Assistant Professor Chun-Yu Ho researches on Financial Liberalization in China

Assistant Professor of Economics Chun-Yu Ho is a featured visiting fellow in the latest newsletter of Hong Kong Institute of Monetary Research (HKIMR). The HKIMR was which was established by the Hong Kong Monetary Authority (HKMA) in August 1999 and conducts research in the fields of monetary policy, banking and finance that are of strategic importance to the Asia region.^[1] While visiting the HKIMR in early 2016, Chun-Yu conducted his ongoing project, "The Effects of Foreign Bank Entry on Bank Efficiency: Evidence from China," and discussed the research with economists from academic and policy institutions.

Chun-Yu's research examines the effects of foreign bank entry on domestic banks in China. “Although there are evidences documenting that foreign banks enter into China by setting up branches and acquiring equity stakes through cross-border merger and acquisitions (M&As), we do not know whether the entry mode of foreign banks affect their ability to shape the domestic banking industry,” said Ho. Chun-Yu and his co-authors develop a novel empirical strategy to address this important issue and currently conclude that foreign bank entry is beneficial to the domestic bank industry. “Domestic banks face competition when foreign banks set up branches near them, which induces domestic banks to hire better talent and use better equipment to encounter this competition,” said Ho. Further, Ho added “Domestic banks benefited from their foreign shareholders through achieving cost saving and developing new business models.”

Chun-Yu's research will provide policy implications on the financial liberalization of China, which will also be relevant for other emerging markets. "Opening domestic banking market to foreign banks promotes the efficiency of domestic banks regardless whether the foreign banks enter by setting up branches or acquiring equity stakes of domestic banks," said Ho. His research also points out that such beneficial effects of foreign bank entry are stronger when the headquarters of entering foreign banks is closer to the host economies. “The benefits of foreign bank entry are enhanced if foreign banks are more familiar with the local market because they are able to compete with and restructure domestic banks” said Ho.

Chun-Yu research focuses on industrial organization, banking and economic development. His interest in the financial liberalization in China began with his doctoral dissertation at Boston University. His earlier work develops a methodology to show that dominant banks in China have an incentive to lower their price to attract new depositors because Chinese depositors have an inertia in using their current bank. “My research suggests that the commonly-used measures by regulatory agency, such as price-to-cost ratio, may underestimate the market power possessed by dominant banks in China,” said Ho.

Chun-Yu received his doctoral degree from Boston University in 2009. He joined the faculty of the Department of Economics at UAlbany in 2016 after serving as a faculty member at Georgia Institute of Technology and Shanghai Jiao Tong University. He also held visiting positions at Bank of Finland, the Chinese University of Hong Kong and Hong Kong Institute of Monetary Research. He is currently serving as an associate editor for Singapore Economic Review, an international peer-reviewed scholarly journal. At UAlbany, Chun-Yu teaches Industrial Organization for undergraduate students, in which he uses antitrust cases over the last century to illustrate how the development of economic theory informs public policy.

[1] See the Newsletter No.30 (October 2016) of HKIMR at http://www.hkimr.org/newsletter for the coverage of Professor Chun-Yu Ho