Are New Tigers supplanting Old Mammoths in China’s banking system?Evidence from a sample of city commercial banks
Giovanni Ferri *
Department of Economics,University of Bari,via C.Rosalba 53,70124Bari,Italy
Received 22February 2006;accepted 11June 2007
michiAvailable online 8December 2007报名时间及条件
Abstract
‘‘New Tigers ”(including city commercial banks)outperform state-owned commercial banks burdened with non-performing loans from unprofitable state-owned enterpris.We study whether this is solely due to superior corporate governance (multiple shareholders versus total government ownership)or also to the favorable environment (the New Tigers target affluent China,while state-owned com-mercial banks operate nationwide).
Using a field survey on 20city commercial banks from three provinces at different levels of economic de
velopment,we find better performance at tho in the East and wor performance at tho controlled by state-owned enterpris.Geography and policy do mat-ter,and reform of state-owned commercial banks is necessary to bring better banking to China.Ó2007Elvier B.V.All rights rerved.
JEL classification:G21;G30;G38
Keywords:China;State ownership of banks;Corporate governance;Geography and performance
1.Introduction
Why are there banking problems in China,an economy that has been growing at an average rate of 9%over the last 25years?Usually,we expect banking problems to emerge when a country’s entire economy is gripped by a crisis,and so the Chine ca ems puzzling.In reality,the puz-zle is only apparent,not real.To grasp this,we need to recall the special features of China’s transition.This will help us understand how the combination of strong economic growth and a weak banking system are not contradictory but the natural outcome of policy choices.In contrast with most ex-centrally planned economies and well before the others followed their ‘‘shock therapy ”to the market,China opted for a gradual transition strategy.As most economists now concur,this choice was far-sighted becau it:(i)
avoided the acute strains generated by the abrupt disman-tlement of state enterpris (e.g.mass unemployment and destructive disruption of production)and (ii)allowed some institution-building before the privatization of key ctors of the economy,without which China risked moving from the problems of state ownership to tho of private monop-oly (Stiglitz,2002;Black and Tarassova,2003;Lau et al.,2000).The gradual transition allowed China to keep its robust growth while rooting the new domestic private econ-omy (now accounting for more than 75%of GDP)in inter-national production networks.
Nevertheless,there was a darker side of the story:State-owned enterpris (SOEs)outlived the planned economy,thanks to the gradual transition,and kept making large loss (Opper,2001).The four big state-owned commercial banks (SOCBs)absorbed the bulk of tho loss.The unhealthy link between SOEs and SOCBs is among the chief worries concerning the future of China’s economic miracle.In this respect,we show that China’s banking system is not monolithic:alongside the problematic ‘‘Old Mammoths ”(as we dub the SOCBs),a breed of dynamic
0378-4266/$-e front matter Ó2007Elvier B.V.All rights rerved.doi:10.1016/j.jbankfin.2007.06.013
*
Fax:+390805049149.
