Financial centre development in Mainland China: a financial

geography perspective

Submitted by Xiaoyang Wang

School of Geography and the Environment and St. Antony’s College,
University of Oxford

In partial fulfilment of the requirements for the degree of

Doctor of Philosophy

Trinity Term, 2017

To Jennifer Robinson and Dariusz Wójcik—for showing me the way forward.
 Abstract

Financial centre development in Mainland China: a financial geography perspective

Xiaoyang Wang

School of Geography and the Environment and St. Antony’s College, University of Oxford
In partial fulfillment of the requirements for the degree of Doctor of Philosophy
Trinity Term, 2017

Even in the conditions of the digital economy, financial centers remain crucial in the architecture of

globalization, as international financial system has reached levels of complexity that requires the

existence of a cross-border network of financial centers. After China’s accession to the World Trade

Organization, the country has gradually become a superpower in the world economy and is

becoming one in the realm of global finance. In this context, Chinese cities are increasingly

embedded into global systems of production, capital flows and accumulation. However, the ascent

of China has not inspired a sufficient attention of financial geographers or other social scientists to

the topic of China’s financial centers. The objective of this thesis is to map and account for the recent

development of financial centers in Mainland China, with specific focus on Shanghai, through the

lens of financial geography.

Given the centrality of money and finance to market economy as well as China’s particular history

and geography, this thesis provides an interrogation of the wider social, political, institutional,

technological and cultural context for financial center development in China, ranging from the

geographies of banking and securities industry in Mainland China to Shanghai’s IFC dynamics and

its strategic development initiatives. In doing so, this work tests and exemplifies the validity of a

number of western theoretical approaches to financial and economic geography.

i
The empirical study of geography of financial centers in Mainland, reveals the characteristics of

China’s transition economy and the crucial role of different levels of government in producing and

shaping the evolution of its financial centers. It also highlights Beijing’s critical role in the domestic

hierarchical networks in both banking and the securities industry. In addition, the case of Shanghai

shows specific characteristics of this international financial center in terms of its history, politics,

culture and the developmental model. More specifically, this thesis presents the dynamics of

Shanghai as an emerging international financial center formation with Chinese characteristics that

goes beyond thinking centred on Anglo-American literature.

In summary, the thesis as a whole may be considered as a bridge between western countries and

China in terms of financial geographies focusing on the study of financial center evolution.

ii
Table of contents

Abstract…………………………………………………………………………………... i
Table of contents……………………………………………………………………….. iii
List of tables…………………………………………………………………………….. vi
List of figures………………………………………………………………………….... vii
List of appendices……………………………………………………………………… viii
Acknowledgements……………………………………………………………………. ix
List of abbreviations………………………………………………………………….... x

Chapter 1
Introduction…………………………………………………………………………… 1
1.1 Background……………………………………………………………………….. 1
1.2 Objectives and research questions…………………………………………… 5
1.3 Methodological approach and data…………………………………………… 7
1.4 Scope and structure of the thesis……………………………………………… 11

Chapter 2
Review of the literature on financial geography, with a focus on financial
centres………………………………………………………………………………… 16
2.1 The evolving literature on economic and financial geography………………. 16
2.2 Evolving approaches to financial centres…………………………………….. 32
2.3 Financial geographies of China……………………………………………….. 49

Chapter 3
The changing geographies of commercial banking in Mainland
China…………………………………………………………………………………… 56
3.1 Introduction……………………………………………………………………….. 56
3.2 Background: Mainland China’s banking system, and answered and
unanswered questions on the geographies of banking……………………………... 59

iii
3.3 Data and methodology…………………………………………………………... .67
3.4 The changing geography of China’s commercial banking………………… 68
3.5 The geography of commercial banking: spatial concentration or dispersal?..84
3.6 Summary………………………………………………………………………… 87

Chapter 4
The geography of the securities industry in Mainland China…………………. 94
4.1 Introduction……………………………………………………………………… 94
4.2 Geography of the securities industry…………………………………………. 97
4.3 The rise of the securities industry…………………………………………….. 105
4.4 The geographical distribution and concentration of headquarters locations 110
4.5 The branch networks of the securities industry: connectivity analysis…. 119
4.6 The competition between leading securities centers and the case of CITIC
Securities………………………………………………………………………………...128
4.7 Summary…………………………………………………………………………..133

Chapter 5
Examining the clusters of financial and business services within Shanghai
city………………………………………………………………………………………..137
5.1 Introduction……………………………………………………………………….137
5.2 The FABS: importance, centrality and geographies within a city…………...140
5.3 Data and methodology………………………………………………………….148
5.4 Mapping the clusters of FABS in Shanghai…………………………………..152
5.5 Summary…………………………………………………………………………170

Chapter 6
The dynamics of Shanghai’s IFC formation: a state-led model beyond the
neoliberal orthodoxy………………………………………………………………….182
6.1 Introduction……………………………………………………………………….182
6.2 IFCs: concept, theoretical basis and relevant literature review…………….184
iv
6.3 Shanghai’s development as an IFC: historical success, contemporary
strategies and outcomes……………………………………………………………….194
6.4 A not-so-internationalized IFC: compare Shanghai with New York and
London……………………………………………………………………………………210
6.5 Summary………………………………………………………………………….216

Chapter 7
Conclusions and implications…………………………………………………….. 218
7.1 Introduction………………………………………………………………………218
7.2 Restatement of findings……………………………………………………….. 219
7.3 Contribution to literature………………………………………………………..225
7.4 Limitations and directions for future research………………………………..227
7.5 Where is the bridge?...................................................................................230

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List of tables

Table 2.1 Shifts in dominant theoretical perspective in economic geography since the late 1960s……………18

Table 2.2 The evolution of geography of money and finance since 1980s………………………………………………….21

Table 2.3 Key conceptual approaches to the study of financial centers……………………………………………………..35

Table 3.1 Number of legal entities and staff of banking institutions (2006 and 2014)………………………………..61

Table 3.2 A full list and overview of China’s JSCBs……………………………………………………………………………………..72

Table 3.3 Foreign banks in China (2006–2014) ………………………………………………………………………………………….76

Table 3.4 Foreign banks in selected cities and provinces between 2006, 2010 and 2011 ………………………….77

Table 3.5 The hierarchy of banking centres in China………………………………………………………………………………….81

Table 4.1 The growth of securities, futures and fund management firms between 2007 and 2014………… 105

Table 4.2 External connections: Joint ventures with foreign securities firms on the Mainland…………………109

Table 4.3 List of overseas exchanges with representative offices…………………………………………………………….109

Table 4.4 The top 10 securities centres at subsector level……………………………………………………………………….114

Table 4.5 Top 10 nodes and city-dyads in securities firms’ branch networks……………………………………………123

Table 4.6 Top 10 nodes and city-dyads in futures firms’ branch networks……………………………………………….124

Table 4.7 Top 10 nodes and city-dyads in fund management firms’ branch networks……………………………..126

Table 5.1 Major national capital markets in Shanghai………………………………………………………………………………160

Table 5.2 The distribution of Shanghai’s financial regulatory authorities…………………………………………………160

Table 5.3 The geographical centrality of foreign financial institutions in Shanghai…………………………………..161

Table 5.4 The distribution and categories of FTZ’s firms listed on the SSE………………………………………………..170

Table 6.1 Different categories of contemporary IFCs according to legal family…………………………………………188

Table 6.2 Different categories of contemporary IFCs according to geographical impact…………………………..189

Table 6.3 A policy regime comparison between London, Hong Kong, Singapore and Shanghai………………..190

Table 6.4 The growth of Shanghai and selected Eastern Coastal Provinces (%), 1953–1989……………………..197

Table 6.5 The strategic evolution of Shanghai’s ambition to become a truly IFC……………………………………… 200

Table 6.6 Changing ranking and rating of Shanghai, Beijing and Anglo-American centres………………………. .202

Table 6.7 Growth of capital markets in Shanghai after 2009…………………………………………………………………….206

Table 6.8 The top 10 cities/ provinces in terms of cross-border capital flows over 2006–2015…………………207

Table 6.9 The key indicators of the FTZ in 2016 and growth since 2015……………………………………………………209

Table 6.10 The characteristics of Shanghai’s IFC dynamics ………………………………………………………………………215

vi
List of figures

Figure 3.1 The distribution of the headquarters of the 50 largest commercial banks, including SOCBs…… 69

Figure 3.2 A geographical breakdown of the assets of the top 50 banks, including SOCBs……………………… 70

Figure 3.3 A geographical breakdown of the assets of the top 50 banks, excluding SOCBs…………………….. 71

Figure 3.4 The distribution of JSCBs’ branches and sub-branches………………………………………………………….. 74

Figure 3.5 Geographical concentration of banking assets at provincial level…………………………………………. 84

Figure 3.6 Geographical concentration of banking assets at city level……………………………………………………. 87

Figure 4.1 The changing number of securities, futures and fund management firms…………………………… 108

Figure 4.2 Distribution of headquarters of securities, futures and fund management firms………………… 112

Figure 4.3 The geographies of the securities industry at subsector level in 2014………………………………… 116

Figure 4.4 Comparison of geographical concentration of securities, futures and fund firms………………. 118

Figure 4.5 Visualizing the branch networks of securities firms…………………………………………………………… 122

Figure 4.6 Visualizing the branch networks of futures firms………………………………………………………………. 124

Figure 4.7 Visualizing the branch network of fund management firms………………………………………………. 125

Figure 4.8 Changing number of headquarters of securities firms in leading securities centres………….. 130

Figure 5.1 Administrative divisions of Shanghai………………………………………………………………………………… 149

Figure 5.2 The geography of FABS and financial regulatory institutions at the district level………………. 153

Figure 5.3 The geography of domestic institutions and foreign and joint-ventures firms……………………. 155

Figure 5.4 Comparison between the geographies of the financial sector and business services ………... 157

Figure 5.5 The location of Lujiazui, West Nanjing Road and Central Huaihai Road……………………………….. 159

Figure 5.6 The top three clusters of APS firms……………………………………………………………………………………… 164

Figure 5.7 Grade A office buildings and business services cluster in West Nanjing Road……………………... 165

Figure 5.8 Map of Shanghai FTZ after expansion in December 2014……………………………………………………. 168

Figure 6.1 A comparison between emerging IFCs and hyper IFCs…………………………………………………………. 192

Figure 6.2 Changing rating of Shanghai, Beijing relative to Anglo-American IFCs, 2012–2017…………….. 203

Figure 6.3 The GDP of financial industry and financial employment in Shanghai…………………………………. 205

Figure 6.4 The internationalization of selected stock markets by the end of 2015………………………………… 212

vii
List of appendices

Appendix 3.1 The largest 50 commercial banks in 2006 and 2014…………………………………………………………. 90

Appendix 5.1 Distribution of FABS at district level, Shanghai…………………………………………………………………. 173

Appendix 5.2 List of financial regulatory institutions and FABS firms……………………………………………………. 173

viii
Acknowledgements

First of all, I would like to thank for Professor Jennifer Robinson for her omnipresence and
authority. Without her support I would have never studied at the University of Oxford. When
I started my MSc at UCL in 2011, I knew nothing about Anglo-American geography. Jennifer
carefully guided me and showed me how to build a foundation for geography research in
the UK.

Second, I am grateful to Professor Dariusz Wójcik who is my supervisor in the past four
years at Oxford. He had encouraged me to start a D.Phil, when we met for the first time in
2010. He led me all the way through, with his help permeating all aspects of my life in Oxford.
Every single page of this thesis has benefited from Darek’s inspirations, suggestions, and
critical evaluation. I wanted to come to Oxford to find an authority and I have achieved my
goal. It is the experience of working with Darek, which I treasure most about my encounter
with the University, and which I will take with me into the future.

On the top of Darek’s invaluable supervision I received encouragement from other

academics in the School of Geography and the Environment. Gordon Clark, who was my
examiner of transfer and confirmation, was highly supportive of my project from its very start.
He provided creative criticism upon the confirmation of my D.Phil. status. I would also like
to express my gratitude for insightful comments to Neil Brenner, Harvard University, Simon
Zhao, University of Hong Kong, Andrew Leyshon and Sarah Hall, both at the University of
Nottingham.

Last but not least, I would like to thank Liu He from University of Oxford, Dr. Chun Peng from
Peking University, Dr. Ke Meng from Tsinghua University, and Wei Chen and Haimeng Liu
from the Institute of Geographic Sciences and Natural Resources Research, CAS for
sharing with me all the downs and ups of my student life.

ix
List of abbreviations

ABS Advanced Business Services

AIIB Asian Infrastructure Investment Bank
APS Advanced Producer Services
CBD Central Business District
CBRC China Banking Regulatory Commission
CDB China Development Bank
CFFE China Financial Futures Exchange
CIRC China Insurance Regulatory Commission
CSRC China Securities Regulatory Commission
DCE Dalian Commodity Exchange
FABS Financial and Business Services
FDI Foreign Direct Investment
FTZ Free Trade Zone
GaWC Globalization and World Cities
GFCI Global Financial Centre Index
GFN Global Financial Network
GPN Global Production network
IFC International Financial Centre
IMF International Monetary Fund
IPO Initial Public Offering
JSCB Joint-Stock Commercial Bank
MNC Multinational Companies
OBOR One Belt, One Road
ODI Oversea Direct Investment
PBOC People’s Bank of China
PSBC Postal Saving Bank of China

x
SFE Shanghai Futures Exchange
SDR Special Drawing Right
SOCB State-Owned Commercial Bank
SSE Shanghai Stock Exchange
SZSE Shenzhen Stock Exchange
WCN World City Network
WTO World Trade Organization
ZCE Zhengzhou Commodity Exchange

xi
Chapter 1 Introduction

1.1 Background

In this thesis, I assess China’s financial centers, particularly Shanghai, from the

perspective of financial geography. In the age of globalization and digital economy,

international financial system and agglomeration economies have reached levels of

complexity that requires the existence of a cross-border network of financial centers

(Thrift 1989; Sassen 2012a). It is often assumed that, in a 24-hour financial market,

there need to be three time-zone-based leading international financial centers (IFCs)

for continuous transactions and global professional services, recognized by the term

‘global trinity’ (Thrift 1989). Undoubtedly, London and New York are leading IFCs in

the European and American time zones respectively. Which city will be a crucial hub

in the Asia-Pacific region is, however, still an unresolved mystery. The financial

landscape worldwide has changed dramatically since the global financial crisis of

2008–2009. The subprime crisis in the USA and the following Eurozone crisis appear

to be accelerating the long-term geopolitical and geoeconomic shift from North

America and Western Europe to the Asia-Pacific region, fueling expectations about

the rise of Asian IFCs. Brexit, as a threat to the City of London and the stagnation of

European economy in general, adds to these predictions.1

Following China’s accession into the World Trade Organization (WTO) and its

deepened reform and opening up, unprecedented urban growth has been taking

place in this emerging superpower in the context of the ‘One Belt, One

Road’ (OBOR) Initiatives and the Free Trade Zone (FTZ) strategy. The expansion of

1 https://www.brookings.edu/2016/06/27/brexit-aftermath-the-wests-decline-and-chinas-rise/.
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China has fueled demand in the global financial market (Clark 2015). In other words,

understanding the geography of Chinese finance is increasingly important for

understanding the landscape of world economy in the 21st century. For example,

first, the Chinese central government started the process of internationalizing the

RMB in 2005, and the RMB is currently the fifth most-used currency globally for

international payments (Hall 2017). More recently, in 2016, the RMB officially joined

the International Monetary Fund’s (IMF’s) Special Drawing Right (SDR). Second,

China attracted the most foreign direct investment (FDI) worldwide in 2015, which

reached 128.5 billion US dollars, excluding financial FDI. Meanwhile, China’s

outward direct investment (ODI) amounted to 176.4 billion dollars in 2016, while it

was only 12.3 billion dollars in 2003. Third, in the context of OBOR, China’s rise as a

regional and global financial power is also exemplified by the establishment of the

Asian Infrastructure Investment Bank (AIIB) and the BRICs Bank.

In this context, Chinese cities are increasingly embedded into global systems of

production, capital flows and accumulation (Taylor et al. 2014). Simultaneously,

China’s accelerating influence has been restructuring the geography of global

finance. Against this backdrop, in March 2009, the State Council set a goal of turning

Shanghai into an influential IFC by 2020, a target with which the municipal

government of Shanghai is in enthusiastic agreement (Shanghai Daily 2009). As

Elliott (2011: 1) points out:

This objective is, arguably, a desirable one for Shanghai and China as a whole,

because breaking into the very exclusive inner circle of such IFC would bring

substantial economic gains, increased ‘soft’ geopolitical power, and a large pool of

lucrative jobs. These gains would come not just from the growth of a narrowly

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defined financial industry, but also from a wide range of positive spillover effects, not

the least of which is the creation of a number of related industries interconnected

with finance.

The ascent and ambition of China and Shanghai have not, however, inspired

sufficient attention in financial geographical studies regarding China’s financial

centres and making Shanghai an IFC. This is especially true in that most research

focuses on financial centers from developed economies. This topic is thus important

and necessary.

Simultaneously, from the academic perspective, we should foreground the

geography of money and finance in economic geography (Coe et al. 2014; Sokol

2013). A key starting point to emphasize here is that finance should be understood

as ‘central to the dynamics and trajectory of contemporary capitalism’ (Lee et al.

2009). Traditionally, however, the geography of finance has been a topic of

peripheral interest to orthodox economics. Economic geographers have often

ignored the spatialities of finance. Rare studies on financial geography published in

the 1970s and 1980s hardly added up to a substantial or coherent body of theoretical

or empirical research (Garretsen et al. 2009).

During the 1990s, however, the relationship between money and space started to be

a central topic with a profoundly spatial phenomenon—financialisation, promoted by

a series of books and papers by economists and geographers (for example,

Corbridge et al. 1994; Laulajainen 1998; Leyshon 1995, 1997, 1998; Leyshon and

Thrift 1997; Martin 1999; O’Brien 1992). Since the early 1990s, O’Brien’s response

to the growing importance of international capital flows has been to argue that the

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globalisation and digitalisation of capital has resulted in a homogenisation of financial

space, which in turn led towards what he describes as the ‘end of geography’. In this

brave new world of global finance, O’Brien argues that money has escaped space.

However, it is salutary to note that, even in a highly integrated financial networks,

geography cannot be underestimated so recklessly (Leyshon 1995).

Against this background, geographers have argued that location and place remain of

crucial importance. The spatial concentration of financial activities has not

dramatically lessened in the past 25 years. The IFCs still exist in a quicksilver global

economy and are increasingly fulfilling gateway functions for spatial circuits of

national and foreign capitals, because IFCs have a particular set of locational

determinants, and local characteristics and localised information jointly define the

advantages of a given location as a financial centre (Thrift 1994). Tickell (2000) has

also shown that particular localities remain critical even in the production and

reproduction of global finance, and discusses the impacts of an uneven geography of

finance on localities. These centres are linked together by financial networks that

ignore national borders, and they function as nodes or portals with highly

geographically differentiated effects on regional and urban development. This thesis

brings together a number of chapters on the issue of financial centres by focusing on

the case of China and Shanghai particularly, ranging from the geographies of

banking and securities industry in mainland China to Shanghai’s IFC dynamics and

its strategy initiatives.

