Bank productivity in China 1997-2007: Measurement and convergence

This study examines the productivity growth of the nationwide banks of China and a sample of city commercial, banks for the ten years to 2007. Using a bootstrap method for the Malmquist index, estimates of the total factor productivity growth are constructed. Five different models of inputs and outputs based on variants of the Intermediation and Production approaches and non-performing loans are treated as a bad output, are examined for the purpose of arriving at a robust measure. The productivity growth of the state-owned commercial banks (SOCBs) is compared with the joint-stock banks (JSCBs) and city commercial banks (CCBs). In general, average TFP growth has been neutral over the period for the SOCBs and JSCBs but positive for the CCBs in the second part of the period. Efficiency gains (catch-up) were obtained through cost reduction and technical innovation was associated with greater diversification of revenue away from interest earnings. The opening up of the banking market has not led to a discernible improvement in bank productivity growth.

Research highlights►Standard DEA measures of bank productivity growth are compared with measures obtained from bootstrap. ►The bootstrap measures show that TFP growth for the state-owned and joint-stock banks barely increased over 1998-2007. ►Strong TFP growth was measured by the city commercial banks based on efficiency gains. ►Significant technical innovation was associated with the large banks and efficiency gains were associated with cost reduction. ►There is no evidence that TFP growth improved in the second half of the period.