Financial innovation system reform in Chinese banking: the impact on bank profitability

China's innovation capacity has been growing rapidly in recent years, but the country still needs to improve its national innovation system and form a financial services system that is compatible with the full life cycle of science and innovation companies. Looking back at China's history of financial development, the choice and feedback of commercial banks on regulatory policy has been an important factor influencing regulatory policy. With China's financial market gradually opening up to the outside world and an influx of foreign commercial banks, Chinese commercial banks are facing increasing competitive pressure. Improving the profitability of Chinese commercial banks to enhance their competitiveness has become a key to financial innovation and reform in the Chinese banking sector. Therefore, this study investigates the profitability and profit efficiency levels of Chinese banking industry over the period 2012-2020 using stochastic frontier approach. The empirical analysis leads to the following conclusions: The result is that national joint-stock commercial banks and city commercial banks, which have been given more management freedom, are trying to adapt to the dynamically changing environment and show an increase in efficiency. State-owned commercial banks maintain high levels of efficiency, but are more conservative to change. Agricultural commercial banks, for the most part, are showing efficiency gains, with no strong deterioration shown. Keywords: national innovation system, banking system, profitability, central bank, return on assets