis was applied.FindingsThe path analysis results reveal that employee-experienced SHPWS is an important antecedent of service performance. Moreover, IOSC (as resources) and UOA (uses) strongly mediate the theorized relationship.Originality/valueThis study attempts to refine theory and practice with clearer, more insightful and coherent means to better understand and help unpack the ‘black box’ between SHPWS-performance relationships through a new linkage model.

Profit or Policy? Cross-Border Syndicated Lending by Chinese State-Owned Banks

Chinese banks, particularly the state-owned commercial banks, have significantly increased their presence in overseas syndicated loan markets over the past two decades. The Big Four are of great systemic importance as they are also the four largest banks globally by assets as in 2019. Previous evidence has heavily associated state ownership with bank inefficiency. Using borrower-time fixed effect to isolate demand-side factors, we show that foreign syndicated loans involving the Big Four have higher spreads than otherwise identical loans to the same borrowers during the same period, particularly in advanced economies. We find the opposite result in loans to Middle Eastern, Central Asian, and African Countries. Further analyses suggest that higher premia demanded by the Big Four are more likely to be explained by their increased profit sensitivity, with partial privatization and domestic banking market reform achieving success at least to some extent. Our evidence indicates that these megabanks could be becoming more efficient over time.

Chinese state-owned commercial banks in reform: inefficient and yet credible and functional?

After the initial public offerings of state-owned commercial banks (SOCBs) in 2005–2010, the transformation of the property structure blurred the conventional boundaries between public and private property in China while the state continued to play an important role in the regulation and operation of this ‘hybrid property’: the mixed public-private ownership structure adopted for previously wholly SOCBs. It is could be that the perceived lending bias against private enterprises was a rational decision made by SOCBs in China, partly due to the high transaction costs of risk evaluation and the lack of any formal channels to mitigate the credit risks of such loans. The hybrid nature of SOCBs property rights makes them a credible and convenient channel for the state to provide counter-cyclical lending to contain any exogenous (economic) shocks that might occur as well as long-term financial support for development purposes in the transitional economy and thus contribute to socio-economic and political stability in China. Instead of a stumbling block for economic reforms in China, as posited by the conventional institutional analysts, the ambiguous property rights of SOCBs and their practice of offering favourable loan conditions to state-owned enterprises could actually contribute to their profitability and thus the continuity of hybrid property banking systems and their credibility in China.

Should I stay or should I go? understanding employees’ decisions to leave after mergers in Hong Kong’s banking industry

Recently, Chinese firms are increasingly acquiring firms overseas. This is often followed by high levels of employee exit from the acquired firm, which can be problematic. To better understand this phenomenon, we use the unfolding model of voluntary turnover to examine why and how individual employees of Hong Kong-based banks make the decision to either stay or go after their bank is taken over by a Chinese bank. We obtain data from three major acquisitions of banks in Hong Kong by Chinese state-owned banks from 2004 to 2008. Our sample consists of 406 employees from the acquired banks as well as non-acquired banks. We find that employees that have left after being acquired are more likely to report experiencing a “shock” than are employees of non-merged banks and that this influences their decision to leave. We also find that in the merger context, male employees, front-line employees and officer-level employees have different leaving decision paths from their female, back-office, and non-officer-level counterparts respectively. No such differences are found in the non-merger context. In addition, we find that a retention bonus delays departure after the merger. These findings contribute to research and practice of managing employee turnover after cross-border acquisitions by Chinese firms.

Bankers’ remuneration and political incentives in Chinese state-owned commercial banks: regulation and practice

ABSTRACTIn the aftermath of the Global Financial Crisis (GFC), the regulatory tightening of bankers’ remuneration has become an essential part of the reform of banking regulation in global financial markets. With reference to these international principles and standards, China has also launched a regulation-guided reform to promote the modernisation of bankers’ remuneration. This article provides the first empirical analysis of the regulation and practice of bankers’ remuneration and incentives in China’s state-owned commercial banks (SOCBs). The empirical evidence shows that the regulation has not been effectively implemented. Instead, the traditional politicised and administrative approach, which prioritises political incentives over market-oriented remuneration, remains predominant.

