Cost Efficiency of Chinese Banking Sector: A Stochastic Frontier Analysis

This paper employs the largest 50 commercial banks in China from 2012 to 2016, and investigates the cost efficiency of the Chinese banking industry by utilizing stochastic frontier analysis. The empirical result suggests that the rural commercial bank has the highest cost efficiency, followed by the joint-stock commercial banks and large commercial banks. In terms of city commercial banks and foreign capital commercial banks, they have the lowest cost efficiency score compared with others. As for the determinants of cost inefficiency, the cost inefficiency is significantly correlated with the GDP growth rate, unemployment rare and market concentration. The result cannot conclude the impacts of the inflation rate, size of banks, equity to asset and intermediation ratio on banks’ cost inefficiency level