Efficiency in the Highly Market-Segmented Chinese Banking Sector : A Meta-Frontier Non-Radial Directional Distance Function Approach

In this paper, we apply the so-called meta-frontier non-radial directional distance function approach to a performance analysis of 143 Chinese banks over the period 2006–13. We find that relative to the group frontier in each market segment, the Big-5 Chinese banks display good efficiency. However, their low meta-technology ratios indicate that they are currently unable to make full use of their technological potential to achieve higher economic goals, such as cost-cutting and full profit-maximization. As befits their ownership structure, the joint stock commercial banks display the best technical efficiency. Further, the low efficiency scores and high meta-technology ratios demonstrate that the city commercial banks may serve as the primary implementation channels for local policies, particularly fixed investment. While only at the start-up stage in China, foreign banks display the highest meta-technology ratios, suggesting they possess generally better operating environments. Finally, we find Chinese banks generally exhibit a stable and increasing level of technical efficiency over the sample period, save a very small decline during the 2008 global financial crisis, whereas cost and profit efficiency exhibit significant volatility