Comparison of efficiency and technology across the banking systems of Vietnam, China and India

PurposeGiven some similarities in the banking industry and economic condition across Vietnam, China and India, the purpose of this paper is to estimate and compare the cost and revenue efficiency of banks across these three countries over the period 1995–2011.Design/methodology/approachThis study employs the meta-frontier of Battese et al. (2004) and O’Donnell et al. (2008) which envelops the three country-frontiers to measure the cost and revenue efficiency of banks in these three countries.FindingsThis study finds that Chinese banks adopt the most advanced cost-reducing and revenue-increasing technology when providing banking products to their customers, followed by Indian banks. Indian banks are as cost-efficient as Chinese banks, but more cost-efficient than Vietnamese banks. Indian banks are as revenue-efficient as Vietnamese banks, but less revenue-efficient than Chinese banks. Over the analysis period, banks in the three countries have employed the more advanced technology in reducing costs, and they have become more cost-efficient. Nonetheless, for revenue side, the improvement in revenue efficiency and adopted technology are observed only in Chinese banks. The main source of meta-cost and meta-revenue inefficiency of these banking systems stems from undertaking inferior technology rather than managerial ability. Results from comparison across bank types show that state-owned banks (SOBs) are more cost and revenue-efficient than privately owned banks, with Indian and Chinese SOBs being the most cost- and revenue-efficient, respectively.Practical implicationsTo improve meta-cost efficiency, Chinese and Indian banks would constitute a relevant benchmark for Vietnamese banks, while to improve meta-revenue efficiency, Chinese banks would be considered as a relevant benchmark for Vietnamese and Indian banks.Originality/valueThis is the first study which utilizes meta-frontier to compare cost and revenue efficiency and technology across banks in Vietnam, China and India.

Continuity and Pragmatism: How Chinese State-Owned Banks Adapted to Hong Kong's Free Market (1949-1978)

One of the puzzling features of China’s post-1978 economic reforms is how quickly its enterprises adapted to the new business environment. An insight into this puzzle is provided by Chinese state-owned banks in Hong Kong. From 1949-78 these state-run banks, led by the Bank of China (BOC), represented China’s primary financial interface with the outside world. What distinguished the management of these banks from their peers was their loyalty to communist values. Yet, despite Mao Zedong’s anti-imperialist anti-capitalist ideology, the BOC demonstrated extraordinary business pragmatism in its engagement with the international financial system. It also exemplified a high level of management continuity which enabled it to see beyond a volatile and often hostile political environment. The paper shows that the post-1978 retreat from ideology and its replacement with commercial incentives proved costly in terms of professional standards. A homogenisation of bank management also made it more difficult to recruit senior management whose loyalty to the Communist Party could be assumed. These findings highlight the importance of rule variation in explaining international differences in management behaviour. More generally the paper shows the long term importance of Hong Kong’s role as an internationalising force for China’s business and financial sectors.

Renminbi Internationalisation: Precedents and Implications

It is widely assumed that there are no close precedents against which to benchmark the internationalisation of the renminbi (RMB). This paper argues that this overlooks the PRC’s own recent economic history. This paper shows that efforts to internationalise the RMB in the 1970s offer important policy lessons for the current internationalisation policy. During the 1970s Chinese state-owned banks in Hong Kong played a central in maximising international trade receipts and offering non-deliverable RMB accounts. Capital controls and an astute monetary policy minimised the risk of undue swings in capital flows. Although China no longer faces foreign exchange scarcity, a comparison with the 1970s shows that China has yet to resolve the vulnerabilities in its’s financial institutions. As a consequence Hong Kong has retained its role in mitigating the risks of internationalisation and as a globalising force for China’s banking sector more generally.

Bank lending and bank relationships in China: guanxi or commercial?

PurposeChina as a main emerging and transition economy has since 2006 opened up its banking market to foreign competition. Thus far, the penetration of foreign banks has been only moderate with around 2 per cent market share of the total banking market, despite the widely held view that foreign banks operate at a higher level of efficiency and that Chinese state-owned banks (SOBs) operate at a lower level of efficiency. The purpose of this paper is to explore the relationship between bank ownership and the lending behaviour and relationship banking that stems from the Chinese tradition of “guanxi”.Design/methodology/approachBased on three bank types the authors construct a model of the choice of bank type and show how that model can be estimated using a multinomial logit. The authors assume that firms choose a bank type as a function of firm characteristics (Berger et al., 2008; Ongena and Sendeniz-Yüncü, 2011), deal terms (Machauer and Weber, 2000; Ziane, 2003), and industry classification (Uchida et al., 2008; Ongena and Sendeniz-Yüncü, 2011).FindingsThis paper finds the existence of a close banking relationship of a “guanxi” type between SOBs and state-owned enterprises (SOEs). This is shown up in the form of better deal terms for the SOE. In the case of foreign banks the authors find that a foreign bank-foreign owned enterprise relationship exists but this is based on risk quality and no advantages in deal terms, which suggest a more commercial-based relationship. The empirical findings are that transparent and high-quality firms are likely to engage with foreign banks, while state-owned firms are more likely to engage with SOBs.Originality/valueIn China, few studies have addressed the potentially important role of bank ownership on lending behaviour (e.g. Firth et al., 2008; Berger et al., 2009). The authors extend the analysis by distinguishing not only between foreign and domestic banks, but also between SOBs and other domestic banks. This research seeks to enhance the understanding of bank ownership, lending behaviour and relationship banking.