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1.2 Objectives and research questions

This thesis seeks to carry out a novel empirical study on China’s financial centres,

particularly Shanghai, by building on a combination of existing financial geography

approaches. These approaches focus on agglomeration and cluster economies,

world and global city concepts, cultural economy, the role of information and

knowledge, institutions, financial network, ‘geographical’ political economy, and

financialisaton, all of which will be discussed in detail in chapter 2.

Overall, I attempt to map and account for the recent development of financial centres

in mainland China, with a specific focus on Shanghai. Within this broad objective,

two key questions guide this project. First, what are the geographies of financial

centres in mainland China in terms of their development and their changing nature?

Second, to what extent can existing theoretical approaches to financial centres

explain the development of China’s financial centres and Shanghai?

To achieve the overarching goals, the core chapters of the thesis ask the following

specific questions.

In chapter 3, I ask what are the changing geographies of commercial banking in

mainland China, what is the hierarchical network of banking centres, and which city

is the primary banking centre in China’s financial network: Shanghai or Beijing?

China’s financial system is dominated by the banking industry, but there is a lack of

systematic interrogation in the existing literature. Most existing studies consider

Shanghai to be the mainland’s predominant centre from the perspective of Anglo-

American financial capitalism, but Zhao et al. (2005) and the latest work by Wójcik

and Camilleri (2015) indicate that Beijing plays a critical role in China’s financial

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landscape and for managing China’s economic and financial operations. Chapter 3

tries to answer these questions by investigating the changing geographies of

commercial banking.

Chapter 4 attempts to address the following questions: what are the geographies of

the securities industry in mainland China? What are the similarities and differences

between the hierarchical network of the securities industry at the subsector level in

terms of securities, futures and fund management firms? While China’s financial

system is dominated by the banking sector, the securities industry has been growing

rapidly following market economy reform on the mainland. During this process, the

securities intermediaries have played a significant role in facilitating the flows of

capital and information in financial markets. Previous research, however, has drawn

little attention to the geography of securities intermediaries. Chapter 4 thus maps the

hierarchical networks of China’s financial centres through the lens of the securities

intermediaries.

China’s financial centres have grown rapidly in the last few decades. In this context, I

would like to ask how the recent development of financial centres in mainland China

compares to the evolution of financial centres in other parts of the world. Is there any

similarity or difference between their developmental dynamics and models? Using

this as a starting point, this research uses Shanghai’s IFC as a vehicle to answer

these questions in chapters 5 and 6.

Existing studies highlight Shanghai as an emerging IFC (Lai 2012b; Taylor et al.

2014) and global city (Sassen 2012a). They fail, however, to explain the internal

spatial dynamics of Shanghai as an IFC and a global city. In chapter 5, I thus aim to

answer these specific questions by examining the clusters of financial and business

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services (FABS) within this mega city. What are the clusters of FABS within the city?

Why is the spatial distribution of FABS important to its IFC formation? How do the

geographies of FABS function Shanghai’s IFC and global city dynamics?

Hall (2017)’s empirical study of London’s RMB offshore centre has emphasised the

critical nature of politics and state intervention in (re)producing and shaping an IFC.

With this research, I argue that China’s distinguished institutions and politics-

economy call for a new geographical understanding of financial centre growth and

IFC formation using the case of Shanghai as an example. More specifically, in

chapter 6, I ask what is the policy regime of Shanghai’s IFC in contrast with other

IFCs worldwide? How have its policies and strategic initiatives impacted and shaped

Shanghai’s IFC development in the past decades? Is there any pathway to upgrade

Shanghai’s influence in the world economy beyond the orthodox New York–London

model?

1.3 Methodological approach and data

One difference between economics and economic geography lies in how they

approach the diversity of economic life, because economic geography is a discipline

that covers a very diverse range of philosophical approaches to knowledge. As such,

economic geographers employ a rich combination of quantitative and qualitative

methods. Both can take the form of extensive research design, highlighting patterns

in large representative datasets and intensive research designs that primarily focus

on a single case study or a small number of case studies (Clifford et al. 2010).

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Both quantitative and qualitative methods are used in my thesis. Developments in

the philosophy of science have led to the conclusion that quantitative and qualitative

methods should not have a separate-but-equal status, and should instead interact

(Olsen 2004). Yeung (2003) argues for a process-based methodological framework

through which we employ complementary methodological practices and

triangulation. Triangulation and pluralism both tend to support interdisciplinary

research, such as financial geography.

This thesis relies mainly on quantitative methods. I use Excel, Numbers, ArcGis,

other software (such as GeoCommons and AJD Geospatial Concepts), and related

geography and social science models for data processing and analysis in my

empirical study. The basic tools used in this study are Excel and Numbers to

summarise large amounts of data through descriptive statistics and explore data

through visualisation (Fotheringham et al. 2000). Some complex datasets are

analysed using models and then visualised by ArcGis and spatial analysis (Martin

1996). The primary methodology here is geovisualisation, associated with GIS and

cartographic application. The display of data or results on a map utilises the

characteristic of spatial data that makes it special: the data has a spatial location.

This thesis covers geographic visualisation from maps to GIS.

Modelling is another methodology for dealing with my data. As Fotheringham (2005)

believes, one test of whether we actually understand a spatial process is to develop

a mathematical model that represents our understanding and examines the extent to

which this model can accurately represent that part of the real geographies in which

we are interested. The geographical concentration index is applicable for the

measurement of the spatial concentration of the banking industry in a specific period

!8
(Wójcik and MacDonald-Korth 2015). Meanwhile, the interlocking city network model

was created by the scholars of Globalisation and World Cities (GaWC)2 (Taylor

2012) to examine the nodality and connectivity of cities in a network. This model has

been the basis of the main securities industry quantitative strand of study at the

subsector level, and it is devised and evolved here as a way of describing the

domestic city network in contemporary securitisation.

Qualitative methods are also applied as complement methods in this research. The

case study format is very helpful for explaining my arguments and examining the

validity of orthodox Anglo-American theories in Chinese cases. This provides support

for my quantitative analysis (Baxter and Jack 2008; Yin 2003). For example, first, in

the chapter on securities discussion, I employ the case of CITIC securities to explore

the relations between Beijing, Shanghai and Shenzhen, and to restore the history

and reforms of mainland’s securities in the new century. Another chapter focusing on

Shanghai’s financial centre in a global context uses the case of WuXi PharmaTech (a

global leading contract R&D services provider serving the pharmaceutical, biotech,

and medical device industries) to demonstrate the disadvantages of Shanghai’s IFC.

Second, I also use policy documents in the thesis. I collect the authoritative policy

documents on Shanghai’s IFC released by both central and local governments since

the 1990s to summarise the developmental stages of Shanghai’s policy regime

before I assess their strategic effects. This is not merely aimed at validation, but also

at deepening and widening our understanding on Shanghai’s IFC dynamics. It is also

beneficial for triangulation. The conversational-style interview is a third qualitative

method used in my research (Flowerdew and Martin 2005). Economic geography

2 http://www.lboro.ac.uk/gawc/.
!9
and the geography of finance is often based on in-depth interviews, or ‘close

dialogue’, which can play an important role in promoting theoretical innovation in the

financial geography in particular (Clark 1998). I carried out approximately 20

interviews in Beijing and Shanghai in 2014 and 2015, and the interviewees represent

organisations ranging from the People’s Bank of China, CBRC, CITIC securities, the

Shanghai branch office of the CSRC, the Ministry of Commerce, Tianjin Municipal

Government, and the National Committee of Development and Reform. No human or

personal data has been directly used in my thesis, but these interviews have

contributed to my understanding of China’s financial system, especially the

regulatory mechanisms and the latest policy orientation at the central government

level. Advice from interviewees has also assisted my data hunting and data

collection, for example by helping me find data from websites, official annual reports

and yearbooks.

Regarding datasets, I use the latest data for my empirical study. First, in chapter 3,

the banking data comprises the major components of China’s banking system,

covering the five largest commercial banks, twelve joint-stock commercial banks

(JSCBs), regional and local commercial banks, and foreign banks. In this regard, this

dataset can provide a comprehensive understanding of China’s commercial banking

sector, and it is also the first study to discuss the geography of JSCBs. In addition, to

analyse the spatial concentration, this chapter employs data on banking assets at

the provincial level collected from the China Regional Finance Operation Report

2006–2014, and data on the banking assets of the largest 50 commercial banks from

2006–2014 at the city level. Second, chapter 4 focuses on the securities industry by

analysing data on the size and structure of capital market intermediaries, their

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ownership, headquarter locations, branch networks, employment, and transactions.

Quantitative analysis is complemented with insights drawn from interviews with

senior employees from 10 leading securities and fund management firms conducted

in Beijing and Shanghai in 2014–2015. This is the first attempt to examine the

securities industry from a financial geography perspective. Third, in chapter 5, to

explore the internal spatial dynamics of Shanghai’s IFC, I do not only use financial

sector data, but also data from the distribution of 300 business services firms

(including accounting, law, consulting and advertising) to investigate the clusters of

FABS within the city. To the best of my knowledge, this is the first study to integrate

business services data into empirical research on Shanghai’s IFC. Fourth, chapter 6

includes an introduction of Shanghai’s strategy initiatives with the systematic,

qualitative data covering the past decades. The evaluation of strategic effects of

Shanghai’s IFC policy regime also considers the impact of the Shanghai FTZ,

particularly by integrating the latest quantitative data from the FTZ into my discussion

in chapter 6.

1.4 Scope and structure of the thesis

Following the University of Oxford degree guidelines, the thesis is built around the

‘book route’. Specifically, it is made up of an introduction (chapter 1), one

background chapter that serves the function of a literature review (chapter 2), the

main body of the empirical study (chapters 3–6), and a conclusion (chapter 7). In

what follows I briefly outline each chapter.

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Chapter 2 provides a conceptual and theoretical foundation for the empirical

research of the thesis. First, it narrates the co-evolution of economic geography and

financial geography in the past few decades, and highlights the increasing

importance of the geography of money and finance. Second, it reviews the evolution

of conceptual approaches in financial centre research on economic and financial

geography and related subjects, providing the thesis with its theoretical basis

(chapters 3–6). I identify the research gaps and clarify my motivation in this research

after an evaluation of the financial geographies of China.

Chapter 3 discusses the geographies of commercial banking in mainland China. To

understand the changing geographies of financial centres, this chapter uses an

empirical approach to highlight the changing spatial distribution of banking to the

existing collection of empirical descriptions, and by an investigation of its spatial

concentration over this period. The empirical analysis is based on branch and

subbranch data, employment data, headquarters data, and banking assets data, all

of which are available, allowing a systematic geographical analysis of commercial

banking. The findings reveal the status of Beijing and Shanghai as primary banking

centres, a hierarchical network of domestic banking centres, and a growing spatial

concentration in the mainland’s banking system.

In chapter 4, I ask how financial geography can contribute to understanding the

growth of the securities industry. The main objective of this study is thus to examine

the financial geographies of the securities industry at the subsector level. I analyse

the current situation of the industry, map the hierarchical networks, and examine

competition between China’s leading securities centres. I use data on headquarter

!12
locations, branch networks, transactions and employment to study the evolving

geography of securities, futures and fund management firms serving capital markets

in Mainland China. Results show that Shanghai leads in terms of headquarter

locations and connectivity, but falls behind Beijing in terms of employment and

transactions, with Shenzhen in the third position. While tax and other advantages

attract firms to register headquarters in Shanghai or Shenzhen, many of them

conduct core operations out of Beijing. As the growth potential in Chinese capital

markets is high, the geography of capital market intermediaries will remain a key

factor in shaping relationships between China’s financial centres.

Chapter 5 contributes to mapping the geographies of Shanghai’s FABS at the local

scale. I examine the geographies of clusters from two spatial levels (district level and

a narrower cluster level), and investigate the interdependencies and local networks

of different sectors in the context of the FTZ. The empirical analysis is based on data

regarding the headquarters and representative offices of financial firms, authoritative

institutions, and business services firms in Shanghai. It also uses data on local listed

companies at the SSE. The findings reveal the uneven geographies of the FABS.

First, I investigate the geography of the FABS, and also examine the geography of

domestic firms, and foreign and joint-venture firms in the FABS separately. All

demonstrate very spiky geographies, but in slightly different ways. Second, I map the

spatial distribution of financial services and business services separately and make a

comparison. Third, at the narrower cluster level, the results show that Lujiazui

dominates the financial services, while Lujiazui, West Nanjing Road and Central

Huaihai Road are identified as the top three clusters for business services. Finally,

!13
this study demonstrates the close linkages between the Lujiazui Financial Zone and

the other functional zones in the organisation of the FTZ.

Chapter 6 provides a conceptual and theoretical analysis of the IFCs by focusing on

the IFCs’ main characteristics, categories and policy regimes. It then reviews the

policy initiatives driving Shanghai’s IFC coming from the central and local

governments, and evaluates their strategic effects. Finally, I emphasise the

differential pathways by which an emerging IFC can potentially become influential

beyond the Anglo-American model. In this study, I try to do this by moving out of the

empirical terrain of IFCs from the developed world (like New York and London) and

focusing instead on Shanghai. The empirical study reveals Shanghai’s IFC

construction has achieved great advances motivated by its policy dynamics since

1990. But its global impact is still limited comparing to New York and London. To

overcome Shanghai’s disadvantages, I propose some potential pathways based on

the characteristics of China’s political economy. In brief, this chapter is a discourse

that focuses on the theoretical basis of IFCs and Shanghai’s pathway to becoming

an influential IFC with Chinese characteristics, including the role of the government

and state interventions in intentionally devising pathways to an IFC formation.

The four chapters from chapter 3 to chapter 6 are not separate, but show a cohesive

force. These chapters together help us understand the production and development

of China’s financial centres since its reform and opening-up. Currently, China’s

financial system is dominated by the banking industry as a transition economy, while

the securities industry demonstrates the ascending trend along with the market

economy reform and the process of financialisation over the past 25 years. Chapters

3 and 4 help us understand the geographies of China’s financial centres efficiently.

!14
Both chapters reveal Shanghai’s leading role in China’s financial centres network,

especially for organising foreign capital, which functions as a gateway city to redirect

inward and outward capital between mainland China and the global finance.

Chapters 3 and 4 also reveal the characteristics of China’s transition economy and

the crucial role of government. At the same time, both central and local governments

aim to build Shanghai into a true IFC. As such, in chapter 5, I explore Shanghai’s IFC

within the city and explain how the internal clusters of FABS contribute to Shanghai’s

development as an emerging IFC and global city. The three chapters enumerated

above show Shanghai’s position and status as an emerging IFC and domestic

centre, but we need to investigate its policy regime and strategic effects to

understand its remarkable growth since 1990 and make a comparison with the

leading IFCs. In this way, the advantages and disadvantages of this policy regime

are identified, and we can then realise how to upgrade Shanghai’s IFC based on

China’s specific politics-economy.

Chapter 7 summarises this thesis, underlines my critical findings and arguments,

highlights contributions for literature, and outlines directions for future research as

well as financial geography of China.

!15
Chapter 2 Review of the literature on financial geography, with a focus

on financial centres

The main purpose of this chapter is to provide a literature review of financial

geography, particularly financial centres. The structure of this chapter is as follows.

First, I provide a brief introduction to the changing economic geography after World

War II by tracking its crucial theoretical approaches. Section 2.1 also documents the

coevolution of the geography of money and finance with economic geography over

the past decades. Second, Section 2.2 chronologically narrates the main theoretical

approaches to conceptualising financial centres. Third, I review the existing empirical

research that is attentive to the financial geographies of China. Fourth, I identify gaps

in existing research and propose how the core chapters of the thesis will address

them.

2.1 The evolving literature on economic and financial geography

The aim of financial centre study in the framework of economic geography is to

demonstrate why space and place are central to a full understanding of finance,

financial agglomeration and the financial process. In the era of digital economy,

patently, from the evidence worldwide, financial centres still exist, indeed some IFCs

are being strengthened rather than decline. Financial centres even differ in degree

and form as between different locations and places, producing uneven financial

growth and prosperity across space. The role of space and place in the birth and

growth of financial centres is not merely as a passive or simple intermediary, a pre-

given cartography across which financial forces and developments play out. On the
!16
contrary, space and place are integral to, and constitutive of, financial forces and

development. Just as the evolution of financial centres is a historical process, so it is

also a geographical process. In this context, research on financial centres has

increasingly become a crucial component of geography of money and finance. It has

therefore been impacted by the main theoretical approaches from economic

geography over the past decades.

Economic geographers tell us how geography conceptualises space itself, and how

geographers think economic space is structured. After the 1960s, as Martin (2008)

clarifies, the intellectual orientation of economic geography evolved on all three

fronts (see Table 2.1, cited from Martin’s original summary). The first stage was

dominated by a location-theoretic approach followed by the Neo-Marxist approach;

since the 1990s onwards, we have witnessed the rise of a fresh strand, the new

economic geography, or what Martin and Sunley (2011) call proper economic

geography (to distinguish it from the Krugman-style ‘New Economic Geography’). All

the waves and shifts in the 20th century of economic geography contribute to the

palimpsest of the discipline, in which the new does not necessarily supersede or

replace the old, but adds a new layer to the collective intellectual project (Clark et al.

2017).

!17
Table 2.1 Shifts in the dominant theoretical perspective in economic geography since the

late 1960s

Location-Theoretic Marxist Post-Marxist

Late 1960s to Mid-1970s Late 1970s to late 1980s Late 1980s onwards

Form of economics drawn Explicitly or implicitly based Heavily dependent on Two main strands: one

upon on German location theory, Marxian political economy, drawing on institutional.

and on neoclassical with an emphasis on the social and cultural

economic dynamics of capital economics, the other on

assumptions of optimising accumulation, the labour neo-Schumpeterian and

behaviour on part of firms process, and the social evolutionary economic

and households, leading to relations of production; a theory; a focus on local

equilibrium spatial economic focus on the uneven sociocultural embeddedness

outcomes development and spatial of the economy, and on the

divisions of labour spatialities of knowledge

creation and transfer

Type of theorising Focus on high level Based on historical Mostly partial and

generalisation via models materialist approach to contextualised using

that abstract from spatial abstraction, involving appeal theoretical concepts and

particularity, and which to systemic ‘laws of motion’ ideas drawn from a range of

emphasise universal laws of of the economy, and the frameworks, including

spatial distribution and constitution of the latter in institutional economics,

interaction terms of antagonistic class economic sociology, cultural

conflict over the ownership theory and evolutionary

of, and the distribution of the economics

surplus from, production

Conceptions of space Conceived of in absolute Absolute and relative in Absolute, relative and

(Euclidean) terms nature, not given but relational, where both spatial

constantly produced and proximity and relational

reproduced by capitalist proximity (propinquity

relations of production without proximity) are

important; regional spaces

are consequentially complex

to define and not given or

fixed; increasing focus on

spatial networks and flows

Source: Martin (2008, p. xiv)

!18
Since the beginning of the 21st century, economic geography has evolved

significantly. Seventeen years is a long time for an academic discipline with only a

little over a century of history, particularly during a period of momentous change in

the world economy (Clark et al. 2017). In addition to the application of all schools of

economic geography that have developed in the 20th century (mentioned by Martin

in Table 2.1), new approaches have developed or become prominent since 2000,

one of which is the increasing interest in the geography of finance, especially in the

wake of a global financial crisis. As Clark et al. (2017) notice, we have witnessed a

shift from the geography of finance to a much broader financial geography, a

subdiscipline for understanding finance engaging with theoretical applications from

political economy, cultural economy, institutional economy, as well as financial

sociology, history, anthropology, and economics.