E-mail address:g.ferri@d.uniba.it
/locate/jbf
歧路亡羊翻译Available online at
Journal of Banking &Finance 33(2009)
131–140
‘‘New Tigers”(banks organized as companies limited by shares)is rapidly emerging.The banks show much better performance,possibly becau the state was not their single shareholder as with the SOCBs.We conclude that even the New Tigers will not be able by themlves to solve China’s banking problem.As we will show,part of their success ems due not so much to their better corporate gover-nance,as to the fact that their business is concentrated in the Eastern belt,the most developed area of China.Thus, solving China’s banking problem means dealing with the SOCBs.Although the Chine authorities have taken steps to tackle the issue,the outlook is still rather murky.1 The rest of this paper is organized as follows.In Section 2we review the negative impact of state ownership on the corporate governance of banks,with a specific focus on China.Then,we provide details on the rapid growth of the New Tigers,the new breed of banks,and ask whether they offer China an option to grow out of its banking prob-lem.In this respect,we posit that an accurate answer requires distinguishing between the impact of better gover-nance(contrary to the SOCBs,the New Tigers were not wholly state-owned)and that of the fact that,unlike the SOCBs,their business lies prevalently in the most devel-oped area of China.Section3sheds light on this issue. We report the results of afield survey that offers evidence on the extent to which the performance of the New Tigers differs depending on the level of economic development of the geographical area where banks do business.This is exactly the rationale for looking at city commerci
scroll lock是什么意思al banks (CCBs),a vibrant gment of the New Tigers,as the are banks operating widely across the country.By focusing on20CCBs located in three provinces of China at different levels of economic development,we hope to keep corporate governance(relatively)constant and thus be able to ascribe any significant difference in performance across provinces to their relative underlying prosperity.After describing the structure of the survey,we report our main econometric results.They confirm that CCB performance is systemati-cally and positively related to the level of economic devel-opment in the provinces in which they are located. Furthermore,the richness of the information obtained allows us to gain additional insight into other factors affect-ing bank performance in China.Section4summarizes our mainfindings and briefly discuss policy implications. 2.Banking in China:The Old Mammoths vs.the New Tigers 2.1.The negative impact of state ownership on the corporate governance of banks
While China experienced its unique economic miracle, featuring average annual growth rates of about9%over some25years,not all ctors progresd at the same pace, possibly providing bottlenecks for future growth.Progress was slowest in the rvice ctor(Dutta,2005).And,within the rvice ctor,advancement was particularly sluggish in thefinancial ctor.Much of the issue hinges on the link between SOCBs and SOEs,which has received much atten-tion.In turn,this rais the important question of the neg-ative impact of state ownership on the corporate governance of banks.
One of the key issues is the state control of banks.La Porta et al.(2002)directly address the issue of government ownership of banks.The authors maintain this is a very special ca to verify the‘‘political”theories of the distor-tions induced by state intervention infinancial markets. Their mainfinding is that,in a cross-country comparison, after state ownership of banks increas,the growth of financial markets,of per capita income and of productivity are all lowered.Thus,the general connsus in the litera-ture is that state ownership of banks is detrimental to bank efficiency,to the development offinancial markets and, through the channels,also to economic growth.
In the specific context of China,various authors have shed light on the negative impact of state ownership on bank performance.We cite just a few of them.Using city-level data over the early period of1989–1991,Wei and Wang(1997)find evidence that China’s bank loans favored state-owned industrial enterpris and argued that such lending bias diminished the effectiveness of other mea-sures designed to promote the growth of non-state ctors or to induce SOEs to restructure.In line with this,Brandt and Li(2003)find that,as a result of discrimination,pri-vatefirms resort to more expensive trade credit.Using pro-vincial data from1991to1997,Park and Sehrt(2001)show that thefinancial reforms of the mid-1990s were ineffective at lowering policy lending by SOCBs,thus negatively impinging on the banks’performance,while SOCB lend-ing did not respond to economic
fundamentals.Moreno (2002)points out that banks in China traditionally met government policy goals byfinancing the operations of SOEs,regardless of their profitability or risk,and that while bank exposure to SOEs tended to decline over time, SOEs still accounted for over one-half of outstanding bank credit in2000,while exposure to poor-performing SOEs had a major impact on bank performance.Chang(2003) argues that China’s(mostly unprofitable)SOEs have been kept afloat with loans from SOCBs while,conscious that they could not force SOEs to pay back their loans without causing their collap and the inevitable political crisis that would ensue,SOCBs continued to lend to SOEs.This fact is confirmed by a survey performed by the People’s Bank of China(PBOC)in2003,finding that of the total non-per-forming loans(NPLs)of SOCBs,30%was due to interven-tion by the central and local governments,30%resulted from mandatory credit support to SOEs,10%aro from the poor legal environment and weak law enforcement in some regions,and10%stemmed from industrial restructur-ing in some enterpris,thus leaving only20%that origi-
1Three of the four SOCBs(China Construction Bank,Bank of China
and Industrial and Construction Bank of China)were successfully IPO-ed
recently.Whether listing per is enough for better governance remains to
be en.
