Rural banking competition may promote or hinder agricultural total factor productivity (TFP). We analyze a novel dataset on all commercial bank branches in rural China, combined with measures of productivity based on stochastic frontier analysis. To identify causality, we use: 1) an instrumental variable approach based on the administrative division of banks, and 2) a propensity score matching difference-in-difference approach exploiting banking de-regulations in 2009. Both methods reveal that competition has a positive impact on TFP. A heterogeneity analysis finds that the effect is primarily significant along the Beijing-Kowloon railway and its East side. Technology adoption is the typical channel through which lending is hypothesized to impact TFP. We find that the positive effect of competition is larger in areas with greater technology use, but we find an insignificant direct impact of concentration on technology adoption, suggesting the channels of effect may be more complex than previously thought.

This paper investigates whether and how high-speed rail (HSR) construction affects local bank performance. Using the difference-in-difference method, we find that the city commercial banks (CCBs) significantly experience an overall decrease in ROA after HSR is introduced in the headquarters city. Mechanism analysis suggests that the HSR-driven city connectivity imposes the local CCBs on the intensified banking competition related to capital flows, and governance improvements associated with information flows. HSR exerts more pronounced impacts under higher financial liberalization. The findings are robust to the endogeneity concerns. We highlight the indispensable role of transport infrastructure in banking development.

Shadow financing through off-balance sheet wealth management products (WMPs) has become increasingly important besides deposits in China. We quantify the economic magnitude of the effect of WMPs on banking stability in an equilibrium model calibrated to Chinese banking sector data. Alternative equilibria emerge, which deviate substantially from the observed banking system and lead to severe financial distress and large welfare losses. Rollover costs from the WMP market and negative shocks to the asset market underlying WMPs can exacerbate banking instability. Moreover, we show that smaller and medium sized banks are comparably relevant for financial stability as the systemically important big 4 banks in China.

Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer data enables better borrower screening or targeting by fintech lenders. Open banking could make the entire financial industry better off yet leave all borrowers worse off, even if borrowers could choose whether to share their data. We highlight the importance of equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. When data sharing triggers privacy concerns by facilitating exploitative targeted loans, the equilibrium sign-up population can grow with the degree of privacy concerns.

Banking competition may enhance or hinder the financing of small and medium enterprises (SMEs). Using a survey on the financing of China’s SMEs combined with detailed bank branch information, we investigate how concentration in the local banking market affects the availability of credit. It is found that lower market concentration alleviates financing constraints. The un-concentrated presence of joint stock banks has a larger effect on alleviating credit constraints, while the presence of state-owned banks has a smaller effect, than the presence of city commercial banks.

Based on the background of the banking industry in China, this paper establishes Cournot, Bertrand and Stackelberg mixed oligopoly competition models with deposit and interest rates as strategic variables between a representative state-owned bank and a representative foreign bank. We discuss and compare the equilibrium deposits, interest rates and profits in different market structures. More importantly, considering the endogenous timing setup and taking the extended game with observable delay as the basic model, we analyze the competition results of the mixed duopoly at different market structures and make numerical simulations in order to get the outcomes of the extended game. It is found that, in the deposit competition with endogenous timing, if two banks have the same deposit return rate, the simultaneous move could become the final result; If the deposit return of the foreign bank is more than twice that of the state-owned bank, all SPNEs of the extended game are sequential, i.e one bank will lead, the other will follow. If the state-owned bank’s profit in Cournot is larger than that of the state-owned bank as the Stackelberg follower, the only SPNE will be (E, L), i.e. the state-owned bank will lead and the foreign bank will follow. Additionally, in the interest rate competition with endogenous timing, if the degree of nationalization is no larger than 75% as well as two banks have the same deposit return rate, the final SPNEs of the extended game are sequential and the simultaneous move can not become the SPNE.

Based on the background of the banking industry in China, this paper establishes Cournot, Bertrand and Stackelberg mixed oligopoly competition models with deposit and interest rates as strategic variables between a representative state-owned bank and a representative foreign bank. We discuss and compare the equilibrium deposits, interest rates and profits in different market structures. More importantly, considering the endogenous timing setup and taking the extended game with observable delay as the basic model, we analyze the competition results of the mixed duopoly at different market structures and make numerical simulations in order to get the outcomes of the extended game. It is found that, under the scenario of endogenous timing, and 1) the assumption that the foreign bank’s deposit return rate is more than twice that of the state-owned bank and 2) the degree of nationalization of state-owned bank is no less that 1/4, the SPNE of deposit extended game is (L, L), i.e. both banks will choose to move later, neither player has so called “first mover advantage” which leads to the Cournot outcome and payoffs. When the degree of privatization is more than 3/4 and both banks have the same deposit return rate, the SPNE of interest rate extended game is (E, L), i.e. the state-owned bank will lead and the foreign bank will follow.