An Analysis of Stocks in the Chinese Banking

Sector
1. Introduction

People's Republic of China (PRC) banking sector reform has significantly progressed
recently. Deregulation of foreign exchange control over current account transactions has been
accomplished, as has increased independence for the central bank in implementing monetary
policy, increased independence for State-owned banks in credit management, enhanced bank
supervision, and increased bank autonomy (Zhang et al., 2022). Nonetheless, the Chinese
banking industry still confronts significant obstacles. Nonetheless, the State intervenes
considerably in the banking sector by distributing loans to priority industries, controlling interest
rates extensively, and taxing the industry at very high rates.

Recent initiatives to improve banking oversight have had mixed results. The extent to
which the many recently announced policies and initiatives are implemented remains to be
determined. It is partly due to the wide chasm between the real State of the banking industry and
the required prudential standards. The tightening of prudential laws would be meaningless
without corresponding rehabilitation of the banking sector and restructuring of State-owned
enterprises (SOEs). Notwithstanding the 1998 abandonment of the credit plan, effective
mechanisms for indirect monetary management have yet to be implemented (Stanley Isanzu,
2017). The Chinese banking system can only function as an effective financial intermediary if
these issues are resolved. This research aims to examine Chinese banking sector equities to have
a deeper understanding of their performance.

1.1. Research Questions

1. What are the key drivers of stock performance in the Chinese banking sector?
2. How have regulatory reforms impacted the performance of Chinese banks?
3. How many opportunities are present in the Chinese Banking sector regarding
investments?

2. Literature Review

Macroeconomic variables, industry-specific factors, and company-specific factors all

have a role in how well the Chinese bank functions. According to Alzoubi (2022), the stock

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performance of Chinese banks is significantly impacted by macroeconomic variables such as
GDP growth, inflation, interest rates, and currency rates. In addition, the size of the bank and the
intensity of rivalry within the sector directly affect the stock price. Financial performance, asset
quality, and management quality are all company-specific aspects significantly impacting
Chinese bank stock performance (Ally, 2022).

Government Policies have significantly impacted the Chinese baking sector. The stability
of the baking sector of china is because of the effective policies of Basel III's capital adjustments
and risk management. However, small banks need help in adopting these regulations and
policies. Trade tensions between US and China may affect the Chinese banking sector's
performance in the future (Couaillier & Henricot, 2020).

A wide variety of investment options is available in China's banking industry, from huge
state-owned banks to smaller regional banks. China's rising middle class has boosted the demand
for financial services, benefiting the industry (Zhao et al., 2022). However, the banking industry
in China may need more room for expansion than industries like technology and consumer
products. Some investors may be put off by the industry's exposure to regulatory and political
issues (Zhao et al., 2022).

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2.1 Research Farmwork

Interest Rate

GDP Growth
Stock Price
Inflation

Exchange Rate

3. Methodology

The current study will be descriptive quantitative research. Quantitative analysis will be
done through financial reports of selected banks, and data will be analyzed in STATA to draw
results.

3.1 Population and sample of the study

A convenient Sampling technique will be used in the study. The population of the study
will be all Chinese banks. We have selected six banks for our study, of which 3 are private
commercial banks, and 3 are state-owned commercial banks. Private commercial banks include
the Banks of Beijing, Bank of Shanghai, and Bank of Dalian. Public banks will include China
Construction Bank, Bank of China, and Bank of Communications.

3.2 Data Collection

Data will collect from financial reports of selected banks that will include stock prices,
financial statements, annual revenue, and the latest trends in the banking Industry of China.

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3.3 Data Analysis

The Collected data will be analyzed in the statistical software STATA in terms of
descriptive statistics, which include the mean and standard deviation of stock prices and trading
volume of Banks. T-test analysis will be used to compare private and state-owned banks' stocks.
Correlation and regression analysis will be used to test the relationship between the independent
and dependent variables of the study. ANOVA test will be used to test the hypothesis of the
study.

3.4 Expected Results

The study is expected to provide insights into the performance of major Chinese banks
and the factors that influence their stock prices. It will identify the key drivers of stock
performance and the impact of regulatory reforms on the banking sector. The study will also
provide insights into investment opportunities in the Chinese banking sector and how they
compare to other sectors in China.

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4. References

Ally, A. R. (2022). Influence of Macro-Economic Factors on Financial Performance of

Commercial Banks in Tanzania. International Journal of Economics and Finance, 14(7),

1. https://doi.org/10.5539/ijef.v14n7p1

Alzoubi, M. (2022). Stock market performance: Reaction to interest rates and inflation rates.

Banks and Bank Systems, 17(2), 189–198. https://doi.org/10.21511/bbs.17(2).2022.16

Couaillier, C., & Henricot, D. (2020). How Do Markets React to Tighter Bank Capital

Requirements? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3641364

Stanley Isanzu, J. (2017). The Impact of Credit Risk on the Financial Performance of Chinese

Banks. JOURNAL of INTERNATIONAL BUSINESS RESEARCH and MARKETING,

2(3), 14–17. https://doi.org/10.18775/jibrm.1849-8558.2015.23.3002

Zhang, J., Chen, S., & Liu, H. (2022). Central bank communication, shadow banking, and bank

risk-taking: Theoretical model and PVAR empirical evidence. PLOS ONE, 17(9),

e0275110. https://doi.org/10.1371/journal.pone.0275110

Zhao, W., Zhong, M., Liao, X., Ye, C., & Deng, D. (2022). Board Network and CSR

Decoupling: Evidence From China. Frontiers in Psychology, 13.

https://doi.org/10.3389/fpsyg.2022.815341