As an increasingly important subdiscipline of economic geography, the study of the

geography of money and finance inherently demonstrates the evolutionary

approaches in economic geography over the last four decades. Inspired by the

categories listed by Martin, I attempt to formulate the evolving stages of financial

geography study in accordance with the process of economic geography (see Table

2.2).

Money has been with the world since time immemorial, but not until the last two

decades of the 20th century has the geography of finance become an important topic

of economic geography. This research terrain opens the problematics of finance up

to scrutiny, while suggesting that finance can be investigated in fresh ways through

taking place and space seriously (Clark 2015; Martin and Pollard 2017).

!19
The intellectual foundations of financial geography originate from the changing

economic geography, which shows a coevolutionary process. Research on the

geography of money and finance emerged in the 1980s, when the financial sector

became increasingly important during the transformation of developed economies.

Since the early 1990s, however, the mode of theorisation and abstraction of financial

geography employed by economic geographers has migrated distinctly away from

the pursuit of high-level generalisations, whether of a Neo-Classic agglomeration or

a Neo-Marxist kind, to place increasing emphasis on the locally contextual, the

heterogeneous, the place-specific, the embedded and globally connected, the

flowing and the multi-scalar.

!20
Table 2.2 The evolution of the geography of money and finance since the 1980s

1980s 1990s 2000s on

Stages Emerging Growing Established

Major approaches Political economy Geopolitics; Cultural economy;

Geoeconomics; Institutions;

Political economy; Networks;

Cultural economy; Political economy;

Financial bodies; Financialisation

Institutions
Selected key Harvey (1982, 1989) Clark and O’Connor Christophers (2014a,

references (e.g.) Strange (1986) (1997); Corbridge et 2015, 2016);

al. (1994); Leyshon Christophers et al.

(1995; 1997; 1998); (2017); Clark (2002;

Leyshon and Thrift 2005); Clark et al.

(1997); Martin (2017); French et al.

(1999); Thrift (1994) (2011); Hall (2010,

2011, 2012, 2017);

Martin and Pollard

(2017); Wójcik (2011;

2013a, 2013b)

Source: Author

More specifically, as illustrated in Table 2.2, the development of financial geography

can be generally divided into three stages from the 1980s on.

To start with, unsurprisingly, the dramatic transformation of capitalism after the

collapse of Fordism and a series of economic crises stimulated the emergence of a

!21
geography of finance in the 1980s. During 1970s and 1980s, the architecture of

global finance changed rapidly, moving from the tightly state-orchestrated system

known as the Bretton Woods Agreement that dominated the world financial system

after World War II to a new financial organisation, termed as casino capitalism

(Leyshon and Tickell 1994; Strange 1986). This new financial architecture started to

emerge from the mid-1970s and showed the main characteristics of privatisation,

liberalisation, globalisation and financialisation. These progressive characteristics

were not separate but reflexive through an integration into the ideology of

Neoliberalism (Harvey 2007). For example, the transformation of the UK securities

industry, known as the ‘Big Bang’, from July 1983 to October 1986, radically changed

the centuries-old market structure of the City (Roberts 2008). During this period, the

geography of finance began as a way to address the ‘productionist bias’ of economic

geography (Aoyama 2010). The period also witnessed the rise of a modern finance

that was distinct and autonomous from sectors that produced and traded in

commodities, along with the industrial upgrade in developed economies.

In the 1980s, the writing was dominated by a political economy approach. This

theoretical tradition emerged as radical geographers contributed to the

understanding of the dynamics of financial capital within the urban area. The

pioneering contributions of Harvey (1982, 1989) reinforced the dominant role of a

political economy perspective on the geographies of finance. Harvey applied Karl

Marx’s ideas about the circuit of capital and integrated two additional circuits into

Marx’s primary circuit. Harvey’s theory attempted to explain how capitalism works

and the inevitability of flows of capital, spatial economic integration and uneven

development. Harvey also pointed out the surplus value of primary capital is partly

diverted into financial markets. Spatial fix was another concept developed by Harvey,
!22
redirecting capital flows between various spatial scales. From the perspective of

international relations, Strange (1986) pointed out that, since the 1970s, the

international financial system had become progressively more like a global casino,

with professional speculators as players, a fact at the root of all economic problems.

Work on the geography of money and finance in the 1980s reflected the

transformations of developed economies and global shift.

Research on the geographies of money and finance saw a dramatic growth in the

1990s. As Leyshon (1995) suggested in the context of the historical evolution of

writing in this area, the study may have reached the end of the beginning. ‘Money

and Finance’ space is no longer a ‘bit part’; it is really a headline act (Pryke 2011).

Likewise, money is considered as the most geographic of economic phenomena by

Lee (1999). First, in response to a shift in the international monetary system and

state-market relations, and a series of financial crises and collapses from the 1980s

into the 1990s, a number of geographers began to investigate the geographies of

these phenomena that resulted from conceptual dialogue struck with related

subjects. For example, in the pioneering Money, Power and Space, Corbridge et al.

(1994) argued that we need to recognise the significance of finance in the

reorganising of contemporary capitalism. This area is termed the geopolitical

economy of finance and originates in the work of Agnew and Corbridge (1989), while

the research progress represents a trend towards ‘deterritorialisation’ and is

concerned with flux, fluidity and flows rather than fixity and permanence (Leyshon

1995, Castells 1996).

The second strand of the 1990s was the analytical focus on the geoeconomics of

finance. Since the early 1990s, the response of O’Brien to the growing importance of

!23
international capital flows was to argue that the globalisation and digitalisation of

capital resulted in a homogenisation of financial space, which in turn led towards

what he described as the ‘end of geography’ (O’Brien 1992). Similarly, Friedman

(2005) claimed the world is flat. However, as Leyshon (1995) argued, it is reckless to

underestimate the significance of geography in the age of global financial integration.

Agnew (1994) argued that national economic geographies remain important, as the

global financial system remains a geographical hybrid (Strange 1988). Additionally,

Amin and Thrift (1994) recognised that the configuration of monetary and financial

systems differ between countries, which brings an opportunity to investigate the

geography of capitalism.

A third strand of the 1990s was a range of new approaches to explain the geography

of finance and money in parallel with the work undertaken by radical geographers

from a political economy perspective. The very beginning of the 1990s was a

milestone for contemporary capitalism and the geography of finance. The

Washington Consensus demonstrated the establishment of neoliberalism, a political

and economic set of ideas to promote a free market and achieve global scope for

private finance. Subsequent mega-events, such as the collapse of the former Soviet

Union in 1991 and the market economy reform of China since 1992, deepened a

more general orientation towards a strongly market-based world economy. In a

market economy, flows of money determine the flows of inputs and outputs, and

possession of money defines power in the market place (Eatwell and Taylor 2000).

Ingham (2004) emphasised that ‘money is a social relation’. In this context,

economic geographers are concerned with the social and cultural construction of

financial centres, institutional and political bases for financial systems, and economic

bodies at work in financial services (Amin and Thrift 1992; Thrift 1994; Clark 1997a,
!24
1997b; Clark and O’Connor 1997; Leyshon and Thrift 1997; Leyshon 1998,

McDowell 1997).

The new century witnessed major developments in the geography of finance, and

confirmed its status as a critical component of economic geography. In particular, the

global financial crisis created an opportunity for financial geography to move onto the

centre stage of economic geography (Sokol 2013). The leading scholars of the

1990s still continue to play an important role in these progresses, while a large

number of young geographers attempt to inject finance into economic geographies.

One might even notice a shift from the geographies of finance to a much broader

financial geography infused with an understanding of finance (Clark et al. 2017),

which demonstrates that it is necessary to move beyond narratives of ‘inherent

complexity’ to better understand the economic, social, political and cultural relations

of money and power (Martin and Pollard 2017).

Financial geography has become a vibrant academic terrain characterised by

considerable variety in terms of theoretical approach, the most important of which in

the 21st century are cultural economy, institutions, and networks (Hall 2010). We

should nevertheless notice the vitality of a political economy perspective and the

increasing importance of financialisation. Significant research strands have

developed as follows. Impacted by the proliferating research of post-structuralism

and other philosophical debates, financial geographers argue for a topological

understanding of space and point emphatically to the importance of geographical

heterogeneity for understanding the changing spatialities and temporalities of capital.

Theoretically, in accordance with economic geography more generally, the

geography of finance has grown gradually outward-looking and engages with

!25
relevant studies in sociology, anthropology, international development, political

science, and (to a lesser extent) economics (Hall 2010). Five of the most prominent

approaches for geography of money and finance are cultural economy, institution,

network, political economy, and financialisation. None of these approaches is

absolutely separate in empirical studies; on the contrary they complement each

other.

First, the ‘cultural turn’ was an interdisciplinary phenomenon involving the dramatic

influence of poststructuralist epistemology in the related social science discipline

(Thrift 2000). Cultural economy emerged in the 1990s and developed significantly in

the 21st century for financial geography. In the progress reports of geography of

money and finance, Hall (2010) has carefully documented the links between cultural

economy, money and finance, as well as politics and place. Geographers pay close

attention to the non-human technologies in (re)producing financial landscape and

view money as constituted through different networks of human practice (Clark and

Thrift 2005; Hall 2006; Pryke 2011). Inspired by the study from sociologists and

anthropologists, Thrift (1994) considered money as a contingent and socialised

phenomenon, and highlighted the influence of a wide range of social and cultural

factors that contribute to the geography of money and finance. Furthermore, Clark

(2005) argued that the creation of local networks can help overcome the dramatic

information asymmetries and uncertainties which typify client-provider relations

within finance, building on the seminal contribution of Clark and O’Connor (1997)

that emphasised the role of information and trust within IFCs in facilitating processes

of financial innovation.

Second, institutions that refer to the organisations, laws and regulations,

!26
sociocultural traditions, and rules governing socioeconomic activities have been

important to delineate the geography of finance since the 1990s onward. In terms of

territorial embeddedness, scholars explore how the international monetary system is

(re)shaped through the place-specific institutional space. Clark (2005) depicted a

global system of transactions and relations. He compares flows of money to those of

mercury. Money tends to flow to the IFCs, to be collected and managed there in that

there is an ineluctable lumpiness in the spaces of money. Clark and Wójcik (2007)

explored how the international financial system is reproduced through the grounding

of global financial flows in place-specific institutional spaces. In terms of laws, Wójcik

(2011) attempted to analyse the relation between stock market development and

legal family. He reiterated that common-law countries rather than French-law and

German-law countries generally have the highest level of shareholder protections. In

the latest research, Dixon (2014) analysed the institutions and institutional changes

in relation to finance and macro-institutional comparison in economic geography. In

contrast with the varieties of capitalism frameworks (see Engelen and Grote (2009)),

Dixon drew attention to the functions of finance and institutions, re-evaluated the

relationship between institutional functions and institutional form, and concluded that

institutional function is not always determined by institutional form: the former is often

variable and context-dependent.

Third, as Cohen (1998) believed, the geography of finance requires a clear analytical

distinction between location, place, and the networks of relationships. The network

perspective is indeed significant to understanding the spatial organisation of money,

as the space of money is a complex system of networks of financial flows,

transactions and relationships. The literature of financial geography follows the wider

development of the so-called ‘relational turn’ and network-based approaches in

!27
human and economic geography (Yeung 2005) to understand the spatially-

distributed network of money and power in the financial networks and world cities

networks (WCNs) (Taylor 2012, Taylor et al. 2014). Coe, Lai and Wójcik (2014)

established a framework for understanding financial geographies and their impact on

firm behaviour and regional development. This conceptual framework underpins the

argument that financial activities form a global economic network that is distinctive in

terms of its operation and impact, and specific actors associated with advanced

business services (ABS), and territories like world cities or offshore financial centres,

are particularly significant in shaping economic practices and regional development.

Wójcik (2013a; 2013b) also used this framework to explain the origins of the global

financial crisis.

Fourth, in terms of the political economy approach, the first strand is the application

of varieties of capitalism to the geography of financial systems (see Engelen and

Grote 2009). As Wójcik and MacDonald-Korth (2015) argued, to compare financial

systems, we need to combine economic geography with political economy in a

framework that takes both space and institutions seriously. Financial geographers

examine whether the financial system is spatially centralised or decentralised may

assume key importance for the form and pattern of uneven geographical

development (Engelen and Grote 2009). For instance, Klagge and Martin (2005),

and Wójcik and MacDonald-Korth (2015) develop this argument conceptually and

then explore it empirically by making a comparison between the UK and Germany. At

the same time, in the last decade, the subprime crisis, the global financial crisis, and

the ongoing Euro Zone crisis reinvigorated and influenced research on financial

geography, particularly a strand with a geographical political economy perspective

that is also called ‘geographical’ political economy (Christophers 2017; Christophers

!28
et al. 2017; Pryke 2017). What financial geographers contribute to the understanding

of finance and money is that they interrogate how these territorialised differentiations

shape the cause and consequence of a geographical crisis and make financial

instability visible in space as well as in time. For example, Christophers (2017)

delineated a post-crisis ‘geographical’ political economy of finance and emphasised

the central role of nation states in financial markets.

Fifth, the financialisation is relevant a new conceptual tools to examine the growing

power of financial markets and the uneven development across time and space

(Engelen 2008; French et al. 2011; Hall 2011). Financialisation refers to the

increasing importance of financial logics in different aspects of economic, political

and social life (Lai 2015). The various and rapidly expanding discussion on

financialisation shows a mixture of different approaches—from regulation theory and

critical social accountancy to more sociocultural perspectives—that focus on the

geographies of territorial fix, the everyday life of finance, financial subjects, and

financial consumption, as well as on varieties of financial capitalism (Aalbers 2008,

2011; Christopher 2014b; Clark and Knox-Hayes 2009; Dixon 2014; Engelen 2010;

Hall 2011; Lai 2016, 2017a, 2017b). Financial geographers argue that

financialisation is an intrinsically spatial phenomena because financialisation is

considered a form of producing and then exploiting the flows and circuits of capital.

According to Laulajainen (2003), regulations linked with government policies such as

monetary policies play a central role in financialisation, and can promote economic

growth by promoting financial innovation. The history of contemporary financial

capitalism is characterised by progressive and large-scale deregulation of cross-

border controls on financial flows. Financial deregulations also, however, lead to

financial crisis, and a handful of scholars define financialisation as representing the

!29
search for spatial fix to redirect the financial capital flows inwards or outwards

between various spatial scales (Sokol 2013).

The new millennium has witnessed a shift from the geography of finance to a much

broader financial geography as a subdiscipline for understanding finance.

Substantive research foci range from established concerns (for example IFCs) to

some novel research topic. This progress reflects some of the proliferating interest in

money and finance, but (more than this) they also articulate some of what is at stake

in developing a more sophisticated understanding of the spatialities and geographies

of money and finance.

The research of specific financial markets and their global impacts, such as

infrastructure investment (Clark 2017a), pension fund capitalism (Clark 2000, 2017b;

Clark et al. 2012), sovereign fund (Clark et al. 2013; Dixon 2017), and investment

management and corporate governance (Clark 2008; Clark 2015; Clark and Monk

2014, 2017; Clark et al. 2009, 2015), has become more and more important in the

new century. These topics explain how these institutional investors impact financial

markets growth, national growth, and firm strategies, and these strands of research

also highlight the increased geographical importance of global financial markets for

corporate governance (Lai 2015).

The concept of sustainable and environmental finance integrates ecological, social

and economic concerns into a single developmental model (Clark and Viehs 2014;

Knight 2011; Knox-Hayes 2010, 2017). Interest in sustainable finance in geography

responds to the climate change agenda and the global financial crisis; it stands for a

new way of rethinking financial geography and its role in economy, society and

relationships with nature. For example, Clark and Viehs propose a new way: active

!30
ownership for the future of sustainable investing. They believe that investors have to

become active owners of corporations to promote better corporate social

responsibility practices and environmental social governance standards. They also

claim institutional investors should go beyond simple exclusion and inclusion

strategies when they plan to invest in a responsible and sustainable way. In terms of

environmental finance, based on a wider interest in the operation of markets for the

trade of carbon derivatives, Knox-Hayes (2009) explores the significance of

institutional proximity in facilitating the growth of carbon markets in the leading IFCs

like New York and London. Knight (2011) indicates that geographers have a key role

to play in highlighting the local ramifications of carbon markets if and when the world

moves towards its ambition for a global carbon market by examining the temporal

and spatial geography of European carbon trading.

Some new themes have also emerged in the last decade, for example digital

finance, including high-frequency trading and bitcoin (Pilkington 2017; Zook and

Grote 2016; Zook 2017), the integration between finance and economic geography

(Coe et al. 2014, Dixon 2014; Hall 2012; Leyshon and Thrift 2007), and the latest

fintech (Bassens et al. 2017). Finally, it should be noted that, although most work still

focuses on the Anglo-American economies, an ascending interest has been noticed

in the emerging or alternative financial markets, for instance BRICs and Islamic

finance, particularly in the Asia-Pacific and China (Hall 2017; Karreman and van der

Knaap 2009, 2012; Lai 2011, 2012a, 2012b; Lai and Samers 2017; Wang et al.

2007; Wójcik and Camilleri 2015; Zhao et al. 2004). One of the foci in China is the

emerging IFCs such as Shanghai and Beijing. This will be further discussed in

Section 2.3.

!31
2.2 Evolving approaches to financial centres

As Pryke (2011) points out, geographies of finance and money are at times quite an

intricate and paradoxical interplay between flows and territories. We should reflect on

the importance of specific financial territories that are termed financial centres. The

growing volumes of financial flows and the increasingly globalising capital markets

are shaping and trading in these financial centres, the most important of which are

IFCs like New York and London. As such, the relevance of financial territories in a

space of flows should be investigated. As a matter of fact, financial centres have long

confounded the best efforts of observers to offer a decisive viewpoint on their

characteristics. Although the notion of an IFC has a longer historical legacy, it was

consolidated as a key concept for geography of money and finance after the 1990s

in the context of interdisciplinary attempts to decipher the increasing cross-border

transactions following the emerging of global financial integration.

