Cost and profit efficiency of Chinese banks: A non-parametric analysis

Mohamed Ariff*, Luc Can

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

270 Citations (Scopus)


Using a non-parametric technique for data from 1995 to 2004, we investigate the cost and profit efficiency of 28 Chinese commercial banks. We examine the influence of ownership type, size, risk profile, profitability and key environmental changes on the bank efficiency using a Tobit regression. Consistent with the existing literature, we find that profit efficiency levels are well below those of cost efficiency. This suggests that the most important inefficiencies are on the revenue side. Our findings are also consistent with prior evidence on ownership and efficiency: joint-stock banks (national and city-based), on average, appear to be more cost- and profit-efficient than state-owned banks while medium-sized banks are significantly more efficient than small and large banks. These and other results suggest the need for speedier reforms to open the banking market, improving risk management, minimizing the government's capital subsidy and diversifying ownership of Chinese banks.

Original languageEnglish
Pages (from-to)260-273
Number of pages14
JournalChina Economic Review
Issue number2
Publication statusPublished - Jun 2008
Externally publishedYes


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