| Summary: | Foreign banks are expanding into China as it started to open up its domestic market and its economic and financial systems become more liberalized. This report attempts to investigate firstly, the prospects of foreign entry for improvements in the abilities of the Chinese banking system. Secondly, we examine the relationship of foreign penetration and the domestic banks performance indicators. Thirdly, investigates what are the Government policies being enforced in order for China to ride on the foreign penetration wave in order to enter international financial markets. Our data set is constructed from China top 5 domestic banks' financial statements, China Data Online and Economist Intelligence Unit, covering the period from 2001 to 2007. An observation based on our descriptive analysis indicates no distinct relationship between foreign bank entry and domestic banks performance indicators. Estimation results further suggest that foreign bank asset share is not a statistically significant determinant of any bank performance indicators. But, the signs of some estimated coefficients are within our expectations. Yet, with the increasingly presence of foreign banks in China, there is no doubt that the entry of foreign banks will bring significant impacts on China's economic and financial development in the future.
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