132G.Ferri/Journal of Banking&Finance33(2009)131–140
nated from the operational decisions of the SOCBs them-lves(Zhou,2004).Cull and Xu(2000)detect signs of SOCB loans going more and more to unproductive SOEs during the1990s,when the banks increasingly assumed bailout responsibility(Cull and Xu,2003).
The considerations suggest that the problems of the state-owned commercial banks largely stem from political interference leading SOCBs to suffer loss often associated with lending to SOEs.In the following,it will be interesting to check whether the new Chine banks–on which we will dwell shortly–are less prone to this type of political interfer-ence.In this n,considering that by the side of the prob-lematic‘‘Old Mammoths”(the SOCBs),a breed of dynamic‘‘New Tigers”is growing quickly,it is important to focus on the latter.
2.2.The New Tigers grow intenly and outperform the Old Mammoths
The New Tigers are growing very rapidly.2Even though truly private commercial banks have been largely abnt from China,and in spite of belonging to different institu-tional categories,the New Tiger
s share a common trait dis-tinguishing them from the SOCBs.Contrary to SOCBs, which had the state as the single shareholder,the New Tigers have a plurality of shareholders.Some of the shareholders may belong themlves to the public ctor,being part either of the public administration or of the SOE system,but none of them is in the position of a single shareholder in any of the New Tigers.As argued Ferri,2003;Liu, 2002),the plurality of shareholders may significantly reduce political interference in banks’business,thus delivering bet-ter corporate governance and performance.
This conjecture ems consistent with what is obrved over the years.Namely,the New Tigers are denting more and more the SOCBs’market share,and also the former vis-ibly outperform the latter by conventional indicators. Between1998and2005,the annual rate of growth of total asts of the New Tigers constantly outpaced that of the SOCBs,with the only exception of thefirst year–when the Asian crisis caud also in China a shift by depositors to the largest banks,possibly perceived as Too Big To Fail–and in the latest year–when the SOCBs’rate of growth slightly overcame that of the New Tigers(Table1).This gap produced a significant erosion for the SOCBs while the market share of the New Tigers,converly,almost doubled from12.8%to23.9%.3Even more importantly,the New Tigers made such significant gains of market share while achieving much higher returns than the Old Mam
moths. Indeed,between1998and2005the ROA(Return on Asts) of SOCBs was always lower(usually much lower)than for the New Tigers:on average,the two groups of banks reached,respectively,0.264%and0.611%(Table1again).
A similar indication may be derived looking at the New Tigers’ability to generate remuneration on their own capital: between1998and2005,in spite of their low capitalization, SOCBs’ROE(Return on Equity)kept on average at 2.769%,while that of the New Tigers stood at9.793%.
As for the CCBs–which are part of the New Tigers–they also experienced high growth,cumulating an increa in their market share from1.9%to3.3%and displaying good performance both in terms of ROA(0.706%)and in terms of ROE(6.925%).
2.3.Do the New Tigers offer China a‘‘growing out”option?
In light of the above,however,do the New Tigers offer China a‘‘growing out”option to overcome the difficulties in restructuring its SOCBs4and,through this,bring better banking to China?
Certainly,one might envisage a positive answer if the New Tigers were to continue the rapid growth of the latest decade(Ferri,2005).However,there is no guarantee that this is bad on solid economic r
easoning.To be sure,the continuation of that growth postulates that the New Tigers really enjoy a competitive edge across the board vis-a`-vis SOCBs.But is this really the ca?One way to address this issue is asssing whether the better performance of the New Tigers is fully grounded in better governance.It is exactly at this juncture that we notice a cond trait distinguishing the New Tigers from the Old Mammoths.The New Tigers con-centrate their business in the most developed part of China, its vibrant Eastern Belt,while on the contrary,the SOCBs operate throughout the whole of the country.
