Technical, Pure Technical and Scale Efficiency of China´s Banking Industry

The paper empirically investigates the technical efficiency, pure technical efficiency and scale efficiency in China´s banking over 1998-2003 period. A non-parametric method of Data Envelopment Analysis (DEA) has been used to estimate banking efficiency scores. The efficiency comparison between the state-owned banks and other newly joint stock banks is conducted. Ordinary Least Squares is used to identify the key factors related to banking efficiency. Newly joint stock banks are found to be more efficient than the four state-owned banks. The results indicate that several main factors affect banking efficiency, including structure of property rights, manpower capital and market competition. Our policy suggestions are that Chinese government should implement financial system reform to foster competition in the banking market, and that a better environment is created for sustainable development of commercial banks.