Technical Efficiency of China's Banking Industry Literature review

Technical Efficiency of China's Banking Industry - Literature review Example Nonetheless, most economies have been able to exhibit resilience and remained stronger. Economic turbulences and dynamisms have affected different industries within various global economies. China’s banking industry has not been spared from such turbulences and dynamisms hence the need to analyze its technical efficiency. The following chapter provides a chronological description and critique of relevant theories in respect to technical efficiency within China’s banking industry. The chronological description and critical review entails empirical papers linked to the concept of the study. Different theories of efficiency with respect to technical efficiency are discussed within this chapter. 2.2 Overview of China’s Banking Industry China has being operating economic and financial system on the basis of social principles until 1978. Amazingly, the People’s Bank of China (PBC) had for a long time been in-charge of issuing currencies as well as being the fina ncial hub of all the economic plans of China. After 1978, China realized the need for serious economic and financial reforms. The objective of such reforms was to increase economic and technical efficiency of financial and economic sectors within the country (Jiang, 2001). Jiang (2001) adds that China aimed at enhancing resource allocation through such reforms. Albeit gradual, serious reforms were carried out in major sectors of the economy, banking being the main recipient (Adams, Berger, & Sickles, 1999). China decided effect the reforms in two main stages; from 1979 to 1992 and from 1993 to the present time. The first stage was characterized by development of two tier banking systems; People’s Bank of China (Central Bank) and four state-owned banks that included Bank of China (BOC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Commercial Bank of China (CBC). Despite high degrees of functional segmentations, these banks were permitted to accept depos its and offer credit facilities to households and corporate organizations by 1985 (China Daily, 2006). The first stage formed the basis of further reforms, which was characterized with development of small and medium sized commercial banks. The main reason for allowing entrance of commercial banks within Chinese banking system was to enhance competition, which was aimed at providing high quality and differentiated services and products (Jiang, 2001). Examples of small and medium commercial banks created during this period included CITI Industrial Bank, Guangdong Development Banks (GDB), China Merchants Bank (CMB), Hua Xia Bank (HXB), and China Everbright Bank (CEB) (China Daily, 2006). Notably, most of these commercial banks were joint-stock owned unlike the previously mentioned state-owned. The second stage, which was flagged off by State Council in 1993 saw various decisions made within the financial system reforms (Leigh and Podpiera, 2006). In this stage, the main aim was to enh ance c