（School of Economics and Management, Fuzhou University; Institute of Economics, Chinese Academy of Social Science）
Abstract: After the establishment of Shanghai Free Trade Zone, the effect of foreign banks’ entry on the efficiency of domestic commercial banks in China has become more evident. Choosing the first 7 domestic banks in the Shanghai Free Trade Zone, this paper uses the panel data from 2001 to 2013 and the double-effect model to confirm the existence of moderate level of foreign banks’ entry. The moderate level is significant on operating costs. At the same time, we find that the large state-owned commercial banks are the quickest to enhance safety and there is no difference by whether or not the headquarters of domestic commercial banks are in the same place with the Shanghai Free Trade Zone. Accordingly, this paper suggests that a rational perspective should be formed on the effect of foreign banks’ entry. By focusing on opening-up and supervision, the self-learning ability of domestic commercial banks should be improved to popularize the experience of Shanghai Free Trade Zone with innovation.
Key Words: Shanghai Free Trade Zone ; foreign bnaks’ entry ; moderate level