As illustrated in Table 2.3, the extant approaches to financial centres are mainly

dominated by the abstraction of western capitalism, especially the Anglo-American

economies. Over the past four decades, at least eight strands of research in the

financial centre tradition have been worthy of note. Each approach is not absolutely

isolated but intertwined. For instance, the information and knowledge approach can

be seen as the extension of the cultural economy perspective. Institutional and

political economy approaches are closely related, for example when they focus on

the varieties of capitalism across different countries.

!32
In the early studies, financial agglomeration was very popular, and most

achievements on this topic were contributed by economists to provide purely

economic explanations. The well-recognised research of Kindleberger could be

conceived as a reflection of the dynamics of the rise and decline of IFCs in the era of

pre-globalisation, and he interpreted the growth of IFCs as an outgrowth of their host

states’ geopolitical and geoeconomic power. The possibility, however, that the

formation of IFCs might be conditioned by supranational or global forces was not

systematically explored. Along with the transformation of the world economy and the

rise of a new international labour division after the 1980s, the world city and global

city models were applied extensively in studies of the role of major cities as IFCs, as

headquarters concentrations for MNCs, and as agglomerations and clusters for APS.

As Sassen endorsed, localities such as New York, London and Tokyo are leading

examples of strategic sites in organising a globalising world economy. In her global

city thesis, Sassen identified global cities as the concentrations of clusters of APS.

From the late 1980s into the 1990s, the use of IT and modern telecommunication

methods rapidly brought the spread of financial activities into the electronic ‘space of

flows’. On the one hand, we should acknowledge that the virtualisation of money did

not claim the end of geography; a handful of financial centres still exist and grow. In

this context, geographers provide some substantial and convincing explanations. As

they argue, ‘money is a social relation’ (Pryke 2011) and an intermediary that relies

on authority, through which authority and power may be exercised (Ingham 2004). It

is therefore useful to provide an outline of the wider social, cultural, technical and

institutional context for understanding money’s centrality in contemporary capitalism.

These factors are important because they help shape the formation and survival of

IFCs. In context, the approaches of social and cultural constructivism, information,

!33
and institution conceptualise financial centres as active and dynamic ensembles of

networks constituted of individual, institutions, machines, norms, concepts, trust,

interpretations, knowledge, and information (Lai 2015).

On the other hand, in the context of rapid processes of globalisation and

digitalisation, the past three decades have seen the emergence and establishment of

the WCNs and financial centres networks. Financial centres must inevitably engage

each other in fulfilling their functions of financial coordination and control, and

sustaining their roles within these networks. Based on the work of the GaWC (Taylor

2004), financial geographers have highlighted the value of a network approach.

Studies of financial centres explore more complementary forms of relations and

alliances alongside the notion of a hierarchical network between world cities.

At the end of this section, I underline the ‘geographical’ political economy and

financialisation approaches that are coordinated in the research of IFCs.

Christophers (2014b, 2017) delineated a post-crisis new and geographical political

economy of money and finance that concerns the politics of governing financial

institutions and spatial relations. This approach interrogates and troubles the

orthodox ‘market discipline’, highlighting the importance of politics and state

interventions. Meanwhile, some scholars integrate the discussion of spatial and

territorial fix into a more recent topic termed ‘financialisation’. From this perspective,

the development of financial centres, such as Beijing Financial Street, Shanghai

Lujiazui Financial Zone and London’s financial district, are the material expressions

of the coherent spaces of financialisation and political ideology in search of territorial

fix.

!34
Table 2.3 Key conceptual approaches to the study of financial centres

Conceptual approach Conceptualisation of financial centres and key analytical

foci

Agglomerations and clusters Financial centres as the outcomes of economies of

scale; the interplay between centripetal and centrifugal

forces; and interactions among providers and customers

in a local environment that promotes collaboration and

competition
World city and global city Financial centres as locations of advanced producer

services, and strategic sites as command and control

centres for the accelerated and intensified globalisation

of financial capital and financial innovation

Cultural economy Cultural economy highlights the influence of a wide

range of social and cultural factors like trust, information

and dense business network that contribute to the

success and survival of IFCs

Information and Knowledge Financial centres are major sites generating, capturing

and interpreting vast amounts of asymmetric information

and tacit knowledge relevant to financial markets

Institutions Institutions like regulatory regimes and legal systems

play a key role in financial centre formation processes by

organising financial activities and facilitating or

obstructing financial capital flows and financial

innovation
Networks Financial centres are viewed as spatially distributed

networks of money and power, where the globalisation

and localisation processes intermesh in a variety of ways

!35
‘Geographical’ Political Money is politics. Politics and state intervention can play

Economy a critical and positive role in shaping the development

and changing nature of IFCs. State uses IFCs as

territorial fixes within the international financial system

through regulatory changes

Financialisation Financial centres are strategic locations to redirect

inward and outward flows of capital and value in search

of spatial and territorial fix for global financial integration

Source: Author

Agglomeration and cluster

The concept of agglomeration has two different meanings. One is related to the

phenomenon that people and economic activities generally tend to concentrated in

cities, referred to as ‘urbanisation economies’ or Marshall-Arrow-Romer effects. The

other is related to the phenomenon that firms from the same or related industries

tend to gather at certain places, correspondingly referred to as ‘localisation

economies’ or Jacobs effects. Agglomeration economies lead to economies of scale

and scope that are considered the major driving force behind the emergence and

perpetuation of financial centres, and which can bring significant comparative

advantages to the financial industry (Budd 1998). Through the lens of financial

agglomeration, financial centres can benefit from both Marshall-Arrow-Romer effects

and Jacobs effects.

!36
In the early stage, Kindleberger (1974) emphasised the process of banks that

gradually establish their branches in the financial centre. This kind of financial

agglomeration creates an evolutionary and time-consuming process; it is the

economies of scale that make banks and other financial institutions concentrate in a

specific area. Financial centres, like other agglomerations, are also the outcome of

both centripetal and centrifugal forces (Grote 2009). These forces shape the

changing geographies of finance from global to local (Martin 1999). German

economist Reszat (2000) applied location theory to explain how financial centres

organise their use of space, and how financial agglomeration and clustering occur.

She argues that Krugman’s edge city model can be applied to financial centres in a

region. Geographers also use this analytical framework to explain the continued

importance of a small group of financial centres. Grote (2008) examined the

changing geography of foreign banks in Germany from 1949 to 2006 by an

application of New Economic Geography models. His empirical result showed that

there was an inverted ‘U’-shape concentration of foreign banks in Germany during

this period.

Meanwhile, ‘cluster’ in economic geography and related disciplines has been defined

in many ways. A strong sustainable cluster is generally defined as the geographic

concentration of competing, collaborating and interdependent companies and

institutions connected by a system of market and non-market links (Porter 1998). In

contrast with agglomeration, the main strength of the cluster approach in the study of

financial centres is as follows: first, it does not relate to the financial industry

separately, but merely needs the APS firms in a financial cluster to be

interdependent in some way (Sassen 2012a). Second, a cluster is defined not just in

terms of firms but also in terms of supporting institutions. These kind of institutions
!37
are able to play a critical coordinating and facilitating role in robust clusters. Third,

non-market linkages are highlighted (Clark and O’Connor 1997; Storper and

Venables 2004). Fourth, the financial cluster encourages us to think of this spatial

form as a complicated system of financial structure. It is this very complexity that

enriches the components of the financial centres and makes them difficult to

replicate (Clark 2002).

World city and global city

‘World city’ and ‘global city’ refer to the geographical concentration of multinational

companies in selected cities in the context of globalisation. From this perspective,

financial centres are locations for APS and strategic sites as command and control

centres for the accelerated and intensified globalisation of financial capital and

financial innovation.

The world city theory assumes the formation of a worldwide urban hierarchy in and

through which the MNCs coordinate their production and expansion activities. The

seminal contributions from Friedmann (1986) emphasise the concentration of the

command and coordination functions of operations in world cities. Sassen (1991)

proposes similar hypotheses, but starts from a more nuanced angle. She focuses on

the combination of geographic dispersal of economic activities with simultaneous

system integration that gives cities a strategic role in the world economy. In contrast

with Friedmann and Wolff (1982), she also highlights two novel functions in her

global city model: global cities are post-industrial for APS, and international

marketplaces where firms and governments worldwide can buy APS (Sassen 2012).

!38
The global city model is reflected in work on financial geography, illustrated by

contributions on the geography of stock market centres (Wójcik 2011). The theory of

stock markets formulates a sequence of five propositions equivalent to global city

theory, but using stock markets instead of globalisation as a starting point. First, the

emergence and development of stock markets involve the institutional and

geographical dispersion of corporate ownership. Second, stock market development

feeds the growth of the capital market industry. Third, stock market intermediaries

benefit from agglomeration economies. Fourth, transactions on primary stock

markets require frequent interactions and trust between different actors. Fifth, global

presence and expertise are of utmost importance to stock market intermediaries.

Wójcik also argued that the theory of stock market centres could be translated into a

theory of securities market centres. This key contribution enriches the theoretical

framework of IFCs. More recently, Bassens and Van Meeteren (2015) point out,

geographically, that beyond the shortlist of IFCs, the wider world city archipelago is

still an obligatory nodes and hubs for inserting financial capital into contemporary

economies and societies.

Cultural economy

Cultural economy highlights the influence of a wide range of social and cultural

factors that contribute to the success and survival of IFCs in the age of a generalised

and digital ‘space of flow’. Geographers believe in the social and cultural production

of agglomeration, while they argue that economies of scale and agglomeration are

themselves dynamic social and cultural practices (Pryke and Lee 1995). This theory

involves two key geographic determinants: social and cultural construction,

!39
representing analytical tools to understand the sociocultural contexts of financial

geographies.

Amin and Thrift (1992) draw attention to financial centres as “neo-marshallian

nodes”. These hubs or nodes embedded within financial networks differentiate from

traditional financial markets and hierarchies in that they contribute to organise

financial resources through social-economic channels, not pricing setting mechanism

or the imposition of power (Powell and Smith-Doerr 1994). Thrift (1994) focused on

the importance of culture and embodiment within the monetary networks that make

up the modern financial centre (also see Leyshon and Thrift (1997)). Financial

geographers’ contribution sought to avoid examining the existing of financial centres

through a relatively narrow economic reading, and instead highlighted the influence

of a wide range of social and cultural factors that might contribute to the success and

survival of IFCs in a quicksilver digital economy.

The term ‘culture’ in financial markets also refers to the intermingling of information,

values, expertise and contacts found in the financial district (Pryke 2011). Thus,

financial agglomerations are professional centres and it is at this point that the

advantage of agglomeration is of great help in cultivating a relationship based on

trust (Leyshon 1996). Trust-based relationships are deemed essential for the

exchange of knowledge and information within agglomerations (Hall 2010). To some

extent, financial actors seek to reduce risk through the generation of trust, which can

be forged by striking up interpersonal relationships, a process often achieved

through face-to-face contact that afforded as a communication technology (Leyshon

1997; Storper and Venables 2004).

!40
Information and knowledge

This approach emphasises the importance of asymmetric information and

incomplete knowledge in maintaining and reproducing IFCs in the era of

virtualisation of money. Information and knowledge are critical, because IFCs are the

major sites to generate, capture and interpret the vast amounts of financial

information and professional knowledge that flow through financial networks. The

increasing use of IT promotes information spillovers and exchange. However,

asymmetric (unstandardised) information or incomplete (tacit) knowledge cannot be

exchanged and transferred electronically. IFCs provide a place to collect and

produce this type of information and knowledge.

In the 1990s, a new characteristic of informational tendency focusing on processes

of financial subjectification became involved in the interpretation of the financial

centre (Hall 2011).3 By analysing the flows of information and asymmetric

information, this tendency summed up the major determinants during the

agglomeration process (Thrift 1994; Porteous 1995, 1999; Clark 1997a, 1997b; Clark

and O’Connor 1997). For example, in terms of financial elites, economic

geographers have developed sophisticated accounts of the ways in which working

practices associated with the knowledge- and information-rich nature of financial

products are vital in shaping the continued importance of a small number of IFCs

(Hall 2011). Clark (2005) summarised geographical understandings of how IFCs

facilitate the production of financial markets by allowing financial actors to exploit

3 As Sarah Hall indicates, subjectification refers to a Foucauldian exploration of the types of

behaviours, attitudes and working parties that are deemed appropriate and legitimate within particular
financial centres. For example, these types of working practices differ between NYC and London.
!41
agglomeration economies associated with sharing knowledge and information

concerning market conditions. Wójcik (2011) demonstrate how the geographical

concentration of the securities industry overcomes the information asymmetries that

characterise the production of financial products.

Incomplete knowledge also matters in an increasingly speculative and digitised

market economy. As Sassen highlighted (2012b), firms have always confronted

incomplete knowledge, and this problem becomes especially acute when they go

global. The specific advantage of agglomerations against the incomplete knowledge

problem includes their diverse networks, information loops, and global talents, which

together create a particular kind of knowledge capital considered as urban

knowledge capital and a critical component in the economic production function of

the global city. In current financial systems, IFCs are strategic production sites for

innovation, because they contribute to knowledge-making in a context where

incomplete knowledge becomes acute.

Institutions

In terms of territorial embeddedness, institutions create spatial inequality and

geographies of finance by enabling or empowering particular sites as financial

centres. Institutions like regulatory regimes and legal systems play a key role in

financial centre formation processes by organising financial activities and facilitating

or obstructing financial capital flows and financial innovation.

!42
Clark’s theory on global finance has been developed through the adoption of

institutional perspectives that focus on the geographical heterogeneity of these pools

of global finance and the differential ways in which they shape financial practice

(Clark 2005). Clark’s argument also explains why IFCs still exist in the age of

electronic ‘space of flows’. Meanwhile, Engelen and Grote (2009) employ the theory

of comparative political economy that possesses more sensibility for context and

specificity and demonstrates a more institutionally-oriented perspective to provide us

with more theoretical leverage over the precise patterns of financial centres. They

take an institutional perspective to explain the decline of Amsterdam and Frankfurt

as European second tier financial centres.

Additionally, some scholars highlight the significance of the law and of legal services

in the formation and development of a financial centre (Wójcik 2011). They believe

that good financial and legal systems with protection of property rights may be more

important than location. Sassen’s hypothesis in Global City (1991) highlighted the

significance of legal services for the formation and development of a financial centre.

La Porta et al. (1997, 1998) examine the relevant legal rules and their enforcement

in 49 countries, concluding that countries with legal systems based on English

common law have the strongest (and French civil law countries the weakest) legal

protection of investors, with German and Scandinavian civil law countries in the

middle. Kaufman (2001) argues that the increasing growth of the economy, strict

accounting systems, transparent information exchange, and powerful legal services

are essential for the emergence and competitiveness of a financial centre.

!43
Networks

Networks are socioeconomic structures that connect people, firms and places to one

another and enable knowledge, capital and commodities to flow from global to local

scale. From this perspective, financial centres are viewed as a spatially distributed

network of money and power, where the globalisation and localisation processes

intermesh in a variety of ways (Wójcik 2013b). This approach brings with it the

critical argument that the study of financial centres needs to examine the role of

networks and interdependencies in producing financial geographies.

In the era of space of flows, the great advancements of IT and modern

communication methods promote the dispersal of economic and financial activities

from local and domestic to a broader global context, and accelerate the processes of

globalisation, which in turn leads to the rise of increasingly interconnected WCNs.

Based on the pioneering work on WCNs by the GaWC, the literature heavily

explores the networking characteristics of financial centres both within and between

cities by considering financial centres as nodes or hubs in the GFNs (Taylor et al.

2014; Wójcik 2013b; Wójcik and Camilleri 2015). The space of flows is not placeless.

These flows in interconnected GFNs and WCNs are constituted by its nodes and

hubs. Both nodes and hubs are hierarchically organised according to their relative

weight in the network (Castelle 1996).

The IFCs are distinguished from others by the concentration and interaction of

foreign financial resources at their disposal. The right mixture and allocation, the

concentration of education, talent and skill, along with the unparallelled ability to

!44
conduct financial activities with the professionals, distinguishes the more magnificent

from the less powerful financial centres in this region. One starting point to explain

the significance of the concentration in the IFC is the financial network, which looks

at how a financialising economy organises its use of spatial territory. The interactions

of globalisation and localisation consist of two vertical linkages that comprises

reflexive, evolutionary and dynamic processes with the engagement of globalisation

and localisation. The central role of this financial centre acts as a node or hub that

integrates the local financial network into a global domain and localises global

finance into the scope of a city-region by the agency of all types of financial entities.

This kind of financial network is indispensable necessity of a GPN, because the

agglomerations and clusters in financial centres are the precise places for integrating

financial services and the APS into real economy (Coe et al. 2014).

‘Geographical’ Political Economy

‘Money is politics’ (Kirshner 2003) and its politics must always be interrogated (Pryke

2017). In terms of the ‘geographical’ political economy of money, geographers

develop a more comprehensive understanding of the role of politics, government and

state intervention in producing and maintaining IFCs (Christophers 2017; Hall 2017).

They argue that the state plays a vital role in shaping the development and changing

nature of IFCs through the politics of territory.

The role of politics in IFC formation in the related disciplines is not a new topic, but is

more or less neglected in the context of the Anglo-American Economy, a political and

economic set of ideas that promotes free market. Much of the early work on the

!45
geographies of finance and relevant disciplines was concerned with understanding

the implications of the collapse of the Bretton Woods agreement from the 1970s

onwards and the impact of the rise of neoliberal capitalism on the role of government

in deregulation and capitalist finance (Leyshon et al. 1989; Leyshon and Thrift 1997).

This early research on financial centres particularly emphasised the potential decline

in state power in the age of post-Fordism (Hall 2017). Leyshon et al. (1989) analysed

the rise of British provincial financial centres in the 1980s because of the

deregulation and devolution of financial power from London as the result of London’s

transformation into a stage for serving global financial markets. Pryke (1991)

attempted to capture the social and spatial transition that took place in the City of

London in the build-up to the deregulation or reregulation of the City’s financial

market, the financial reform known as the ‘Big Bang’.

More importantly, however, increasing scholarship has demonstrated how the state

is vital in purposefully creating the conditions that help financial networks develop

and thrive, as well as in the territorial construction of IFCs (especially in the context

of global financial crisis and China’s rise in global finance). French et al. (2009) and

Hall (2007) have highlighted the relational nature of regulation as regulatory bodies

and governments seek to use regulation strategically for the competition between

IFCs, which shows a growing interest in neo-Foucauldian governmentality

approaches. Hall (2010) points to the need to develop a more politically and

geographically nuanced idea of money and finance and an understanding of the

geographical heterogeneity of the international financial system. Based on the

seminal understanding of territorial fixes, Christophers (2014b) demonstrates how

financialising capitalism seeks to overcome its crisis-prone tendencies through

!46
regulatory and other political interventions. In what follows, Hall (2017) explores the

implications of power and politics in the (re)production of IFCs on a bias of revisiting

canonical approaches on IFCs. She calls for research in financial geography and

cognate subjects to understand finance as a political relation, and highlights that

future research needs to better understand the role of the state, particularly the

financial authorities.

