Hongjie Gu

Date of Award

4-25-2022

Advisor(s)

Dr. Yong Wang

Second Advisor

Dr. Icheng Robert Chiang

Third Advisor

Dr. Yifu Lin

Abstract

With the unprecedented global economic integration, the internationalization of commercial banks (CBs) in a country or region can be closely related to the stability and prosperity of the world economy. The internationalization of Chinese CBs has turned out a non-negligible trend, particularly the big four state-owned CBs. The acceleration of “going global” has enabled Chinese CBs to exert an increasing influence on the world economy. This dissertation applies New Structural Economics theory (NSE) through the “one analysis and three inductions” methodology to analyze the evolution of the cross-border network structure adopted by CBs in the internationalization process. In this dissertation, “big banks” are large state-owned Chinese CBs, which specifically include Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Bank of Communications (BoCom); “small banks” refer to other Chinese CBs than the aforementioned large ones.

More concretely, we in this dissertation review the evolution of bank internationalization in the past decades through the method of historical vertical induction, and then come up with the three most marked characteristics of Chinese CBs in internationalized operation. Further, we analyze the three characteristics through the method of multi-phenomena synthesis induction to find out the most important factor influencing the cross-border network evolution of Chinese CBs and provide some inspiration for the Chinese government (financial regulators) to steer Chinese CBs in their go-global drive. To better understand the three characteristics (phenomena), this dissertation tries to answer three questions.

First, what is the relation between the cross-border network structure of CBs and economic development goals? According to the theories proposed in developed countries, the motivation behind the internationalization of commercial banks is either following customers or maximizing profit. In this dissertation, we try to address the question with the NSE theory, which was proposed by Chinese professor Yifu Lin. By applying NSE, we take a rough look at the history of bank internationalization, analyze how several rounds of internationalization are correlated to the industrial upgrading process, and explore how global financial structures have changed endogenously to better support economic development through the methods of historical vertical induction and contemporary horizontal induction. On this basis, we analyze the evolution of Chinese CBs at different stages of economic development to prove that the cross-border network structure of Chinese CBs is closely related to China’s economic development goals at different stages. Following customers or enlarging profit is the motivation behind bank internationalization theoretically analyzed from the perspective of banks, but not from the demand dimension. When financial regulators approve and instruct banks of different sizes to go global continuously by following the logic of NSE, banks will be able to serve the real economy more efficiently.

Second, why has the Chinese government approved fewer small Chinese CBs to go global than it did to big banks? In the Chinese market, big banks have more comparative advantages when it comes to serving big firms, where small banks are superior when serving small enterprises (Yifu Lin, 2019). However, during the process of cross-border operation, big banks can maintain their comparative advantages in serving big companies at home and abroad; in contrast, small banks lose their comparative advantages in serving small enterprises. Now that there are many investment opportunities in the Belt and Road (B&R) countries and regions, why have only a few small Chinese banks set up overseas institutions in these markets? To deal with this question, the NSE logic is wielded to analyze and demonstrate that the performance of different-sized banks is obviously affected by the asset allocation efficiency and international business environment at different stages. The influencing factors may include geopolitical risks, laws, cultures, and financial regulations, among others. Thus, though overseas markets, especially the B&R ones, abound with investment opportunities, the Chinese government couldn’t encourage more small banks to set up overseas institutions, like most western countries did in the early stages of banking internationalization.

Third, what is the role of financial regulators in cross-border operation of Chinese CBs, especially since the B&R Initiative was proposed? The first two generations of development economics, namely the theories of structuralism and neo-liberalism, diverge on what role the government should play. Structuralism overemphasizes the role of government, but neglects the role of market. Neo-liberalism does the reverse. In this dissertation, we apply the NSF theory to analyze the role of regulators from the perspective of developing countries through the case study method, and find out that it is important for Chinese financial regulators to perform an active role amid the tightened global financial environment. To better underpin this viewpoint, this dissertation further analyzes profitability and other important financial indicators of major Chinese CBs in recent years and points out that a facilitating government is highly conducive to banks’ continuous development.

After the above analysis, this dissertation indicates that economic development goals at different stages and China’s special international status turn out to be the primary factor influencing the cross-border network structure of Chinese CBs. On this basis, it applies a consideration framework for financial regulators.

Chapter 1 introduces the background of Chinese CBs’ internationalization, explains why the questions discussed in this dissertation are important, and outlines the research approaches. Chapters 2 and 3 outline the theories and literature related to bank internationalization as well as describe their limitation in terms of internationalization motivation, location, and influence. Besides, three generations of development economics, and the logic behind the internationalization drive of Chinese CBs from the perspective of NSE is introduced in these two chapters. Chapter 4 sketches the background of bank internationalization and defines some concepts such as international banks, bank internationalization, and financial structures. Chapter 5 employs historical vertical induction and contemporary horizontal induction as two methods to compare commercial banks from different countries in terms of their performances and characteristics in the previous waves of internationalization. After reviewing the development history of Chinese CBs, it summarizes the three most prominent characteristics of the cross-border network structure adopted by Chinese CBs. Chapters 6, 7 and 8 details these three characteristics one by one with the method of multi-phenomena synthesis induction and the regression model. Chapter 9 presents the conclusions of the study discussed in this dissertation and points out some possible directions for future study.

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