The High Profitability of Big Chinese State-Owned Banks and China’s Growth Model

A striking feature of China’s amazing growth in the last 35 years or so is the declining share of labor income as a share of the overall national income of China. This article makes a contribution to the ongoing discussion of how to explain this empirical finding by analyzing the sources of the high profitability of big Chinese state-owned banks. Using the methodology of an international peer group financial indicator analysis combined with a simple regression model it can be shown that the comparatively high profitability of Chinese banks depends on their ability to wield some monopoly power on both the product as well as the labor market. Other than stressed in the relevant financial literature the high profitability is not merely the result of an artificially high interest rate margin. The empirical findings indicate that it is above all the result of comparatively low staff expenses, which in turn explains why the share of labor income is declining.

Continuity and Pragmatism: How Chinese State-Owned Banks Adapted to Hong Kong’s Free Market (1949–1978)

ABSTRACTOne of the puzzling features of China’s post-1978 economic reforms is how quickly its enterprises adapted to the new business environment. An insight into this puzzle is provided by Chinese state-owned banks in Hong Kong. From 1949–78 these banks, led by the Bank of China, represented China’s primary financial interface with the outside world. What distinguished the management of these banks from their peers was their loyalty to communist values. Yet, despite Mao Zedong’s anti-imperialist anti-capitalist ideology, the Bank of China demonstrated extraordinary business pragmatism in its engagement with the international financial system. It also exemplified a high level of management continuity which enabled it to see beyond a volatile and often hostile political environment. The article shows that the post-1978 retreat from ideology and its replacement with commercial incentives proved costly in terms of professional standards. A homogenisation of bank management also made it more difficult to recruit senior management whose loyalty to the Communist Party could be assumed. These findings highlight the importance of rule variation in explaining international differences in management behaviour. More generally the article shows the long-term importance of Hong Kong’s role as an internationalising force for China’s business and financial sectors.

Risk-based decompositions of the meta profit efficiency of Taiwanese and Chinese banks

This study measures the profit efficiencies of Taiwanese and Chinese banks with the assumption that both types could operate under the metafrontier. To consider the risk consideration of banks, we include equity capital as a quasi-fixed input and develop the risk-based measures of the meta Nerlovian profit efficiency. We further decompose meta profit efficiency and gap into technology and allocative efficiencies and gaps. We use 34 Taiwanese banks and 70 Chinese banks in 2011 to empirically measure profit efficiency and its decompositions. Empirical results show that the Chinese state-owned banks perform the best in meta profit efficiency, followed by Chinese joint-equity banks and Taiwanese state-owned banks. These three types of banks are performing better than the other types of banks in Taiwan and China. We also find that Taiwanese private banks perform better in profit and technical efficiencies versus Chinese city banks.

An Empirical Research on the Ranking of Chinese State-owned Banks in Corporate Social Responsibility

Purpose - This paper aims to provide a ranking of the four Chinese state-owned banks: Industrial and Commercial Bank of China (ICBC), Bank of China (BC), China Construction Bank (CCB) and Agricultural Bank of China (ABC) based on corporate social responsibility by using an assessment model proposed by Zhu so as to test the model and drive the best CSR performance of these leading Chinese banks.Methodology - The paper ranks the four Chinese state-owned banks by using Zhu’s model (see Sect. Appendix), which covers not only the CSR practice of banks but also management system. Furthermore, our ranking is constructed by content analysis, assigning scores manually. To rank the four banks, we adopted four kinds of information resources: corporate annual report in 2013, CSR annual report in 2013, articles of company and website. Our ranking can be a useful instrument for bank’s self-assessment to find out the existing problems, identify their area to improve in CSR and set proper goal and guidelines to enhance their CSR behavior.Findings - The study finds that the four state-owned Chinese banks are ranked in CSR performance as follows: 1. Industrial and Commercial Bank of China, 2. Bank of China, 3. Construction Bank of China, and 4. Agricultural Bank of China. In general, the four banks can protect stakeholders’ interests and their policies conform to sustainable development and national macroeconomic policies. But improvement is needed for information disclosure, etc.Originality/value - The paper is of great theoretical and practical significance. One the one hand, we fill the gap of lacking empirical research on Chinese bank ranking based on CSR in literature. On the other hand, our research provides clues for a boarder range of banks' ranking based on CSR in the future. For further research, we will apply our model to evaluate all Chinese commercial banks based on CSR and report the ranking annually, providing stakeholders with information about CSR to help them to adjust their decision, and simultaneously providing banks with information about the status quo of their CSR performance and promoting their CSR management.

