Growth with Emerging Financial Center: Foreign Banks in Shanghai

摘要

China opened its domestic banking market in December 2006 and allowed foreign banks to conduct the local currency business without geographic and customer restrictions. This study, using parametric distance functions and nonparametric Data Envelopment Analysis (DEA) models, examines the efficiency level of foreign banks in Shanghai over the period of 2007-2009. The findings suggest that the foreign banks on the whole are less efficient than the Big Four branches, as well as other domestic banks operating in Shanghai, reflecting the challenges of rising input costs, access to sufficient liquidity and promotion of innovative products and services. There is a need for the Chinese authorities to deepen financial reform and speed up financial innovations if China wants to benefit more from the presence of foreign banks in its banking system, in which foreign banks are still playing a very limited role.