Determining factors of the development of a national financial center: the case of China

Abstract

This study explores, theoretically and empirically, one of the important issues of the geography of finance: the location of high-level financial services. Specifically, we will try to explain why foreign financial services are spatially concentrated on a particular city to form a national financial center in China. By reviewing various forces behind the formation of a financial center, we argue that information problems have created the necessity of the geographic agglomeration of financial activities in the source of information even in the era when financial markets have worked through sophisticated telecommunication networks. Based on the survey of the actual location of MNC regional headquarters and reasons of the headquarters agglomeration, we anticipate that Beijing, as the prime source of policy information, is more advantageous than other Chinese cities to be the national number one financial center when the Chinese financial markets become more open to foreign firms in the near future. Thus, this study illustrates, using China as a case, that geography still provides major justification of why major financial services continue to have a high degree of spatial agglomeration in particular locations, despite electronic transmission of information has substantially reduced the friction of distance.

Cities as command and control centres of the world economy: An empirical analysis, 2006–2015

“…Although all giant state-owned banks (e.g. Bank of China, China Construction Bank, and Industrial and Commercial Bank of China) are headquartered in Beijing, the bulk of the domestic and offshore financial activities are carried out in the triad of Hong Kong, Shanghai, and Shenzhen (Zhao, 2003;Zhao et al, 2004;KPMG, 2011;Lai, 2012). On the other hand, Beijing-based banks control large amount of assets: in 2015, the combined assets of nine of Beijing's major and regional banks ranked by Forbes exceeded $13,343 billion, more than that of any other financial centres in the world, even three times more than Japan's GDP (7).…”

Ranking Asia-Pacific cities: Economic performance of multinational corporations and the regional urban hierarchy

“…Meanwhile, other Chinese cities equally fare well, with Hong Kong, Shanghai, Shenzhen, Guangzhou, Changsa and Foshan also featuring amongst the cities with the largest gains in CAC. However, although we are clearly witnessing a quasi-general rise of Chinese cities in their level of CAC, it is also clear that this growth is firmly focused on a limited set of cities, with especially Beijing, Shanghai, Hong Kong, Guangzhou and Shenzhen emerging as 'the big 5' (with particularly the first three cities dominating) (see also Zhao et al, 2004;Zhao et al, 2005).…”

Improving China’s Regional Financial Center Modernization Development Using a New Hybrid Madm Model

“…Luintel et al (2008) found that financial structure and financial development significantly affect the output level of most countries. It is necessary to create a geography agglomeration of financial activities due to information problems, and a financial center could be its platform (Zhao et al 2004). Cobb (1998) provided evidence that the global major financial centers, such as New York, London, and Tokyo, have good financial services.…”