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Chinese Banks' Efficiency and Productivity Change during the Financial Reform Era of 1998 to 2006(EP Vol.12 No.1)

Economic Research Institute (02-759-5481) 2009.08.31 1691

Chinese Banks' Efficiency and Productivity Change during the Financial Reform Era of 1998 to 2006

Author: Dae-Won Oh

The problem of non-performing loans and the low efficiency of Chinese
state banks led the Chinese government to undertake financial reform over
the period of 1998 to 2006. Nevertheless, Chinese state banks’ productivity
declined during the early 2000’s, raising concerns about a financial crisis in
China. This paper analyzes fourteen Chinese banks’ technical efficiency and
productivity change during the period of financial reform. The efficiency
analysis shows that the overall Chinese banking industry became more
efficient, with a turning point in 2003. The productivity analysis finds a fall
in Chinese state banks’ productivity after 2003, indicating that their potential
for productivity growth began to weaken from that point.

JEL Classification Number: G21, O16, R11

Key words: Efficiency, Productivity, DEA, Malmquist, China

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