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The Banking Industry of China: Structure-Conduct-Performance Analysis - Essay Example

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The purpose of the paper is to undertake the Structure-Conduct-Performance analysis of the Banking Industry in China. With the increasing foreign direct investment in China and the adoption of relatively flexible trade policy and regulations the banking industry in China resulted as robust growth in the last decade…
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The Banking Industry of China: Structure-Conduct-Performance Analysis
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Download file to see previous pages Overall the banking industry can enhance its performance by undertaking re-structuring process in some sectors.
The Structure-Conduct-Performance paradigm undertakes the analysis of the level of competition in the market, study the strategies of the firms in order to deal with the competition and measures the success of the industry by evaluating the customer value delivery by the industry.
"Structure" can be defined as the market formulation pattern of an industry presenting the competition among the industry participating firms and institutions. "Conduct" is the responsive strategies of the firms and institutions, which they adopt in order to successfully, compete with other competitors and to maximize the profit shares. "Performance" is the analysis of the achievement success of the pre-stated goals of the industry.
The Chinese Banking industry can be characterized as having the monopolistic competitive market structure in which the market is ruled by the state owned banks. It is because the consumers have relatively high level of confidence in investing in these institutions.
The Banking system of China constitutes four state-owned commercial banks, as well as several joint-stock commercial banks, city commercial banks, rural credit cooperatives, finance companies, and trust and investment companies. With the adoption of the liberal trade policies and easing restrictions the role of the foreign banks is also increasing. But still the financial institutions in China are under close scrutiny of Government. The present state of Chinese economy has a significant role of the Banking industry. The industry had to face a set back due to the bad loans to the state owned enterprises, weak asset-liability composition and the lack of modern management techniques. The presence of these drawbacks is adversely effecting the performance of the financial system resulting in shape of hurdles in the path of economic growth (Bing-xiang and Mehta) The Government of China is introducing a crucial reform measures in the state owned commercial banks. According to the China Banking Regulatory Commission (CBRC) the Government is providing guidance, supervision and assessment in the process of the governance improvement in Bank of China and China Construction Bank. Special emphasis is also being given to the Risk management process taking maximum profits and capital safety as the core. "Meanwhile the departments will also take strict preventive measures against the rebound of bad loans and criminal cases and urge BOC and CCB to make thorough preparation for the stock listing." (People's Daily Online, 2005)
There are several weaknesses in the corporate governance, internal and auditing which are leading to an increase in the corporate scandals. The degree of disclosure of financial information is also a main reason. Mostly the corporate running bodies do not find them answerable in front of any regulatory body. In fact the regulations of the Chinese government do not have any significant provision in the law regarding the off balance sheet transactions. This in turn is effecting the consumers trust on the privately ...Download file to see next pagesRead More
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