Financialisation: spatial and territorial fix

Some geographers argue that financialisation could be defined as representing the

search for spatial and territorial fix, part of which is the emergence and growing

influence of the quaternary circuit of capital (Aslbers 2008; French et al. 2011;

Christopher 2014b). In this context, financial centres are the strategic locations to

redirect inward and outward flows of capital and value in search of spatial and

territorial fix for global financial integration.

As early as the 1970s, Neo-Marxism’s political economy theory was introduced to

understand the flows of value, circuits of capital and social reproduction within and

between financial centres (Harvey 1982; Castells 1996; Hudson 2004, 2005). Sokol

(2013) underpinned that contemporary capitalist economies should be considered as

financialising economies because financialisation is a process that is far from

complete and can probably never be fully completed. Financialisation is thus driven

by the internal dynamics of capitalism and is an inherently spatial phenomenon,

which represents a search for a spatio-temporal fix.

!47
As Harvey argues, states and capitalists strive to overcome the crisis tendencies

plaguing the capitalist system by altering capital flows through spatial fixes that

redirect capital flows inwards and outwards (Harvey 1982). However, the

financialisation of spaces shows a profoundly uneven development. Geographers

have examined the spatial fixes used by cities, regions and countries and

demonstrated how these kinds of processes lead to the concentration of

multinational companies and flows of global finance. Within this new conceptual

framework, the spatial and scalar parameters for the expansion of financial centres

can no longer be taken for granted, as if they were given features of economic

geographies. Instead, the development of major financial centres in major developed

economies is viewed as an active moment within the ongoing finalisation of spatial

configurations. In a multi-scalar context, domestic financial centres with some first-

move advantages have complicated the design, implementation and outcomes of

spatial by financial innovation and strategic policies to make these cities more

competitive and receptive to capital flows. Consequently, the spatial circuit of global

capital contributes to the growth of IFCs as the gateways in search of a spatio-

temporal fix. During these processes, IFCs like New York and London have been

increasingly integrating into the world economy and flourish as global cities. In recent

work, Hall (2017) examines the role of government interventions in considering IFCs

as the tools of territorial fixes and illustrates this approach using the case of

London’s growth as a leading and first offshore RMB centre from 2011 on.

!48
2.3 Financial geographies of China

The emergence of China as an economic and financial power has heavily

contributed to shaping the global financial landscape in the past two decades since

its accession to the WTO, especially in the context of the global financial crisis and

OBOR initiatives. Scholars from geography and related disciplines have thus started

to draw attention to the geography and spatiality of money and finance, for example

the rise of China’s financial centres and the internationalisation of the RMB. In this

section, to proceed with my research questions, it is necessary to review past

performance in view of the present achievements and failures of the financial

geographies of China, focusing on the geography of financial centres. I then attempt

to interrogate these existing research from three strands.

First, a number of scholars in mainland China have attempted to provide

explanations for the changing geographies of money and finance. One of the most

popular topics is the formation of financial centres in China. Li (2003) focuses on the

micro-foundation for the formation of a financial centre and discusses the supply and

demand factors involved in the formation of an IFC. Similarly, economist Pan (2003)

analyses the critical determinant factors of financial institutions’ locational decisions

and discusses the effects of aggregation and external economies of scale. Huang

and Yang (2006) systematically study the function of financial agglomeration theory

on the formation of an IFC. They combine the theories and methodologies of

financial geography and spatial economics with finance agglomeration theory.

By contrast, economic geographers examine the geographies of China’s financial

centres from a financial geography perspective. For example, from a network

!49
approach, Pan et al. (2016, 2017a) examine the hierarchical network of the

mainland’s financial centres by the foci of the venture capital firms and APS firms

respectively; their research highlights Beijing’s leading role in the mainland’s

financial services networks. They also explain how the dynamics of the mainland’s

financial centres are embedded in China’s institutional and cultural context. Based

on the seminal contribution of Wójcik and Camilleri (2015), the latest work of Pan et

al. (2017b) shows that Chinese financial firms are expanding in a global context and

that China’s financial centres are increasingly being connected into the WCNs

through these financial services firms. They also reveal Hong Kong’s strategic

position in the integration of Chinese cities into WCNs. More importantly, they

underpin the increasing global influence of Chinese financial institutions in the GFNs

and Chinese cities in the WCNs.

Beyond the focus on financial centres, some other themes, like the geography of the

financial industry and financial exclusion, have also attracted attention. The first

strand is research on the geography of the banking industry. The location and spatial

distribution of foreign banks has been a critical object of interest since China’s

accession to the WTO. Wu, Liu and Liu (2007) point out that at the early stage of

opening up, foreign banks were only concentrated in first and second tier cities,

especially trade-oriented cities and cities where the People’s Bank of China (PBOC)

was present because of the significance of informational externalities and first-mover

advantages, while the subsequent reforms and deregulation in mainland China

guided the pace of the spatial expansion of foreign banks. He and Yeung (2011)

compare the location choices made by foreign banks and concluded that the effects

of agglomeration and economies of scale outweighed the first-mover advantage as a

determinant factor for the spatial distribution and locational choice of foreign banks.
!50
The second strand is research on the geography of the securities industry. Most of

this work has been conducted by economists. As a result of the financial legacy of

China’s planned and transition economy, securities companies were spatially

distributed in each province in the 1990s. Such a regional distribution pattern brought

severe administrative barriers under the protection and involvement of provincial

governments, which hindered securities integration at the national level (Wu, Chen

and Mao 2004).

Second, scholars from Asia-Pacific region, such as Hong Kong and Singapore, have

contributed to the study of China’s financial geographies. Comparisons between

Shanghai, Hong Kong and Singapore as IFCs is a popular topic. Zhao (2003, 2013),

Zhao et al. (2004) and Wang et al. (2007) bring the information hinterland theory into

IFC research from financial geography, and apply it to the evolution of the

comparative analysis of Chinese financial centres, Beijing, Shanghai and Hong Kong

included. Lai (2011) examine the critical roles of Shanghai, Beijing and Hong Kong

as financial centres and emphasise the complicated coexistence of competition and

collaboration, and of horizontal and vertical connections, between these three

centres in a globalised network. Woo (2016) analyses the different policy subsystem

configuration between Singapore, Hong Kong and Shanghai, and the impact of this

policy subsystem configuration on policy-making. This book concludes that these

three IFCs are characterised by their unique and different political system, models of

financial governance and comparative advantages. Yeung (2009) examines the role

of state-owned commercial banks (SOCBs) in China’s market economy reform and

China’s banking strategy from a political economy approach. This research is

valuable because it explains how the hybrid property of SOCBs shapes the

!51
geography of the banking sector. He also points out that this feature is necessary to

avoid the excessive financial exclusion in the Central and Western regions.

Third, there is growing interest in western countries in the study of China’s financial

geographies. An increasing number of scholars have started to look beyond

developed economies, producing knowledge based on a wider field of study and

pursuing ‘engaged pluralism’. From a financial history perspective, Horesh (2009,

2014) points out that Shanghai has been privileged over any other city in mainland

China as a financial centre as it offers a culture of international commerce and

cosmopolitanism, as well as historical success. Karreman and Van Der Knaap (2009,

2012) compare Hong Kong with the mainland’s financial centres. Their examination

indicates that both Hong Kong and Shanghai have relatively distinct hinterlands and

reveal a considerable amount of complementarity, and that Hong Kong is still a

prominent IFC for China. This argument is also approved by Sassen (2012a) in her

global city discussion.

From the network approach, Wójcik and Camilleri (2015) examine the financial

geographies between Hong Kong, Beijing and Shanghai through connecting China’s

financial centres and offshore financial centres. Their analysis highlights Hong

Kong’s position as an intermediated IFC between global financial markets and

mainland China. They also point to the advantages of Beijing over Shanghai as a

command and control centre that attracts the APS. This research is innovative in that

they discuss China’s financial triad within GFNs in contrast with Zhao and Lai’s study

at the domestic level.

More recently, in the context of OBOR initiative, the process of the RMB’s

internationalisation is accelerating, and the cross-border capital flows have

!52
proliferated in past years. Topfer (2016) explores the internationalisation of China’s

capital markets and cross-border capital flows by employing the data of Qualified

Foreign Investor Programs and RMB Qualified Foreign Investor Programs. Topfer

and Hall (2016) and Hall (2017) show their interest in the internationalisation of the

RMB while investigating the role played by London’s financial district in this process.

Most importantly, Hall points out that politics and state intervention are probably

positive and important in the development and changing nature of IFCs. This study

inspires me to examine the role of government in Shanghai’s IFC formation and to

propose a new model beyond the Anglo-American orthodox.

In this thesis, we must acknowledge that the extant empirical research discussed

above provides valuable insights to understanding the development of financial

centres in China from both a geographic perspective and that of neighbouring

disciplines. However, it also leaves us some research gaps to enrich the topic of

financial centre study. More specifically, the shortcomings of these existing studies

can be easily perceived in many aspects.

First, very few scholars pay close and continuous attention to the geographies of

money and finance in China. The geography of money and finance, at first, has been

a topic of only marginal or peripheral interest to economists in China. Even

geographers tended largely to ignore the spatialities of finance. More recently,

admittedly, Pan, Zhao and some other scholars have shown interest in financial

centres. However, these studies on selective topics hardly add up to a substantial or

coherent body of financial geography research in China. This incredible gap

stimulates me to build a concrete bridge between western countries and China in

terms of financial geography.

!53
Second, most research carried out by mainland scholars applies the financial

agglomeration approach to analyse the financial centres development and other

topics by providing us with a narrow economic explanation. Given the centrality of

money and finance to the market economy, however, as well as China’s complicated

transition in the last decades, we need to provide an outline of the wider social,

political, technical and cultural context for financial centres growth and the changing

geographies of finance.

Third, Lai, Pan and Zhao’s research opens a new door to delineate China’s financial

centres from a geographic perspective. Lai and Pan use the network approach to

discuss the dyad, triad, linkages and networks between China’s financial centres at

the domestic and global level, but they neglect the reflexivity between multi-scalar

levels. Zhao’s series of papers highlight the importance of asymmetric information,

but his work was conducted over ten years ago and shows the limitations of

intensive interviews. Pan et al. (2016) emphasise that China’s financial centres are

embedded in the social and institutional context, but they fail to interpret how social,

cultural and institutional factors impact China’s financial system and shape the

financial geographies.

Fourth, China’s scholars show their deficiency in terms of diversifying the theoretical

approaches in empirical study. The approaches of clusters, global city, institution,

‘geographical’ political economy and financialisation are seldom employed in the

examination of China’s financial geographies. In contrast, these approaches have

been well developed in the study of China’s financial geographies by overseas

geographers.

!54
Regarding my thesis topic, therefore, what would a more spatially sophisticated and

realistic interpretation of China’s financial centres look like? Generally, the motivation

for this thesis is to delineate China’s financial centres using a mixture of financial

geography approaches. To bridge these gaps as much as possible, the remainder of

this thesis makes full use of this context to assess and explore the geographies of

China’s financial centres, particularly Shanghai.

The empirical study is arranged as follows. The first two chapters consider China’s

geographies of financial centres as a whole. More specifically, chapters 3 and 4 aim

to examine the changing geographies of commercial banking, and the geographies

of the securities industry in China, by employing the agglomeration, information,

institution, network and political economy approaches. In the second half of the

empirical study, I focus on Shanghai’s financial centre. Chapter 5 examines the

clusters of FABS within Shanghai City. This chapter involves the cluster, global city,

network, ‘geographical’ political economy and financialisation approaches. Chapter 6

summarises Shanghai’s IFC policy regime, tracks its strategic progress, and

identifies its disadvantages from a global outlook. In this chapter, I highlight the

agglomeration, cultural economy, and institution approaches, as well as the

importance of state intervention.

!55
Chapter 3 The changing geographies of commercial banking in Mainland

China

3.1 Introduction

China’s financial system was totally controlled by banking sector during the period of

planned economy, and it is still dominated by banking currently. The impact of

China’s commercial banking is also shown on the global financial landscape. More

specifically, the global banking industry has become more geographically fragmented

since 1993 and the headquarters of the world's 50 biggest banks are no longer

concentrated in Japan, USA and Western Europe instead of China.4 The number of

headquarters in Mainland China grew from two to nine over the period of 1993–

2013. The Mainland’s banking assets in 1993 only accounted for 1% of world

banking assets – in contrast to 10.9% in 2013. Both indicators reached the summit of

the world league table in 2013. Meanwhile, after China’s accession to the WTO, a

series of breakthroughs on financial reform and opening up in Mainland China have

essentially affected and reshaped the spatial distribution of financial intermediaries,

such as the commercial banking sector, which asks for a re-mapping of the financial

geographies at the nation-state level.

Banking systems in Mainland have undergone historical processes of restructuring,

centralization and concentration, involving reductions in the number of independent

banks and a shift towards a more branch-based banking model. This process

happened in China as early as the 1990s, and is a still ongoing development.

4 http://www.globalbanking.org/globalbanking.taf?section=key-charts&theme=too-big-to-
fail&chart=bank-headquarters.
!56
Therefore, in this context, I focus on the changing geographies of the Mainland’s

commercial banking over the period 2006–2014. The latest data available for

empirical research were for the year 2014. The year 2006 was a crucial year for the

full opening up of the banking industry, as per China's commitment to the WTO

accession. Furthermore, the China Banking Regulatory Commission (CBRC) has

officially published the annual reports since the year 2006 – thus, the selection of

2006 as the start year makes the data and information more dependable.

This research will be directed towards understanding the changing geographies of

financial centers by carrying out an analysis of the Mainland’s banking sector.

Against this background, this chapter highlights, empirically, the changing spatial

distribution of banking to the existing collection of empirical descriptions by

examining the geography of commercial banking as well as by investigating its

spatial concentration over this period. The existing literature shows that Beijing is the

center of SOC and Shanghai is the center of foreign banks in China (He and Yeung

2011; Wu, Liu and Liu 2007). In the chapter, I ask to what extent is this

characterization true in 2014, and thus I extend the well established studies on this

changing geography over time. For instance, is domestic banking becoming more

concentrated in Beijing, and is foreign banking becoming more concentrated in

Shanghai? And where does this leave other Mainland banking centers like Shenzhen

and the second tier cities? Is the overall spatial concentration of banking increasing

or decreasing at the national scale?

The empirical analysis is based on branch and subbranch data, employment data,

headquarters data, and banking assets data, all of which are available, thus allowing

a systematic geographical analysis of commercial banking. The findings reveal the

!57
status of Beijing and Shanghai as the primary conglomerations in the Mainland

banking system. First, I analyze the data of the 50 largest commercial banks, which

together accounts for more than 80% of commercial banking assets. Second, I

particularly draw attention to JSCBs. JSCBs are the second most important group in

the banking sector but so far no academic papers focus specially on them. The two

studies referred to above show that Beijing, Shanghai and Shenzhen were

comparably stable for servicing and financing at the national level, while some

interprovincial centers, such as Guangzhou, Tianjin, Hangzhou and Nanjing, grew

quickly, which contributed to the overall dispersal of the banking sector at city level.

Third, in the case of foreign banks, Shanghai reinforced its position as the capital

and gateway for foreign banking. Meanwhile, some Central and Western cities

attracted more foreign banks, such as Chengdu and Chongqing. By contrast, the

coastline cities like Dalian, Qingdao and Xiamen lost their first-mover advantage.

Finally, the analysis of the geographical concentration index of banking assets

reveals the dramatically decreasing trend at provincial level, while it also declined at

city level. On the one hand, the decentralization of banking power from Beijing to

provincial level and the establishment of the provincial financial system brought with

it the dispersal of banking activities. On the other hand, the process of devolution

simultaneously led to the rise of interprovincial and provincial centers over this

period, which produced obvious banking agglomerations beyond Beijing and

Shanghai, and resulted in a decreasing concentration tendency of banking at city

level.

The remainder of this chapter is organized as follows. The next section presents a

literature background, providing a summary of the general debate about the current

banking system in China and discussing the existing study of the geography of
!58
commercial banking. The research questions and hypothesis are then introduced.

Section 3.3 introduces the data and methodology employed in my empirical analysis.

Section 3.4 applies these insights to understanding the changing geography of

China’s banking sector, and presents the empirical results of the 50 largest

commercial banks, JSCBs and foreign banks. This is followed by a geographical

conceptualization of the hierarchy of banking centers in China. In Section 3.5, I

attempt to demonstrate the trend of spatial concentration of banking during the

2006–2014 period, both at provincial and city level. Finally, Section 3.6 summarizes

with the main findings.

3.2 Background: Mainland China’s banking system, and answered and

unanswered questions on the geographies of banking

Before looking in detail at existing studies of the geography of commercial banking

and introducing my research questions, it is vital to provide an overview of the

changing banking system in Mainland China. The banking system is part of a

broader historically-rooted planned economy system and forms a dominant part of

financial intermediation in the whole financial system, providing about three-fifths of

total credit to the market economy in 2014 (Naughton 2006; PBOC 2015a). The

growth of bank assets and the ratio of bank assets to GDP help to explain the major

characteristics of China’s financial system. Bank assets climbed from 43,950 billion

CNY to 172,336 billion CNY from 2006 to 2014, and their growth rate was much

faster than that of GDP (CBRC 2015). The ratio of banking assets to GDP increased

from 201.9% to 270.9% over the same period, compared to 269.3% in Germany and

!59
89.6% in the USA at the end of 2014. China’s financial system has remained

dominated by the banking sector, and capital markets, which represent an alternative

to banking financing, are relatively underdeveloped – a fact that is due to the poor

degree of financial openness and innovation, as well as the legal system (Naughton

2006).

Table 3.1 shows the overall banking system changes over the period 2006–2014,

and the current situation. In 2006, there were 19,797 banking institutions in Mainland

China, but the number decreased to 4,089 as a result of mergers and acquisitions at

the end of 2014. By the end of 2014, the Mainland’s banking system consisted of

three policy banks, five largest SOCBs5, 12 JSCBs, 133 city commercial banks, 41

locally incorporated foreign banking institutions, one postal saving bank of China

(PSBOC) and so on. In total, the number of people employed in China’s banking

institutions amounted to 3,673,435.

More specifically, as shown in Table 3.1, China Development Bank (CDB) and two

other policy banks are established for taking over lending in support of government

policy objectives. Five SOCBs are the direct descendants of the planned economy

banking system and they account for more than two-fifths of total assets in Mainland

China’s banking sector today. The JSCBs present a sharp contrast to the SOCBs.