State ownership, bank loans, and corporate investment

We study the effect of bank loans on Chinese publicly listed firms' investment decisions based on the underinvestment and overinvestment theories of leverage. Evidence from China is of particular importance because China is the world's largest emerging and transitional economy. At first we show that there is a negative relationship between bank loan ratios and investment for Chinese publicly listed firms. And this negative relationship is much stronger for firms with low growth than firms with high growth. Secondly, we find that both short-term and long-term loan ratios are negatively correlated with investment. However, the higher the long-term loan ratios are, the weaker the negative relationship between long-term loan ratios and investment is. Thirdly, firm ownership only matters to the effect of short-term bank loans on investment in our sample. That is, the negative relationship between short-term loan ratios and investment is weaker for SOEs than for non-SOEs. Lastly, we show that the reform of China's banking system in 2003 has not strengthened the negative relationship between bank loans and investment. Our findings suggest that although Chinese state-owned banks are severely intervened by government policies, they still have a disciplining role on firms' investment, especially in firms with low growth.

Uneasy allies: China's evolving relations with Angola

By conventional accounts, following the so-called ‘Angola Model’, the Chinese government is heavily involved in the national reconstruction programme through various financial institutions as a means to ensure closer relations with Angola and thus access to oil. China's strategy is thus ostensibly to accumulate political capital through the provision of infrastructure, financed by oil-backed concessional loans extended by Chinese state-owned banks. This study briefly traces the history of China's relations with Angola before examining the various parallel structures involved in the two country's co-operation over infrastructure, loans and oil. It examines the so-called ‘Angola Model’ by looking at three key assumptions surrounding risk, access to oil and China's political access in Angola. The study also evaluates the nature of the so-called ‘strategic partnership’ for both Angola and China. Political posturing indicates that both China and Angola see each other as necessary strategic allies for the foreseeable future, but this may mask an uneasy marriage of convenience.

The Listing of Chinese State-Owned Banks and their Path to Banking and Ownership Reform

AbstractChina's leading state-owned banks have undergone radical transformation in recent years, with six of the country's top seven players listed in both Hong Kong and Shanghai. We first consider how the banks were reorganized for initial public offering, in terms of the removal of non-performing loans and the massive recapitalization of their balance sheets. Second, and more importantly, we consider whether they have been able to retain market share, further commercialize and enhance overall financial positions post-listing. Through in-depth case analysis of the six state-owned banks, we show that post-initial public offering they have significantly improved profitability, loan book size, loan book quality and capital reserve protection. However, we caution that the debilitating effects of the global credit crunch may slow or even arrest further progress across these dimensions in the near term. We conclude that China's leading banks have benefited materially from their transition, and have accordingly developed a range of competitive and co-operative strategies not only to sustain domestic market advantage but also to penetrate overseas markets.

Efficiency measurement and decomposition for the Chinese state-owned commercial banks at the provincial level

This study adopts a bank production function approach to the measurement of efficiency of the Chinese state-owned commercial banking groups at the provincial level from 1998 to 2003. Applying Data Envelopment Analysis and efficiency decomposition analysis, this paper for the first time presents detailed empirical evidence on the technical efficiencies of the Chinese state-owned commercial banks across both the provinces and banking groups. The empirical evidence has revealed limited effects of the banking reform programmes and highlighted the need to encourage spatial competition and corporate governance reform across Chinese provinces and to take differential strategies to further improve operational efficiency at the provincial branch level.

Performance appraisal for Chinese state-owned banking industry

AbstractPerformance appraisals, which are used to assist individual development and organisational planning, are considered an important part of effective human resource management. Studies of performance appraisal are invariably based on western theories, which can create issues when they are applied in different cultures, with China being identified as one such area. With China's WTO accession and the entry of foreign banks, the Chinese banking sector has become an extremely sensitive area of development for the nation's economy. It is important, therefore, to understand the factors surrounding performance appraisal and what does the process add to the efficiencies in the Chinese state-owned banking industry. This article is based on the data collected from the employees of Chinese state-owned banks from 2005 to 2007. The findings suggest that the employees' perception of justice has a positive relationship to their overall satisfaction with both the performance appraisal process and its outcomes. Howev...