Spillover Effects of Foreign Bank Entry in China’s Banking Sector

Abstract

This paper examines the foreign financial institutions’ spillover effects in China’s banking sector through three channels, foreign strategic investment, employee turnover, and competition using qualitative analyses and quantitative analyses. Through comparing Chinese banks performance between pre- and post- foreign strategic investment, and the OLS regression analyses, we found that the foreign strategic investment did benefit Chinese banks, but the impact of strategic investment is not very obvious. Employee turnover gives Chinese banks opportunity to learn from foreign banks, but the employee mobility from Chinese banks to foreign banks benefit foreign banks more. Although Chinese banking sector is open to foreign banks, the growth of foreign banks in China is restricted, and the competition effects are not very obvious.