Centralization and marginalization: The Chinese banking industry in reform

Based on the distribution patterns of the sub-branches and saving outlets of the Industrial and Commercial Bank of China and the Bank of China in prefectural cities in China between 2001 and 2009, this paper examines how these two Chinese state-owned commercial banks may centralize their operations and thus lead to the possible marginalization of the provision of basic banking services to low value-added customers. The restructuring of SOCBs may not result in high levels of layoff due to the state’s objectives of minimizing both operational costs and political risks. When the politically sensitive issue of (un)employment is not taken into account, the more economically developed cities with larger populations and the more developed telecommunication facilities experience a higher level of centralization of their banking operations. The centralization of banking operations in China is, however, not always at the expense of savings outlets, despite the merging of savings outlets with sub-branches in various Chinese cities. There is circumstantial evidence to suggest the convergence thesis is not applicable to the banking industry in China, which is different from the conventional argument in financial geography that the centralization and marginalization of banking operations are two sides of the same coin as in the restructuring of the Anglo-American banking industries. This difference could be due to the hybrid ownership structures of state-owned commercial banks in China where the boundaries between public and private property rights are blurred.