As a result,it is not clear whether the New Tigers’better performance owes entirely to better governance or whether geography also gives the banks a great help.For instance, according to Huang(2002),SOCBs generate95%of their profits from about half a dozen of the coastal cities,including Shenzhen,Guangzhou,Xiamen,Shanghai,Tianjin,and Bei-jing.If this is true,then doubts are cast on the possibility that the growth of the New Tigers can provide an effective solu-
2Depending on the availability of data on Bankscope,we include in the group of the New Tigers35banks who size differs greatly:Bank of Communications,China International Trust&Investment Corporation, China Merchants Bank,China Everbright Bank,China Minsheng Banking Corporation,Hua Xia Bank,Fujian Industrial Bank,Ping An Bank,Shenzhen RCCs,Bank Inter
national Ningbo,First Sino Bank, Qingdao International Bank,Business Development Bank,Chongqing Commercial Bank,Shandong International Trust&Investment Corpo-ration,Guangdong Development Bank,Shanghai Pudong Development Bank,Shenzhen Development Bank,Xiamen International Bank,Bank of
Shanghai,Beijing CCB,Tianjin CCB,Shenzhen CCB,Hangzhou CCB, Changsha CCB,Chengdu CCB,Jinan CCB,Nanchang CCB,Nanjing CCB,Ningbo CCB,Wuhan UCB,Wuxi CCB,Xi’an CCB,Xiamen CCB, Zibo CCB.The last16of the35banks are City Commercial Banks (CCBs),the type of banks we will analyze later,while thefirst19are assorted across the other categories.
3We measure market shares here on the sum of the SOCBs plus the New Tigers,thus focusing on commercial banks and excluding the postal system and policy banks.
4By the same token,it has been obrved that,in the experience of transition economies,more progress is achieved through the entry of new banks rather than through rehabilitating old SOCBs(Claesns,1998).
G.Ferri/Journal of Banking&Finance33(2009)131–140133
tion to the banking problem outside the affluent Eastern Belt.As a conquence,to gauge how much of a solution the New Tigers may offer,we need to consider in more depth how far favorable bank location)lies behind their strong performance.This is the main task for the rest of the paper.
3.How important is geography for the success of the New Tigers?
3.1.The rationale behind looking at city commercial banks (CCBs)
英语作文 我的家乡To shed light on whether the New Tigers’outperformance depends on governance only or whether and to what extent the New Tigers are better simply becau they do business in the most developed area of China,we draw on the results of a field survey to check how far,within(a significant gment of)the New Tigers,bank performance differs depending on the economic development of the geographical area where banks do their business.This is exactly the rationale behind looking at CCBs,one of the most dynamic compo-nents of the New Tigers,which includes banks located throughout the country.To be sure,Bankscope under-sam-ples CCBs,including only16out of the univer of112.On the univer,their total market share is about5%.
CCBs came about after1995when the People’s Bank of China put in order NPL-endangered urban cr
edit coopera-tives.Specifically,2194urban credit cooperatives,rural credit cooperatives(located in towns)and localfinancial rvice institutions were salvaged with the injection of pub-lic funds,but at the same time,they were ordered to merge consolidating into the newly formed CCBs,established as joint-stock companies.CCBs inherited from urban credit cooperatives all NPLs formed during the‘‘nonstandard operating period”of1985–1995(Girardin and Ping, 1997).At the end of2003,39out of112CCBs had an NPL ratio above20%,some of them even above70%. CCBs’shareholders include urban enterpris,citizens and local governments(individuals are not allowed to become new shareholders).At the end of June2004CCBs were distributed in112central cities(district-level or above)of China–one city,one CCB without exception.Though they almost cover the whole of the country their distribution is uneven.Generally speaking,there are more CCBs in Eastern here are11CCBs in Jiangsu Province)than in Western provinces(in Gansu, Qinghai,Xinjiang and Ningxia,CCBs exist only in the cap-ital cities).Since their foundations,thefinancial authority required that all CCBs offerfinancial rvices only within the cities’own administrative districts.
