Evaluation of competitive conditions in the PRC banking industry

Abstract

As a fundamental component to any country’s overall economic system, People’s Republic of China’s (PRC) banking industry recently has seen rapid growth in line with the economic development of the country. This paper presents an empirical assessment of the market structure and the competitiveness of the Chinese banking sector particularly in the wake of China’s accession to the WTO by employing the Panzar-Rosse H-Statistic as a non-structural model over the period 2004‑2007. The empirical findings indicate that the banking sector in China was monopolistically competitive for the specified period. We also find that the Chinese banks, which operate in more monopolistic environments, are less efficient. The findings reject the state of conjectural variation short run oligopoly or natural monopoly in the industry for the period under consideration.