There are 12 JSCBs so far, which were established between 1987 and 2005. Each

JSCB is a new entrant and thus is relatively unburdened by baggage from the

planned economy era (Naughton 2006). City commercial banks were created from

urban credit cooperatives that had been set up to provide lending services to small-

5 Five SOCBs include the ‘Big Four’ (ICBC, CCB, ABC and BOC) and Bank of communications.
!60
scale companies. Besides the four categories already described, the remaining

players in the Mainland’s banking industry, including foreign banks, are quite small.

Table 3.1 Number of legal entities and staff of banking institutions (2006 and 2014)

Institutions Number of staff Number of banks

2006 2014 2006 2014

Large commercial banks 1,469,436 1,764,617 5 5

Policy banks 56,760 62,520 3 3

JSCBs 118,036 410,816 12 12

City commercial banks 113,999 346,816 113 133

City credit cooperatives 19,004 0 78 0

Rural commercial banks 20,003 373,635 13 665

Rural credit cooperatives 634,659 423,992 19,348 1,596

Rural cooperative banks 37,118 32,614 80 89

Finance companies of corporate groups 3,859 9,095 70 196

Trust companies 5,015 16,683 54 68

Financial leasing companies - 2,851 6 30

Auto financing companies - 6,072 5 18

Money brokerage companies - 605 1 5

Consumer finance companies - 11,871 - 6

Asset management companies - 8,399 - 4

Foreign financial institutions 16,724 47,412 14 41

Other institutions - 245,437 - 1,218

Total 2,732,394 3,763,435 19,797 4,089

!61
Source: Author’s based on the data from Almanac of China’s finance and banking 2014 and

Annual report of CBRC 2006 and 2014.

To advance my research questions and hypothesis, it is necessary to review past

performance in view of present achievements and failures, with a particular focus on

the geography of banking. The extant studies mainly pay close attention to the top-

down reform and opening up of the banking sector, and its substantial, and potential,

impacts on spaces. Wu, Liu and Liu (2007) argued that the formation of provincial

financial systems, along with deregulation, are ascribed to the combination of

exogenous and endogenous banking institutions including the SOCBs, the JSCBs,

city commercial banks and foreign banks, and that the provincial financial systems

serve different administrative spaces. They also mapped the spatial differences at

provincial level and recognized Beijing and Shanghai as being the most mature and

the leading banking centers in Mainland China. Other scholars investigated the

geography of certain categories of banking institutions. The first strip is empirical

research drawing attention to the largest SOCBs. Based on qualitative data, Yeung

(2009) indicated that during the reform of the SOCBs, the market-oriented strategy

with regard to outlet distribution may have led to underdeveloped areas suffering

from financial exclusion, in terms of operational efficiency, and probably resulted in

increasing spatial concentration of SOCBs’ activities (also see Yeung, He and Liu

2012; He and Liu 2013). Second, the location and spatial distribution of foreign

banks has been a critical object of interest since China’s accession to the WTO. Wu,

Liu and Liu (2007) pointed out that at the early stage of opening up, foreign banks

were only concentrated in first and second tier cities, especially trade-oriented cities

and cities where the PBOC was present because of the significance of informational

externalities and first-mover advantages, while the subsequent reforms and

!62
deregulation in Mainland China guided the pace of the spatial expansion of foreign

banks (He and Fu 2008, 2009). Furthermore, He and Yeung (2011) compared the

location choices made by foreign banks and concluded that the effects of

agglomeration and economies of scale outweighed the first-mover advantage as a

determinant factor for spatial distribution and locational choice of foreign banks.

However, the existing literature on the Mainland’s banking sector presents three

shortcomings, in the context of this chapter. To start with, one of the most visible

spatial manifestations of the commercial banking over the past decade in China has

been the growing significance and geographical expansion of JSCBs, and provincial

and local banks beyond the five SOCBs. However, so far, no empirical study has

focused on China’s medium-size commercial banks, or on the city commercial

banks. Second, most academic studies draw special attention on leading banking

centers (Wu, Liu and Liu 2007), while the rise of China’s interprovincial and

provincial centers has been totally neglected. Existing literature shows that Beijing is

the capital of the largest SOCBs and Shanghai is the capital of foreign banking in

China. But to what extent is this characterization still true? Whether Beijing is the

predominant center for the overall banking sector? What about the other important

banking centers, like Shenzhen, Guangzhou and Tianjin? Finally, no study has yet

analyzed the changing geography of the banking sector as a whole, in terms of

spatial concentration and dispersal, or the impacts of the global financial crisis on

Mainland China’s banking sector. The study of He et al. (2009, 2013) on foreign

banks employed data from before 2006. However, the banking reforms after 2006

ushered in a new phase for foreign banking and the global financial crisis also

!63
negatively affected the expansion of foreign banks. Then, I ask how does the

geography of foreign banking change after 2006?

These unanswered questions lead me to the hypothesis, which concerns the

changing geographies of China’s commercial banking. First of all, considering the

organization of the banking system and Mainland’s political economy, I would expect

that Beijing and Shanghai will retain their positions as centers of domestic and

foreign banking, respectively. As Wójcik and MacDonald-Korth (2015) have argued,

we need to combine economic geography with political economy, in a framework that

takes both space and institutions seriously. Beijing is the command and control

center of China’s political and financial system. Thus, that system has privileged

Beijing over any other city as a banking center offering proximity to China’s

regulatory departments like PBOC and CBRC. And this unrivaled advantage in terms

of regulation infrastructure can supply valuable asymmetric information for banking

institutions and lead to immense financial agglomerations in Beijing (Grote 2009b,

Porteous 1995, 1999; Zhao et al. 2004, 2005). Regarding Shanghai, in March 2009,

when the developed countries were still battling against the storm of the global

financial crisis, China’s central government announced an ambitious plan to build

Shanghai into a truly international financial center and shipping hub, in line with the

country’s economic strength and the global position of RMB, by 2020 (Lai 2012a;

Heep 2014). Additionally, the first pilot FTZ was also established in Pudong New

Area in September 2013, with the aim of extending the opening up and financial

innovation during the second round reform on the Mainland. These policy incentives

and institutional reforms could increase the attraction for foreign banks in Shanghai

(Lai 2012b).

!64
Moreover, the second hypothesis is that the expanding market freedom will bring

with it the rise of interprovincial and provincial centers but will undermine the position

of local and small centers in the geographies of banking. First, driven by market

forces, merger and acquisition activities are often carried out between contiguous

city commercial banks in order to enhance their competitiveness with the SOCBs

and JSCBs in regional markets, and these banks often relocate their headquarters to

some provincial capital.6 Second, the market-oriented strategies prompt nationwide

banks to compete for a lucrative market share in second tier cities, where city

commercial banks are extremely powerful, with a high rate of profit. However, it is

difficult for the SOCBs and JSCBs to consolidate with high quality city commercial

banks quality, because these city commercial banks are supported and protected by

provincial or local governments. Thus, the SOCBs and JSCBs tend to extend their

business and market share by opening new branches and sub-branches in these

cities (Wu, Liu and Liu 2007; Yeung 2009). Third, the CBRC honored the WTO

commitments by granting national treatment to foreign banks in 2006. This strategy

of opening up actively encourages foreign banks to be locally incorporated and

accelerates their processes of setting up branches and sub-branches (CBRC 2007).

Beyond strengthening their distribution in first tier cities, foreign banks seek to

broaden their business in second tier cities because of the effects of agglomeration

(He and Yeung 2011). In brief, the three critical processes of banking activities listed

above facilitate the prosperity of interprovincial and provincial banking centers.

Parallel, and even faster, growth exists in some second tier cities that function as

interprovincial or provincial centers—that is, on a smaller geographic scale than

Beijing, Shanghai and Shenzhen, while the local centers have witnessed a

6 http://www.cbrc.gov.cn/chinese/home/docView/1005.html.
!65
comparative decline over this period. This changing geography is also expected to

lead to the formation of a hierarchical network in commercial banking, from the

national to the local level.

Finally, I would expect an overall decreasing spatial concentration of banking

activities at provincial level, as well as at city level. In the case of provincial change,

the starting point of banking power is that there is a high level of control from the

SOCBs and regulatory institutions in Beijing (Heep 2014). Thus, along with the

processes of decentralization and devolution, this should lead to a dispersal trend at

the provincial level after the establishment of the provincial banking system. As a

result, the overall spatial concentration of the banking sector declined. Meanwhile,

the spatial dispersal of banking power, of which devolution from Beijing to provincial

level is one form, and the obvious banking agglomerations produced in

interprovincial and provincial centers, contribute to the emergence and growth of

centralized banking activities in second tier cities such as Guangzhou, Tianjin,

Fuzhou, Nanjing and Hangzhou. This entails a new logic for agglomeration and is a

key condition for the changing concentration of banking activities at city level. The

starting point is that the Mainland’s commercial banking is generally concentrated in

Beijing, Shanghai and Shenzhen, where the banking activities have become

saturated to a certain degree. Then, devolution, often thought of as a drive for

dispersal geographies, actually transforms some second tier cities into interprovincial

and provincial centers of spatial concentrations of banking power, beyond national

centers. Therefore, I would also expect a decreasing spatial concentration of the

banking industry at the city level.

!66
3.3 Data and methodology

The first dataset applied in the research is a list of China’s largest commercial banks

(Appendix 1), both in 2006 and 2014, including the SOCBs, JSCBs, PSBOC,

regional/local banks, and foreign banks. The original data of banks and their assets

by the ends of 2006 and 2014 are supplied by the PBOC and Bankscope. I deal with

the data based on the headquarters of these banks and show a geographic

breakdown of headquarters and assets at city level.

The second dataset employed in this chapter is the branch and sub branch data of

the JSCBs in 2006 and 2014. Generally, the non-listed banks do not disclose annual

financial reports, so their geographical indicators in 2006 and 2014 are often

incomplete or inaccessible. Thus, in the chapter I particularly focus on the eight listed

banks, which are the largest banks and possess well established nationwide

networks among the 12 JSCBs. The dataset of 2006 includes 3,091 branches and

sub-branches in 60 cities, in comparison with 8,647 branches and sub-branches in

66 cities in 2014. This dataset displays multi-tier command and control centers and

shows the process of devolution in banking. A straightforward comparison between

2006 and 2014 is carried out by visualizing the datasets.

The third dataset applied here is the employment and assets of foreign banks in

2006, 2010 and 2014 at provincial level, as well as a comparison of the number of

foreign banks in Beijing, Shanghai and Shenzhen over the period 2006–2014. The

data are collected from the Regional Finance Operation Reports published by the

PBOC and the annual reports 2006 and 2014 of the CBRC.

!67
Finally, in the analysis of spatial concentration, in order to calculate the geographical

concentration index, this chapter employs the data of banking assets at provincial

level that are collected from the China Regional Finance Operation Report 2006–

2014 and of banking assets of the largest 50 commercial banks from 2006 to 2014 at

city level.

3.4 The changing geography of China’s commercial banking

3.4.1 An overview of commercial banking in Mainland China

In this section I firstly focus on the 50 largest commercial banks in Mainland China:

as at the end of 2014 they accounted for 74.2% of total banking assets and 84.1% of

commercial banking assets, a slight increase from 74% and 82.7%, respectively, in

2006 (CBRC 2015). The geographies of commercial banking can be examined and

perceived through the spatial breakdown of headquarters. The SOCBs have always

ranked among the top-five in the league table of the 50 largest commercial banks,

while the ‘Big Four’ are located in Beijing and Bank of Communications is based in

Shanghai. In 2006, the headquarters of the top 50 were distributed in 32 banking

centers, while it narrowed to 24 centers in 2014 (see Figure 3.1). More specifically,

by the end of 2014, the number of headquarters in Beijing and Shanghai rose by 10

and four to 11 and seven, respectively, while the number in Shenzhen declined from

four to two. Over this period, some city or rural commercial banks were restructured

by means of mergers or acquisitions in order to enhance their competitiveness with

the SOCBs and JSCBs in the regional markets, and they relocated their

headquarters into some second tier cities: for example, the Bank of Jiangsu in

!68
Nanjing and the Bank of Huishang in Heifei. Therefore, some local centers

disappeared in the ranking list of 2014.

Figure 3.1 The distribution of the headquarters of the 50 largest commercial banks, including

SOCBs

Source: Author’s based on the data from the PBOC and Bankscope

Based on the distribution of headquarters in 2006 and 2014, the second analysis is a

measure of the ratio of every city or city group’s share of total assets benchmarked

against national level, which has been applied here to reveal how different banking

centers have fared over this period in terms of their share of assets compared to

national-level data, and acts as a useful barometer of changing geography. Figure

3.2 considers the impacts of the SOCBs, while Figure 3.3 excludes the data of the

SOCBs.

!69
Figure 3.2 demonstrates Beijing’s status as an eminent center in the banking

system. However, as Yeung (2009) has argued, the state still plays a crucial role in

the regulation and operation of the SOCBs, which are the direct descendants of the

planned economy bank system, and they account for more than two-fifths of total

assets of Mainland China’s banking today. Therefore, the comparison in Figure 3.3

attempts to show another geographies of banking in order to explore whether Beijing

is still the dominant center (excluding the factors of the SOCBs). The percentages in

the pie charts refer to the ratio of different attributed groups based on the breakdown

of headquarters, which shows that Beijing gained a 2% growth between 2006 and

2014. In contrast, Shanghai and Shenzhen experienced a decrease. The total assets

of the cities that are not leading national centers increased by 29% to 34%.

Figure 3.2 A geographical breakdown of the assets of the top 50 banks, including SOCBs

Source: Author’s based on original data from PBOC and Bankscope

!70
Figure 3.3 A geographical breakdown of the assets of the top 50 banks, excluding SOCBs

Source: Author’s based on original data from PBOC and Bankscope

As shown in the charts above, the results suggest that Beijing continued to be the

predominant center in the commercial banking sector, even if Figure 3.3 does not

consider the impacts of SOCBs. This can be interpreted in the following way: first,

the ‘Big Four’ still accounted for nearly 40% of the total banking assets in 2014.

Second, along with the banking reform, PSBOC was established in Beijing in 2007.7

The total assets of PSBOC is approximately equal to Bank of Communications.

Third, the expansion of the JSCBs nationwide reinforced Beijing’s status as a leading

banking center since four of the eight listed JSCBs are based in Beijing.

7In 2007, the CBRC approved the expansion of PSBC's business scope by allowing the bank to
engage in all business lines specified in the Law of the People's Republic of China on Commercial
Banks.
!71
3.4.2 The changing geography of JSCBs

I choose JSCBs as my research subject for two reasons: firstly, 12 JSCBs accounted

for some 18.2% of the total assets of the commercial banking sector in 2014, which

represented the second most important component in the banking sector; secondly,

this category of banks holds a nationwide license and are permitted to operate their

business across the whole country, which differentiates them from ordinary regional

and local banks. The details of the JSCBs are summarized in Table 3.2. As the table

makes clear all headquarters are located in the Eastern provinces, suggesting the

effect of the first round of reform and opening up. The table also highlights the

leading role of China Merchants Bank, which is based in Shenzhen.

Table 3.2 A full list and overview of China’s JSCBs

Bank Headquarters IPO Year Listed Total Employment

Location Assets

Bohai Tianjin unlisted — 667 6,586

China Guangfa Guangzhou unlisted — 1,648 31,527

Citic Beijing 2007 SSE;HKSE 4,139 50,735

Everbright Beijing 2010 SSE;HKSE 2,737 39,105

Evergrowing Yantai unlisted — 849 7,469

Huaxia Beijing 2003 SSE 1,852 27,835

Industrial Fuzhou 2007 SSE 4,406 50,214

Merchants Shenzhen 2002 SSE;HKSE 4,732 75,109

Minsheng Beijing 2000 SSE; HKSE 4,015 59,659

Ping An Shenzhen 1991 SZSE 2,187 25,110

!72
Pudong Shanghai 1999 SSE 4,196 42,532

Development
Zheshang Hangzhou unlisted — 670 6,495

Source: Author’s based on the data from Almanac of China’s finance and banking 2014, and

the annual reports 2014 of JSCBs

Note: The total assets and employment are the figures as at the end of 2014; unit: billion

RMB

Figure 3.4 below charts the changing geography of the JSCBs during 2006 through

to 2014. First, it underlines the continued pre-eminence of leading centers and the

relative stability of the banking hierarchy. The number of branches and sub-branches

in Beijing climbed to 519 and surpassed Shenzhen, closely following Shanghai’s

573. In total, the number of three leading centers accounted for approximately 28%

of the branches and sub-branches, while the share fell to 18% in 2014. Second,

some second tier cities grew more than leading centers and, therefore, they

underpinned their positions that serve as interprovincial and provincial nodes. For

example, the number of total branches and sub-branches controlled by Guangzhou

and Nanjing, respectively, increased from 166 to 453 and from 150 to 470,

respectively, over this period. Third, a significant trend of the changing geography is

that the JSCBs expanded their business activities from the Eastern coastline region

to the broad range of the mid-Western region. This period saw the emergence and

increase of Central and Western banking centers, such as Chongqing, Chengdu,

Xian and Changsha. However, some Eastern cities grew slowly, especially the old

industrial cities and export-oriented cities such as Tangshan, Zibo, Anshan and

Ningbo.

!73
Figure 3.4 The distribution of JSCBs’ branches and sub-branches (1 unit)

Source: Author

These findings can be explained in three ways. First, Beijing is the financial

regulatory center, while Shanghai and Shenzhen are officially recognized as the

national financial centers. The immense concentrations of economic power require a

corresponding banking system to provide financial services in the leading centers

(Sassen 2012a). Second, the ascending significance of interprovincial and provincial

centers is attributed to the shift in the organizational structure that shows the

devolution and decentralization from headquarters to first-level branches and the

establishment of provincial financial systems (Wu, Liu and Liu 2007). In the

!74
beginning, the branches and sub-branches are directly and separately controlled by

the headquarters. However, alongside the expansion and devolution of JSCBs, as

the conglomerations of first-level branches, interprovincial and provincial centers,

instead of headquarters, directly control the second-level branches and sub-

branches. This process upgraded the position of interprovincial and provincial

centers in the banking network. Third, in the 21st century, the Great Western

Development Strategy and the Rise of the Central Region Plan proposed by the

State Council has promoted the growth of the Central-Western region, especially the

provincial capitals and Chongqing, by direct investments and industrial transfer. In

contrast, some Eastern cities have grown slowly because of industrial transformation

and the loss of first-mover advantage.

3.4.3 The changing geography of foreign banks

The year 2006 was a crucial year for the full opening up of the banking industry, as

per China's commitment to the WTO accession. Based on these principles, the

CBRC honored the WTO commitments by granting national treatment to foreign

banks in the Chinese market (CBRC 2007). Table 3.3 shows the growing trend of

foreign banks after 2006. Although they steadily increased, both in employment and

total assets, their assets share in the whole banking system suggested a descending

importance. By the end of 2014, banks from over 50 countries and regions

established 41 locally incorporated entities, 97 foreign bank branches and 182

representative offices in China. Foreign banks have a presence in 69 cities in 27

provinces (CBRC 2015).