By end June2004,the112city commercial banks had 5154branches,107,000employees,and a5-grade NPL ratio of14.1%.Among the various categories offinancial institutions,CCBs rank cond in terms
of business devel-opment,clo to joint equity commercial banks.CCBs focus on three main business lines;providing indirectfinan-cial rvices to Small-and Medium-sized Enterpris (SMEs);offeringfinancial rvices for city residents;financ-ing local government public works.
3.2.Thefield survey on20CCBs from three provinces
By focusing on20CCBs located in three provinces of China featuring diver levels of economic development, we keep corporate governance(relatively)constant and can thus ascribe any significant difference in performance across the provinces to their relative underlying prosperity.
We lected the three provinces to include:one with a level of prosperity just about the national average,this is Hubei province;one ranked among the most developed, this is Zhejiang province(with a GDP per capita about double the national average)average;one less affluent,this is Sichuan province(with a GDP per capita about two-thirds of the national average;Table2).5
Table1
Total asts,ROA and ROE:SOCBs vs.New Tigers and CCBs
Year Growth rate of total asts(%)ROA(%)ROE(%)Market share(%)
SOCBs New Tigers CCBs SOCBs New Tigers CCBs SOCBs New Tigers CCBs New Tigers CCBs
199816.312.619.20.0960.807 1.673 2.2117.949 5.94812.8 1.9 19999.420.222.20.1260.585 1.010 2.4507.964 6.84614.1 2.2 200011.328.429.70.1820.5420.815 3.6398.583 6.13315.7 2.5 2001 6.925.233.50.1640.6440.594 3.20211.2597.02918.7 2.8 200211.129.139.50.1820.5470.464 3.6829.0037.03721.5 3.0 200312.127.719.00.0770.4800.335 1.5838.1719.14622.1 3.1 2004 6.819.413.50.6620.5540.3137.45211.463 6.34223.8 3.3 200519.417.913.20.6210.7290.445-2.07113.949 6.92223.9 3.3 Average–––0.2640.6110.706 2.7699.793 6.925––
Source:Our computations on data for total asts derived from Bankscope.
5The survey was conducted during2004by the Rearch Institute of
preparation
Finance at the Development Rearch Center of the State Council on
behalf of the Asian Development Bank Institute,Tokyo.The three
provinces were lected not only to cover different GDP per capita and
GDP growth but also in order to capture one province from the Eastern
belt(Zhejiang)and two from the less developed interior(Hubei from the
Central zone and Sichuan from the Center-West).Geography entails also
a varying role of SOEs in the local economy.For instance,OECD(2005)
reports that the share of value added by state controlled enterpris is
lowest in Eastern China(30.0%),intermediate in Central China(55.0%),
still higher in Western China(64.7%)and highest in North-Eastern China
(70.3%).
134G.Ferri/Journal of Banking&Finance33(2009)131–140
As shown in Table2,not only GDP per capita,but also growth is fastest in Zhejiang,while Sichuan,though less developed,is enjoying faster growth than Hubei.Thus, while Zhejiang stands out in both the level and the dynam-ics of GDP,Hubei ranks before Sichuan if we look at GDP per capita,but the order is reverd in terms of growth.The 20interviewed CCBs are distributed as followmini phone
s:7in Zhe-jiang,5in Hubei,and8in Sichuan.The survey collected information on CCB ast–liability/profit–loss accounts over2000–2003as well as on their business features and veral ownership and corporate governance aspects.
Overall,the20interviewed CCBs have13,400employees over1160branches,with12employees per branch on aver-age.The largest(smallest)CCB is that of HangZhou in Zhejiang province(that of Zigong in Sichuan province) with almost1400employees(with just63employees). CCBs’business is largely concentrated in the city of estab-lishment,hosting92.3%of the CCB branches and receiving 98.2%of the loans.The bulk of the surveyed CCBs were established in1997:10of the20(4in Zhejiang;3in Hubei; 3in Sichuan).Two were established in1996(1in Zhejiang; 1in Sichuan);three in1998(1in each province);one in 1999(in Hubei);one in2000(in Sichuan);two in2001 (in Sichuan);one in2002(in Zhejiang).
