This dissertation studies three issues on the Chinese financial intermediation: (1) the impact of the development of financial intermediation on economic growth; (2) the location strategies of foreign banks under risk and asymmetric information; (3) the determinants of the net interest margin in Chinese banking industry....[ Read more ]

This dissertation studies three issues on the Chinese financial intermediation: (1) the impact of the development of financial intermediation on economic growth; (2) the location strategies of foreign banks under risk and asymmetric information; (3) the determinants of the net interest margin in Chinese banking industry.

Using data from 286 Chinese cities over the period 2001–2006, the first essay investigates the relationship between financial development and economic growth at the city level in China. Regressions from our system generalized method of moments (GMM) estimators for dynamic panel data suggest that most traditional indicators of financial development are positively associated with economic growth. This finding suggests that the financial reforms that have taken place after China’s accession to the World Trade Organization are in the right direction.

Inspired by the recent opening up of the Chinese banking market and by the ensuing location strategies adopted by foreign banks, in the second essay, we develop a theory on location strategies. We enrich the existing literature by including many important realistic aspects, especially for firms entering an unfamiliar and risky foreign market. Our theory identifies several general location strategies: (1) conservative selection; (2) exploitive selection; and (3) sequential selection. We have also carried out an empirical study on foreign banks’ entry to the newly opened up Chinese banking market. We indeed find empirical evidence in support of our theoretical findings.

The third essay investigates the determinants of the interest margin of the Chinese banking sector under the liberalization process, using the data from 72 banks over the period 2000–2007. We employ the system GMM estimators which are developed for dynamic panel data models. The results suggest the following positive determinants: the lagged dependent variable, the operating costs, the degree of risk aversion, the size of the operations, the payment of implicit interest and the quality of management. And the following negative determinants: the concentration ratio of the market, the credit risk and the business diversification.