!75
Table 3.3 Foreign banks in China (2006–2014); unit: RMB billion (assets)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Staff 1 6 , 7 2 31,343 27,812 32,502 36,017 42,269 44,560 45,424 47,412

Numbe 4
14 29 32 37 40 40 42 42 41

rAssets 917.9 1,252.5 1,344.8 1,349.2 1,742. 2,153.5 2,380. 2,562.8 2,792.

% 2.11 2.38 2.16 1.71 3

1.85 1.93 4
1.82 1.73 1
1.62

Source: Author’s based on the data from CBRC Annual Reports 2006 and 2014

Note: the % refers to the total assets of foreign bank accounts as a share of the whole

banking system

Table 3.4 sets out the leading cities and provinces of foreign banks between 2006,

2010 and 2014. Firstly, Shanghai is the preeminent center for foreign banking and

enlarged its advantage compared to the other cities. The total assets of foreign

banks in Shanghai surpassed 1.3 trillion RMB by the end of 2014. Although the

shares of Shanghai’s employment and assets at national level slightly decreased

over this period, they still accounted for more than 40% in 2014. The number of

foreign banks steadily increased from 100 in 2006 to 219 in 2014 (PBOC 2007,

2015b). Secondly, Beijing and Shenzhen are the second and third most important

centers for foreign banking, but they are lagging far behind Shanghai. The expansion

of foreign banks in Beijing and Shenzhen stagnated after the financial crisis and their

number was approximately half of that of Shanghai as at the end of 2014 (PBOC

2015b). Thirdly, while the business of foreign banks is mainly concentrated within the

first tier and second tier cities, most foreign banks have not opened branches in the

!76
Central-Western region. For example, no foreign banks opened business in Gansu,

Qinghai, Ningxia and Tibet by the end of 2014 (PBOC 2015b). However, a fresh

phenomenon was that foreign banks opened more branches in Chongqing and

Chengdu that are recognized as the ‘new first-tier’ cities, while the coastline cities,

such as Dalian, Xiamen and Qingdao, moved sluggishly after 2006. This trend could

be detected by the comparatively slower growth of Liaoning, Fujian and Shandong,

in contrast with the rise of Chongqing and Sichuan.

Table 3.4 Foreign banks in selected cities and provinces between 2006, 2010 and 2011

2006 2010 2014

Employment Assets Employment Assets Employment Assets

Beijing 2,105 106.2 6,491 242.5 8,230 319.8

Tianjin 510 28.2 1,632 64.4 1,609 84.9

Liaoning — 21.2 1,157 35.2 1,479 57.0

Shanghai — 509.4 15,618 865.7 20,341 1,321.5

Jiangsu 338 12.2 1,188 38.8 2,511 103.9

Zhejiang 210 4.7 827 24.9 1,130 44.2

Fujian 619 34.9 1,155 66.7 947 41.4

Shandong 296 14.6 707 24.9 1,124 45.5

Guangdong — 169.1 7,699 345.0 9,892 546.3

Shenzhen — 112.9 4,714 199.5 5,547 353.6

Chongqing 133 2.2 528 10.6 821 21.7

Sichuan 239 2.5 775 22.6 1,055 32.1

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Mainland 16,724 927.9 36,017 1,742.3 47,412 2,792.1

Shanghai’s — 54.9% 43.4% 49.7% 42.9% 47.3%

share of

Source: Author’s based on the data from the Regional Finance Report of the PBOC; unit of

assets: RMB billion

Note: The number of foreign banks does not include representative offices; the data for

Guangdong province include Shenzhen.

The opening up of the banking sector after 2006 has had a substantial effect on the

geography of foreign banks in Mainland China. First, after the implementation of the

local incorporation policy, some foreign banks chose to convert their branches into

local subsidiaries (CBRC 2007). In 2014, Shanghai was the capital, with 22

headquarters of wholly foreign-owned banks, in comparison with Beijing’s nine

headquarters (CBRC 2015). This process elevated Shanghai’s position in foreign

banking. Second, Beijing used to be the primary destination for foreign banks before

2007, but this included a number of representative offices without substantial

transaction operations (Lai 2012a; He and Liu 2013). However, because of the

negative effects of the global financial crisis, the branches and representative offices

of foreign parent banks were gradually closed, in order to reduce operational costs

(CBRC 2010). Third, alongside the progress and extension of reform and opening up

in the broader Central-Western region, foreign banks primarily expanded their

business activities in critical interprovincial and provincial centers, like Chengdu and

Chongqing. By contrast, the trade-oriented and coastal open cities, such as Dalian

and Qingdao, which benefited from the early stage of reform and opening up

increasingly lost their first-mover advantage in the foreign banking landscape (He

!78
and Yeung 2011).

3.4.4 The hierarchy of banking centers in Mainland China

In accordance with the analysis above, the development of the banking sector over

the period of 2006–2014 demonstrate a new geography of banking centers, which is

reflected in three aspects: first, centralized control and command over a

geographically dispersed array of banking operations comes about as the most

critical part of the hierarchy. The leading centers—Beijing, Shanghai and Shenzhen—

for servicing and financing at the national level accumulate a capacity for widespread

political-economic control by serving as concentrated headquarters in the

organization of the Mainland’s financial sector, and as strategic sites for the

expansion of commercial banks. Some second tier cities that serve as interprovincial

and provincial nodes exhibit similar, growth but with lower scales of banking

agglomeration and narrower scopes of banking hinterland. Second, deregulation and

devolution, as well as the spatial expansion of the SOCB, JSCBs and foreign banks,

contribute to the growth of centralized functions and operations at provincial level.

These processes are generally considered as the drives of the dispersal

geographies. However, they primarily bring with them dramatic banking

agglomeration in some second tier cities and the establishment of provincial capital-

centric systems. The restructuring of city commercial banks at provincial level also

underpins this new geography. Finally, the expansion and restructuring of banking in

China has contributed to a new banking geography of centrality and marginality. The

leading centers, and interprovincial and provincial centers, have become strategic

sites of paramount and secondary level concentrations of banking power, while once

!79
critical local centers, including port cities and export-oriented cities, such as Qingdao

and Suzhou, suffer comparative declines in the banking landscape.

The economic benefits accrued from the changing geography of commercial banking

in Mainland China have been highly geographically uneven over the period 2006–

2014, which has resulted in the formation of a hierarchy of banking centers. Based

on the analysis of commercial banking in this section, I attempt to depict the

hierarchy in Table 3.5. As an authoritarian state, the hierarchy of banking centers in

Mainland China is inseparable from political factors. Evolving from a coordinated

economy, the initial framework of this hierarchy is ascribed to the administrative

level. The political status matters in the competitiveness of banking centers because

a higher administrative grade tends to provide more asymmetric information than a

lower one, which matters for the scale of financial agglomeration and scope of

financial hinterland (Zhao 2004, 2005). However, this is not the only determinant

factor in this hierarchy. According to Table 3.5, it is easily perceived that some

banking centers do not strictly match their administrative levels. For example,

Shenzhen is a sub-provincial city but a banking center with national impact and

Fuzhou is a provincial capital with interprovincial banking power. By contrast,

Chongqing is a municipality directly under the central government but only an

ordinary center for provincial services. Therefore, certain unique endogenous and

exogenous variables of cities should be taken into full consideration in an analysis of

the reorganization of the banking hierarchy.

As Wójcik (2013b) has argued, financial centers are considered as a spatially

distributed network of money and power. The formation of hierarchy in banking

!80
centers is essentially ascribed to the distribution and combination of financial power

(Allen 1997, 2003; Peet 2007). Therefore, what kinds of power matters in the

formation of the hierarchy of banking centers, and why? In general, explanations of

why banking agglomerations form in particular cities and understanding of the drivers

that generate the hierarchy of banking centers in Mainland China focus on three

spatial types of geographical power: economic, cultural and institutional.

Table 3.5 The hierarchy of banking centers in China

City Total banking Number of Administrative Foreign banks

asserts headquarters status

1 Beijing 89668.8 11 A 87

2 Shanghai 12970.2 7 A 153

3 Shenzhen 6918.3 2 B 79

4 Fuzhou 4406.4 1 C 3

5 Guangzhou 2445.5 3 B 69

6 Nanjing 1611.5 2 B 14

7 Tianjin 1372.0 3 A 50

8 Hangzhou 1088.5 2 B 25

9 Chengdu 934.4 2 B 28

10 Chongqing 893.4 2 A 29

11 Yantai 848.6 1 D 4

12 Ningbo 554.1 1 B 12

13 Shenyang 503.4 1 B 17

14 Hefei 482.8 1 C 5

!81
 15 Zhengzhou 411.4 2 C 4

16 Harbin 343.6 1 B 7

17 Baotou 312.8 1 D 0

18 Changchun 283.8 1 B 1

19 Urumqi 278.3 1 C 2

20 Xiamen 278.3 1 B 24

22 Dalian 260.6 1 B 27

22 Dongguan 255.8 1 D 10

23 Changsha 212.2 1 C 5

24 Foshan 206.9 1 D 12

Source: Author

Note: The total banking assets and number of headquarters are based on the geographical

breakdown of the top 50 largest commercial banks at city level in 2014; unit of assets: billion

RMB; administrative level: A municipality directly under the central government, B sub-

provincial city, C provincial capital, D prefecture-level city; foreign banks refers to the number

of branches and sub-branches of locally incorporated institutions at the end of 2014. Data

source: the official websites of foreign banks.

First, one important reason why commercial banking activities tend to be located in

national centers is the superior adsorption of economic power in relation to the

banking sector, while the interprovincial and provincial centers have a secondary

level of economic power (Wu, Liu and Liu 2007). Economic power in Mainland China

suggests the concentration of headquarters of firms, financial regulatory institutions

(headquarters and branches of the PBOC, CBRC, CSRC) and financial markets

!82
(Shanghai Stock Exchange and Shenzhen Stock Exchange). Second, banking

agglomeration is related to cultural power. Shanghai has been privileged over any

other city in Mainland China as a financial center for foreign banks as it offers a

culture of international commerce and cosmopolitan, and historical success (Horesh

2009, 2014). Financial actors and regulatory officials often draw upon Shanghai’s

historical success as an international financial center to account for its contemporary

cosmopolitanism and receptiveness to foreign investments (Lai 2012b). In addition,

the cultural factor matters as a historical context, such as Zhejiang’s commerce

culture. The innovative atmosphere of internet finance in Hangzhou is not unrelated

to the business culture here: the largest commercial bank here is named ZheShang

(‘Zhejiang businessmen’) Bank. Third, transferring from a planned economy,

institutional power in Mainland China refers to the priority for progressively

institutional reform across space and over time (Zhao and Zhang 2007). The

establishment of a special economic zone in Shenzhen in the 1980s, and the

Shanghai Pudong New Area in the 1990s are practices of institutional power, which

bring with them a wide range of amenities or incentives for the agglomeration of

banking activities. This is the critical reason why Shenzhen could become a leading

center in a short span of 35 years. Similarly, the establishment of an Industrial Bank

in Fuzhou during the early stage of reform and opening up contributed to the growth

of Fuzhou as an important interprovincial center. In contrast, notwithstanding

Chongqing is a municipality directly under the central government, it only confirmed

its current administrative status in 1997. Meanwhile, as an inland city, it started to

participate in the wave of reform and opening up just after the implementation of the

China Western Development Strategy in the new century.

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3.5 The geography of commercial banking: spatial concentration or dispersal?

First, the findings on the growing concentration of the banking sector at provincial

level in China can be corroborated by analyzing the geographical concentration

index. In Figure 3.5, the overall spatial concentration of banking employment has

evidently decreased from 2006 through to 2014. The concentration slightly grew,

reaching the peak of 0.064 in 2007. Then it declined dramatically after 2009 and

reached a low of 0.0547 in 2013.

Figure 3.5 Geographical concentration of banking assets at provincial level

Source: Author

Note: The geographical concentration index of banking assets is calculated as:

!84
Where Sc is the share of banking assets in city c. The value of the HHI increases, with the

degree of concentration reaching its upper bound of 1 when all the assets are concentrated

in one city. HHI takes the lowest value 1/N, where N is the number of cities in every year’s

top 50 list, when assets are evenly distributed across Mainland. As an absolute measure,

this indicator displays a weighting towards large cities.

In China, the starting point of banking geography is that there is a high level of

control from the SOCBs and regulatory institutions in Beijing. Therefore, a

decreasing concentration of banking is found because of the top-down deregulation

and establishment of a provincial banking system (He and Liu 2013; Wu, Liu and Liu

2007). Additionally, the policy initiatives, such as the China Western Development

and the Rise of Central China Plan in the new century simultaneously advanced this

trend. These factors explain the overall tendency of spatial concentration shown in

Figure 3.5.

It should be noticed that the year 2006 was a crucial year for the full opening up of

the banking industry, as per China's commitment at the WTO accession. Based on

these principles, the CBRC honored the WTO commitments by granting national

treatment to foreign banks in the Chinese market (CBRC 2007). The share of foreign

banks in banking assets gained a rapid growth in 2007, especially in Shanghai,

Beijing and Guangdong (CBRC 2008). This led to a slight increase in spatial

concentration in 2007. In addition, the financial crisis of 2008–09 disturbed the curve

but did not change the overall trend.

!85
Second, I examine the trend of geographical concentration at city level by reference

to the data of the top 50 banks’ total assets, based on the spatial breakdown of the

headquarters. Figure 3.6 shows that the concentration at city level evidently fell from

0.663 to 0.509 over this period. This result coincides with the findings discussed in

Section 4, in that the rise of interprovincial and provincial centers brings with it a

geographical dispersal of commercial banking activities at city level over the period

2006–2014, such as in Fuzhou, Guangzhou, Nanjing, Tianjin and Hangzhou. The

total assets of these five banking centers increased 792% over this period, while the

total of Beijing, Shanghai and Shenzhen only grew by 259%.

The descending concentration of commercial banking at city level can be ascribed to

the devolution of banking power as well as the spatial expansion of all kinds of

banks, which contributes to the growth of centralized functions and operations at

provincial level. These processes are generally considered as the drive and trigger of

the dispersal geographies because they reproduce a secondary level of banking

agglomerations beyond national leading centers. To summarize, as I argue in

Section 4, the interprovincial and provincial centers flourish on a large scale in the

whole country, and this phenomenon implies that the devolution of the Chinese

economy through the banking sector made great progress and extended the banking

reforms in the second tier cities beyond Beijing, Shanghai and Shenzhen, where the

banking market was saturated state to a certain degree, which also brought with it a

dispersal geography of commercial banking at the city level.

!86
Figure 3.6 Geographical concentration of banking assets at city level

Source: Author

Note: The geographical concentration index of banking assets is based on the same model

as that used for Figure 3.5.

3.6 Summary

The first objective of the study was to examine the changing geography of

commercial banking between 2006-2014 in Mainland China. The second aim was to

outline the hierarchy of China’s multi-tier banking centers. This strategy was used to

shed light on the devolution of the Chinese economy through the banking sector, in a

context in which the role of distribution of banking power has been understudied and

!87
rarely combined with an analysis of the changing banking in Mainland China. The

third aim was to investigate the geographical concentration of the banking sector

over the period 2006–2014.

The primary finding of this chapter is that Beijing is the predominant center of

command and control in the banking system, regardless of Shanghai’s status as the

capital of foreign banks, because the business capabilities of foreign banks in

Mainland China are currently insignificant and quite limited. In addition, along with

the top-down process of diffusion and decentralization of banking activities, the

interprovincial and provincial banking centers experienced a dramatic growth over

this period, while the status of leading centers—Beijing, Shanghai and Shenzhen—

was relatively stable. Thirdly, the direct impacts of the global financial crisis on

China’s banking sector were quite limited, because China’s financial system is

isolated from the global financial integration and the share of foreign banks in

Mainland’s financial system is minimal. Generally, a new hierarchy of banking

centers was established and the spatial concentration of the banking sector

decreased at provincial level because of devolution processes, while the

concentration at city level also demonstrated a descending tendency due to the rise

of a group of interprovincial and provincial centers.

The application of geography of power in Mainland China’s banking hierarchy could

be considered as complementary to the existing studies. The spatial-temporal

production of power is a major force in the formation of the banking hierarchy in

Mainland China. Cities in China and beyond compete fiercely to host power for

chasing resource and the impact of this process on uneven development between

and within cities should be of most interest to future research in Chinese economic

!88
geographies. Overall, the ambition of this chapter is to depict the map of banking

geography, place the power combinations on the map across time and space, and

analyze the latter in a dynamic framework that accounts for the forces of the

hierarchy of commercial banking.

Finally, I must emphasize, along with the sweeping reforms on financial system since

the 1990s afterward, capital markets, as the outcome of market economy, have

played an increasingly important role in contemporary China’s financial landscape

beyond the banking industry. Therefore, in the same vein, chapter 4 will explore the

geographies of securities industry by an interrogation on the securities

intermediaries, including securities firms, futures firms and fund management firms

after the delineation of banking sector. The securities intermediaries are critical in

connecting the capital markets and the large number of domestic investors. The next

chapter will show us the geography of securities centers by an investigation of these

intermediaries.