3.3.Different patterns of performance in more vs.less developed provinces
Over the four years2000–2003,total asts of the CCBs expanded by1.58times in Hubei,by2.15times in Sichuan, and by2.75times in Zhejiang.Such ranking of the expan-sion of the banking business across the three provinces ems consistent with GDP growth.
高考英语培训班Both size and performance of CCBs improve on average when we move from the less affluent Sichuan and Hubei to the most prosperous Zhejiang(Table3).The median size (the number of employees per branch)of Zhejiang CCBs is three times(twice)as large as that in the other two prov-inces.With respect to Zhejiang,ast growth is just about 1/2in Sichuan,and even lower in Hubei.Asts per employee,one of the basic indicators of productive effi-ciency,is almost twice as large in Zhejiang as in Hubei and Sichuan,while the Cost-Income ratio(operating costs/operatig income)and the extent of capitalization are better for Sichuan CCBs.The differences in terms of average ROA,ROE,and the NPL ratio are all dramatic and favorable to Zhejiang CCBs.Finally,the CCBs under-taking M&A activities were2in Zhejiang,2in Sichuan, and none in Hubei.6
西弥斯Before moving on to comment the additional informa-tion we gather from the survey,it is uful to check whether the differences in performance across the three provinces are statistically significant.We test this running some basic econometric specifications where the dependent variable is, in turn,one of the classic performance measures:ROA, ROE,and the NPL ratio.In light of the few surveyed CCBs,to have enough obrvations we u the time dimen-sion,covering the four years2000–2003.Due to the fact that four of the CCBs were established after1999and to some missing information,we have70obrvations for ROA and ROE and71for the NPL ratio.In view of the
still limited number of obrvations,we only consider as regressors bank size(controlling for possible economies of scale)and GDP per capita.
The results of the regressions are reported in Table4. While larger bank size generally associates with better per-formance–but the nexus is not significant for the NPL ratio–CCBs operating in areas with higher per capita GDP always achieve better results(Table4;Specification 1).Furthermore,the hypothesis that performance varies between the most developed province(Zhejiang)and the other two provinces cannot be rejected.Specifically,both ROA and ROE(the NPL ratio)are(is)significantly higher (lower)for CCBs located in Zhejiang,the most affluent province.In addition,the inclusion of a dummy variable taking value1only for CCBs located in Zhejiang(Specifi-cation2in each of the Panels in Table4)turns out to be significant while,at the same time,the per capita GDP var-
Table2
Basic Information on the three provinces(data refer to2003)
Province Population
(million)Economic
growth
rate(%)
Area(10
thousand
km)
GDP Per
Capita
(CNY/person)
CCBs surveyed in the province(year of establishment)
Zhejiang46.1314.010.219,9447CCBs:Hangzhou(1996);HuZhou,JiaXing,JinHua,ShaoXing(1997);
Wenzhou(1998);Taizhou(2002)
Hubei59.759.318.69.0315CCBs:Huangshi,Jingzhou,Wuhan(1997);Yichang(1998);Xiaogan(1999) Sichuan86.4011.848.5 6.3158CCBs:ChengDu(1996);LeShan,LuZhou,PanZhihua(1997);Deyang
(1998);Mianyang(2000);Nanchong,Zigong(2001)
Total192.28–77.3–20CCBs:2(1996);10(1997);3(1998);1(1999);1(2000);2
(2001);1(2002)
Memorandum:
China
级别的英文1276.279.19609.143112CCBs
6A referee raid the issue of hat Zhejiang was more
developed becau it has better CCBs and not CCBs perform better in
Zhejiang becau this province is more developed.I believe this rever
causality cannot be ruled out entirely.However,it should not be the
driving force considering that CCBs were established only recently
(Table3)and they cover a limited share of the market.
G.Ferri/Journal of Banking&Finance33(2009)131–140135
