5. Banking Competition in China

Competition is important in any industry, with impacts on a wide range of issues such as productivity, innovation, and consumer welfare. In banking, competition is even more important because of its externalities beyond the banking industry. Anti-competitive behaviour of banks may have far-reaching influences on social welfare and well-being of the economy with implications for not only banking and financial services sector regulation and supervision but also financial stability and macroeconomic policy. The market-oriented banking reform in China started from deregulation in order to increase competition in the sector. After more than two decades of reform, the banking sector has undergone significant changes and it is of great interest to understand whether the sector has become more competitive. This chapter addresses this issue by assessing the degree of banking competition and its evolution over the period 1995–2015 using multiple competition measures.