BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Market Structure, Welfare, and Banking Reform in China
Abstract: This paper examines the effects of market deregulation on
consumers and state commercial banks in China, a large developing country.
I jointly estimate a system of differentiated product demand and pricing
equations under alternative market structures. While China's banking
reforms overall have achieved mixed results, the consumer surplus of the
deposit market has increased. The welfare effects from reforms are unevenly
distributed, with losses skewed toward inland provinces and certain
consumer groups. There is no clear evidence that the pricing of banking
services has become more competitive after the reform, and such pricing
remains subject to government intervention. Encouragingly, the price-cost
margins of some state commercial banks have fallen over time.
Keywords: banking reform; banks in China; demand estimation; market structure; (follow links to similar papers)
JEL-Codes: G21; L11; (follow links to similar papers)
52 pages, October 21, 2009
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