Banking competition and the enhancement of new quality productive forces: Evidence from China

Abstract

During China's economic change, understanding how the banking industry can support the development of new quality productive forces (NQPFs) is crucial. This study empirically examines the relationship between banking competition and NQPFs using data from the China Bank Branch Database, China Innovation Survey Enterprise Database, China Industrial Enterprise Database, and China Urban Statistical Yearbook, at macro and micro levels. Findings reveal that banking competition significantly enhances the development of NQPFs, which holds true at the macro-city and micro-enterprise levels. This conclusion remains consistent after addressing endogeneity issues using this study's instrumental variables. Further mechanism analysis suggests that banking competition primarily enhances total factor productivity and the level of NQPFs in cities by alleviating corporate financing constraints and fostering independent innovation within enterprises. This study offers important insights into the types of banking structures that can better promote technological innovation in emerging countries undergoing economic transition.