Ownership Reform and Efficiency of Nationwide Banks in China

This research analyses the efficiency of China’s banks using the data envelopment analysis (DEA). The Chinese government began its reforms of the banking industry reform since 1978. Our data set contains twelve banks in China during the period of 1996 to 2003. All nominal variables are transformed into real variables in the 2003 prices. There are twelve banks including four state-owned specialised banks, three policy-related banks and five nationwide joint-equity commercial banks. First, DEA approach is used to estimate the efficiency scores of these twelve banks in each year in China. Second, the Tobit regression is used to analyse how the environmental variables affect the efficiency scores of these twelve banks. The following are the study’s empirical findings: (1) Nationwide joint-equity commercial banks have significantly higher overall technical and scale efficiencies but lower pure technical efficiency than state-owned specialised banks. (2) The marginal increasing relation exists between deposit-loan ratio and allocative efficiency. (3) Small-sized banks have higher cost, allocative, overall technical, and pure technical efficiencies than large-sized banks. (4) These twelve banks have lower cost, overall technical, pure technical, and scale efficiencies after the 2001 WTO participation. (5) These twelve banks have lower cost efficiency after the 1997 Asian financial crisis. (6) As a whole, these twelve banks in China have significantly increasing overall technical and scale efficiencies from 1996 to 2003.