This report investigates the impact of market deregulation on customers and state commercial banks in China, a big developing country. I approximate a method of differentiated product demand and pricing equations under alternative market structures. Although China’s banking reforms over-all have accomplished mixed results, the consumer surplus of the deposit market has risen. The welfare effects from reforms are unevenly distributed, with losses skewed toward inland provinces and certain consumer groups. There’s no clear evidence that the pricing of banking services has become much more competitive following the reform, and such pricing continues to be subject to government intervention. Encouragingly, the price-cost margins of some state commercial banks have fallen over time. The contribution of saving and investment to economic growth is well-established (Barro, 1991)…
Source: Institute for Economies in Transition, Bank of Finland
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