Three empirical essays of efficiency and productivity in Chinese banking industry

• Main Author: Zhang, Xu
• Published: Cardiff University 2010
• Subjects: 332
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.585049

This thesis is about measuring and interpreting banking efficiency in China. It consists of three empirical essays that use Data Envelopment Analysis (DEA) in three novel ways to measure inefficiency. The first essay measures cost inefficiency of the 14 nationwide banks over the period 1997-2006. A rational model of rent-seeking behaviour is used to explain part of the cost inefficiency. Cost inefficiency is decomposed into X-inefficiency and Rent-seeking inefficiency and the latter is interpreted as symptomatic of rational decision making by the Chinese bank manager. The efficiency estimates are obtained from a Simar and Wilson (2000a) proposed bootstrap method. A second stage regression model explains that the rate of decline of the inefficiencies is faster for the joint-stock commercial banks (JSCBs) than for the state-owned commercial banks (SOCBs). The second essay, estimates total factor productivity (TFP) growth for SOCBs, JSCBs and city commercial banks (CCBs) for the period 1997-2007. The method of estimation is the Malmquist bootstrap method. This study finds that TFP growth did not improve significantly in the run up to WTO. Technical innovation was dominated by the big banks and efficiency gains were dominated by the CCBs. The third essay uses a network DEA (NDEA) framework to analyse profit efficiency between three profit centres within the bank, namely consumer, corporate and Treasury banking. The internal efficiencies of the state wide banks are analysed for the period 2007-2009. The study demonstrates the value of the NDEA method in aiding the manager to identify areas of inefficiency within the internal flow of funds of the bank. The results show Treasury operations have the lowest efficiency. This is partly caused by restrictions on the loan-deposit ratio that forces the banks to hold lower yielding other earning assets through their Treasury operations.