Monday, 14 January 2008

Can Chinese banks compete after accession to WTO?

I am sorting through some old papers at the moment and keep coming across research that may be of interest.

These are academic papers that may require access to download the full paper. The papers may also be rather technical for non-economists. If you need a copy please email and a friendly academic may be able to find a PDF version of any paper featured on this blog.

The short answer according to this paper is NO. I suspect with continued foreign joint ventures and investment in the share capital of these banks that they will learn very quickly. Howeve, teh bad load provision will remain a serious problem and may get considerably worse if there is a down turn of any magnitude.

Can Chinese banks compete after accession to WTO?

Lei Xua and Chien-Ting Linb,

International Graduate School of Business, University of South Australia and
School of Commerce, University of Adelaide.


Our answer is no, not at least without fundamental changes on the roles of Chinese banks and on the current unfavourable bank regulations towards domestic banks. As a result of China's accession to World Trade Organization (WTO), foreign banks could compete directly with Chinese banks with little barriers from December 2006. We argue that foreign banks’ expertise and experience in modern banking activities coupled with their interests and regulatory advantages in the traditional Renminbi (RMB) business will lead to a loss of RMB deposits and loans from local banks. Given that Chinese banks are currently ridden with large non-performing loans and low capital adequacy, the foreign bank entry will exert further pressure on the banks’ profitability and solvency. It is likely that the health of Chinese banks will deteriorate further in the post-WTO era.


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