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Appendix 3.1 The largest 50 commercial banks in 2006 and 2014 (The unit of asset:
100million RMB)

2006

Bank Headquarter Asset

1 ICBC Beijing 75091.18

2 CCB Beijing 54485.11

3 ABC Beijing 53439.43

4 BOC Beijing 53252.73

5 Bank of Communication Shanghai 17194.83

6 Merchant Bank Shenzhen 9341.02

7 Citic Bank Beijing 7068.59

8 Minsheng Bank Beijing 7004.49

9 Shanghai Pudong Development Bank Shanghai 6893.44

10 Industrial Bank Fuzhou 6177.04

11 Everbright Bank Beijing 5932.34

12 Huaxia Bank Beijing 4450.53

13 Guangfa Bank Guangzhou 3739.08

14 Bank of Beijing Beijing 2729.69

15 Bank of Shanghai Shanghai 2700.43

16 Shenzhen Development Banki Shenzhen 2605.76

17 Beijing Rural and Commercial Bank Beijing 1547.41

18 Shanghai Rural Commercial Bank Shanghai 1361.49

19 Shenzhen Ping An Bank Shenzhen 817.25

20 Tianjin Commercial Bank Tianjin 811.64

21 Huishang Bank Hefei 703.62

22 Dalian Commercial Bank Dalian 610.74

23 Nanjing Commercial Bank Nanjing 579.23

24 Hangzhou Commercial Bank Hangzhou 568.46

25 Evergrowing Bank Yantai 566.72

!90
26 Ningbo Commercial Bank Ningbo 565.46

27 Shenzhen Rural Commercial Bank Shenzhen 527.39

28 Dongguan Commercial Bank Dongguan 503.79

29 Harbin Commercial Bank Harbin 437.05

30 Baotou Commercial Bank Baotou 389.88

31 Xian Commercial Bank Xian 383.42

32 Chengdu Commercial Bank Chengdu 374.50

33 Zheshang Bank Hangzhou 366.13

34 Changsha Commercial Bank Changsha 340.92

35 Chongqing Commercial Bank Chongqing 326.06

36 Jinan Commercial Bank Jinan 324.09

37 Guiyang Commercial Bank Guiyang 302.67

38 Kunming Commercial Bank Kunming 294.94

39 Lanzhou Commercial Bank Lanzhou 267.52

40 Jiangyin Rural Commercial Bank Wuxi 254.16

41 Changshu Commercial Bank Suzhou 244.26

42 Qingdao Commercial Bank Qingdao 237.01

43 Nanchang Commercial Bank Nanchang 233.57

44 Yantai Commercial Bank Yantai 222.37

45 Wenzhou Commercial Bank Wenzhou 222.32

46 Changchun Commercial Bank Changchun 217.83

47 Wujiang Rural Commercial Bank Suzhou 202.80

48 Luoyang Commercial Bank Luoyang 202.19

49 Zibo Commercial Bank Zibo 187.62

50 Weihai Commercial Bank Weihai 175.54

2014

Bank Headquarter Asset

1 ICBC Beijing 206099.53

2 CCB Beijing 167441.30

!91
 3 ABC Beijing 159741.52

4 BOC Beijing 152513.82

5 China Postal Saving Beijing 63000

6 Bank of Commmunication Shanghai 62682.99

7 Merchant Bank Shenzhen 47318.29

8 Industrial Bank Fuzhou 44063.99

9 Pudong Development Shanghai 41959.24

10 Citic Bank Beijing 41388.15

11 Minsheng Bank Beijing 40151.36

12 Everbright Bank Beijing 27370.10

13 Ping An Bank Shenzhen 21864.59

14 Huaxia Bank Beijing 18516.28

15 Guangfa Bank Guangzhou 16480.56

16 Bank of Beijing Beijing 15244.37

17 Bank of Shanghai Shanghai 11874.52

18 Bank of Jiangsu Nanjing 10383.09

19 Evergrowing Bank Yantai 8485.55

20 Zheshang Bank Hangzhou 6699.57

21 Bohai Bank Guangzhou 6671.48

22 Chengdu Rural Commercial Bank Chengdu 6341.40

23 Chongqing Commercial Bank Chongqing 6188.89

24 Bank of Nanjing Nanjing 5731.50

25 Bank of Ningbo Ningbo 5541.13

26 Beijing Rural Commercial Bank Beijing 5222.00

27 Shengjing Bank Shenyang 5033.71

28 Huishang Bank Hefei 4827.64

29 Bank of Tianjin Tianjin 4788.59

30 Guangzhou Rural Commercial Bank Guangzhou 4666.08

31 Shanghai Rural Commercial Bank Shanghai 4666.01

32 HSBC(Shanghai) Shanghai 4257.64

33 Bank of Hangzhou Hangzhou 4185.41

34 Xiamen International Bank Xiamen 3489.41

35 Bank of Harbin Harbin 3436.42

!92
36 Bank of Guangzhou Guangzhou 3308.80

37 Baoshang Bank Baotou 3128.65

38 Chengdu Bank Chengdu 3002.30

39 Bank of Jilin Changchun 2837.83

40 Kunlun Bank Urmqi 2782.99

41 Bank of Chongqing Chongqing 2745.31

42 Bank of Dalian Dalian 2606.31

43 Dongguan Rural Commercial Bank Dongguan 2558.00

44 Tianjin Rural Commercial Bank Tianjin 2259.52

45 Bank of East Asia (China) Shanghai 3168.63

46 Bank of Changsha Changsha 2121.78

47 Standard Chartered (China) Shanghai 2093.29

48 Zhongyuan Bank Zhengzhou 2070.69

49 Shunde Rural Commercial Bank Foshan 2069.00

50 Bank of Zhengzhou Zhengzhou 2042.89

!93
Chapter 4 The geography of the securities industry in Mainland China

4.1 Introduction

The securities industry is recognized as the engine of financialization in

contemporary financial economy (Wójcik 2012). In China, the media often portray the

securities industry as an alternative to the banking industry. However, along with the

marketization, liberalization and privatization of the Mainland’s transition economy,

the last two decades have witnessed substantial growth, innovation and

transformation in China’s capital markets (CSRC 2008). These markets have

become an indispensable component of China’s financial system. Structural trends

include steady and deliberate regulatory changes, product and service innovation,

evolution of customer behavior, and shifts in competitive behavior related to the

increased maturity of the equity market in most Chinese provinces (McKinsey 2012).

One direct consequence of the development of capital markets is the growing

demand for intermediaries, who can connect an increasing number of investors, from

an increasing number of places, to make secondary markets work, and collaborate

with issuers in primary markets. Financial intermediary here refers to securities

institutions that include securities, futures and fund management firms, as well as

stock exchanges.

Analyzing economic and financial activities without consideration of their spatial

distribution generally deprives research of its geographical focus, and makes it

hardly distinguishable from economics and finance. Additionally, there have been

studies of the stock exchanges and issuers in Chinese capital markets from a

!94
geographical perspective (Karreman and Knaap 2009, 2012), but not of capital

market intermediaries, such as securities institutions. The exploration and

explanation of the spatial organization of the securities industry in China is almost a

completely unexplored field of research.

In this chapter, I inquire into what financial geography can contribute to

understanding the growth of the securities industry. Thus, the main objective of this

study is to examine the financial geographies of the securities industry at subsector

level. I analyze the current situation of the industry, map the hierarchical networks

and examine the competition between China’s leading securities centers. As

Schlichting (2008) has argued, China’s financial system is considered to be the

‘institutional legacy of the command and planned economy, the structures of China’s

political system and the path dependencies created by decisions made in the early

stage of reform and opening up (Heep 2014)’. This has directly impacted on the

hierarchy and the production of financial geographies in terms of the banking

industry. It is therefore significant to ask to what extent these characteristics have

affected the changing geography of the securities industry. How has the latter

evolved, in terms of hierarchy, and the distribution of headquarters and branch

networks? Do the changing geographies of subsectors within the securities industry

show similar patterns?

The empirical analysis is based on the data of securities, futures and fund

management firms, including the changing numbers of institutions, crucial financial

indicators, headquarters, and branch networks, all of which are available and allow a

systematic geographical analysis of securities intermediaries. The summarized

!95
results are as follows: first, we witness the differentiated growth trajectory of the

securities industry in each subsector. The number of securities firms generally

experienced fluctuating growth. The number of futures firms dramatically fell, while

fund management firms showed an opposite trend. Secondly, the analysis of

headquarters and branch data outlines the hierarchical networks of each sector and

highlights the leading roles of Shanghai, Beijing and Shenzhen in China’s securities

industry. Meanwhile, some cities are specialized in a single subsector: for instance,

Nanjing and Guangzhou in securities firms; Hangzhou, Dalian and Zhengzhou in the

futures industry; and Tianjin in fund management markets. The examination of

changing headquarters data also reveals an increasing spatial concentration of the

securities and futures firms, but not of the fund management firms. Thirdly, the

investigation of competition between China’s leading securities centers indicates that

Beijing’s advantages reflects its regulatory and the headquarter economy of national

champions (Wójcik and Camilleri 2015). Shenzhen attracts firms based on its first-

mover advantage and policy incentives, while Shanghai’s dominant role can be

attributed to its status in the markets and national strategies.

The remainder of this chapter is organized as follows. The next section presents a

literature background, providing a general discussion of the current state of the

securities industry in China and discussing the existing studies of the geography of

securities by subsectors. The research gap is made clear, and the research

questions, which are derived from the existing literature, are posed. Section 4.3

applies these insights to understanding the evolution, size and structure of the

securities industry. Section 4.4 discusses the distribution of headquarters by

subsectors and underlines the critical role of Beijing, Shanghai and Shenzhen in the

!96
securities industry. In Section 4.5, I examine the networks of branch of subsectors

and map the hierarchies of the securities industry, as well as providing a discussion

of these matters. Section 4.6 focuses on the competition between China’s leading

financial centers and reviews the growth of the Mainland’s capital market through the

lens of CITIC Securities. Finally, Section 4.7 concludes with the main findings and

some recommendations for further research, as well as policy implications.

4.2 Geography of the securities industry

The securities industry is a significant component in contemporary financial

economies. The securities industry deals with the production, distribution, and

exchange of securities, including bonds, equities, asset-backed securities, and

derivatives. During the age of neoliberalism, conventional securities like equities and

bonds have grown in significance, and derivatives markets have developed and

expanded, with securitization extending also to loans – hitherto considered an

exclusive business of the credit sector (Wójcik 2012). It has been argued that the

securities industry has been the engine of financialization and therefore it would be

more precise to say that the neoliberal economy has been securitized rather than

financialized during the past three decades. As Susan Strange has argued in Casino

Capitalism (1986) and Mad Money (1998), the decline in the role of banks in

intermediation was simultaneously accompanied by the process of securitization

(Dodd 2014). Securitization increasingly takes place in highly concentrated

command and control centers that function as global cities for financial services and

the related professional services (Aalbers 2009), particularly in the USA and UK. For

!97
instance, Manhattan has become the center of the securities industry, with banking

and insurance often moving to other, cheaper and less prestigious locations.

Meanwhile, global banks and financial services companies that are based in the City

of London and Canary Wharf have dominated the European securitization processes

(Aalbers 2009). The booming securities industry has contributed significantly to

growing income inequality between financial and other jobs, even including jobs in

the other professional business services, knowledge-driven and creative industries,

across space and time.

Why is geography important to understanding the growth of the securities industry?

The advancement of the securities industry involves two critical geographical

attributes: expansion and agglomeration. First, spatial expansion is in the DNA of

capital markets. The development of capital markets thus feeds the growth of the

securities industry. A multi-scalar presence and expertise are of utmost significance

to the securities industry. The networked nature of the securities industry reflects the

fact that a capital market is a network. Given the strong network externalities and

scale economies in these networks, they evolve towards a global scope. These

processes give rise to the securities centers and their multi-scalar networks. Second,

the securities industry benefits from co-location and agglomeration economies.

Proximity within the securities industry, not only in terms of human relations but also

in terms of IT services, brings with the trend of co-locating computers generating

orders with the matching engine of the trading venue (Wójcik 2011). The benefits of

co-location are also of an indirect nature, related to the sharing, match and learning

dynamics of urban agglomeration economies (Duranton and Puga 2004).

!98
Furthermore, the most fundamental aspect of proximity is face-to-face contact

(Storper and Venables 2004; Grote 2009).

Before we review the existing literature on the geography of the Chinese securities

industry, it is necessary to provide an introduction to its historical development and

current situation after the reform and opening up on the Mainland. The regeneration

of China’s capital markets started in the 1980s, when firms searched for new

pathways to raise funds and came up with the idea of issuing shares to the public

(CSRC 2008; Heep 2014). The structure of China’s securities industry broadly

consists of stock and future exchanges, and securities institutions. In 1990, the

Chinese government began to allow certain large cities to establish stock

exchanges. Consequently, the Shanghai and Shenzhen Stock Exchanges were

established, in December 1990. By the end of 2014, the total number of companies

listed on the SSE and Shenzhen Stock Exchange (SZSE) stood at 2,613. The total

market capitalization on the two stock exchanges amounted to RMB 37.25 trillion,

ranking second globally, following the stock exchanges in the USA (CSRC 2015).

After a series of reforms, there are currently four futures exchanges in China: the

Zhengzhou Commodity Exchange (ZCE), the Dalian Commodity Exchange (DCE),

the Shanghai Futures Exchange (SFE), and the China Financial Futures Exchange

(CFFE).

The development of the primary and secondary markets led to the creation and

expansion of securities intermediaries. Securities and futures firms facilitate

transaction services between a buyer and a seller in the secondary market-related

stock and futures investment. Additionally, securities firms can also provide services

!99
like initial public offerings (IPOs), advice on mergers and acquisitions, and financial

management in the primary market. Fund management firms are institutions that

invest their clients’ pooled funds into securities that match declared financial

objectives. In September 1987, Shenzhen Special Zone Securities Firm that was the

first professional securities firm in Mainland, was established in South China. The

number of intermediaries has grown in the wake of the creation and expansion of the

national securities markets. The year 1992 witnessed the incorporation of three

national securities firms, namely: Huaxia, China Southern and Guotai. In subsequent

years, a number of securities firms were established, with capital mainly from banks,

local governments and central government agencies. By 1993, there were more than

300 futures brokerage companies in China. Some futures brokerage firms were

poorly managed, while others engaged in speculative futures trading with state-

owned capital. After 1993, China began to clean up the futures markets and the

number of futures firms decreased dramatically. By the end of 1998, six new fund

management companies were approved to set up closed-end securities investment

funds. This represented the origin of the Chinese fund management industry.

During the period of China’s transitional economy in the 1990s, the capital markets

grew rapidly. However, some deep-rooted problems and structural issues (which

included incomplete corporate ownership restructuring for listed companies, unsound

corporate governance, poorly managed securities institutions, lack of institutional

investors and many more) still existed, and limited the operations of the markets and

restricted its expansion. This gave rise to the need for further reforms after 2000. In

2004, the State Council released its Opinions of the State Council on Promoting the

Reform, Opening and Steady Growth of Capital Markets, which highlighted the

!100
supervision of the intermediaries. Meanwhile, the CSRC implemented a series of

reforms, including the restructuring of securities firms and the liberalization of the

investment fund management industry. These policies and reforms reshaped the

financial geographies of the securities industry in the 2000s. Thereafter, the spatial

restructuring of the securities institutions was more driven by market forces than

government intervention.

Currently, the 2008–2020 development strategies in respect of China’s capital

markets refer to maintaining a fine balance between the government and the

markets; strengthening the legal and regulatory framework; building fair, transparent

and efficient markets; steady development of the futures and financial derivatives

markets; encouraging competition to foster a more globally competitive financial

service industry in China; as well as opening up the capital markets gradually and

building them up so that they will be globally competitive. These strategies show that

China’s securities industry is still driven by a mix of government direction and organic

market forces, which makes it different from free market economies like the UK and

USA. The characteristics of these strategies that involve market liberalization,

standardization of rules and regulations, and globalization have impacted the

distribution of the securities industry.

In this research I mainly explore the geographies of securities institutions:

securities， futures and fund management firms that shape financial geographies as

spatial actors. In general, the existing literature on the geography of the Chinese

securities industry is underdeveloped. Most of this work has been conducted by

economists. As a result of the financial legacy of China’s planned and transition

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economy, securities companies were spatially distributed in each province in the

1990s. Such a regional distribution pattern brought with it severe administrative

barriers, under the protection and involvement of provincial governments, which

hindered securities integration at the national level (Wu, Chen and Mao 2004). This

historical context greatly affected the initial development and geographies of

securities firms. The latest study of Zhao et al. (2015) analyzed the city network of

securities firms as part of their analysis of the producer services sector, and they

showed a hierarchical network by applying the methods of the GaWC. At the same

time, futures firms have a more complicated history than securities firms and their

processes have evolved more. Some of the futures firms with larger scale and better

operations merged and acquired companies that were smaller scale or in loss state

since the mid-1990s (Wang and Liu 2014). Therefore, the number of futures

companies declined dramatically. This led to a reorganization of the spatial structure

of futures firms at the national level. Differentiating between securities and futures

firms, the fund management industry started to emerge and flourish after the

establishment of the Chinese market economy in the late 1990s, which shows a

higher spatial concentration than the securities and futures but a gradual dispersal

trend in the 2010s (Chen 2015). More specifically, the existing analysis conducted by

financial newspapers and magazines primarily focus on the status and changing

geography between China’s leading centers. Currently, fund management

companies are mainly concentrated in Beijing, Shanghai and Shenzhen. This

development of the fund industry represents and reflects the fund management

industry on the Mainland in the past two decades (Deng 2010; Chen 2015).

!102
After carrying out a literature review of existing studies, a research gap is easily

perceived. First, there is much discussion of the geography of Chinese capital

markets (Karreman and Knaap 2009, 2012), but scholars from the field of economic

and financial geography draw little attention to securities institutions, which are the

center of power in the financial sector in the USA, and are decisive as regards the

position of London and New York as the leading global financial centers of the world.

Wang and Liu (2014) explained why the number of future firms decreased after the

mid-1990s. However, they did not explore the geography of futures firms. Second,

there are almost no studies of the second tier cities. Zhao, Lao and Chan (2013)

examined the strengths and competitiveness of Hong Kong, Beijing, Shanghai and

Shenzhen through a wide range of market assessments in stock, bond, funds

markets, futures and derivatives, as well as the foreign exchange market. But what

about the geographies of other cities on the Mainland? Third, no study focuses on

the evolutionary development of China’s securities institutions along with China’s

marketization. Wu, Chen and Mao (2004) introduced the landscape of securities

firms in the 1990s, but how did the geographies of securities institutions change in

the new century? Finally, the futures and fund management industries have rapidly

become critical financial contributors. However, no academic study analyzes the rise

of futures and fund management firms from the perspective of the geographical

discipline, with the exception of Lai’s paper (Lai 2006). For example, the work of

Deng (2010) and Chen (2015) on the fund management industry belongs to media

reports and lacks rigorous analysis.

These research gaps give rise to the research questions in this study. Firstly, the

development of Chinese capital markets is a hybrid property of a functioning market

economy and government intervention. Thus, it can be asked to what extent these
!103
main characteristics have affected the growth of the securities industry at the

subsector level? Secondly, beyond the discussion of Beijing, Shanghai and

Shenzhen, what is visible in the financial geographies of the securities industry in

terms of hierarchy, and distribution of headquarters and branch networks on the

Mainland? Thirdly, did the changing geographies of subsectors show similar patterns

after the establishment of the Mainland’s market economy in the late1990s? Finally,

which factors influence the spatial organization of China’s securities industry,

especially the competition between leading securities centers?

To address these questions, this chapter proceeds in three stages. To begin with, it

compares the key indicators between 2007 and 2014, analyzes the changing

numbers of each subsector in the past two decades and discusses the openness of

China’s capital markets, as shown by the introduction of joint ventures with foreign

securities firms and representative offices of oversea exchanges, all of which

highlights the rise of the Mainland’s securities industry. This helps us to understand

the evolution of the securities industry after the 1990s that fundamentally shaped the

geographies of the securities industry. Next, the headquarters and branch networks

are examined and the differentiated hierarchical networks of each sector are

visualized, mapped and interpreted. This part of the chapter also reveals the

changing geographical concentration of each subsector by reference to

headquarters data. Finally, it investigates the competition between Beijing, Shanghai

and Shenzhen, and describes the main factors that contributed to the landscape of

the securities industry and its transformation.

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4.3 The rise of the securities industry

This section investigates the growth of the securities industry at the subsector level.

First, in this analysis, data have been used for all years between 2007 and 2014

because the CSRC published official annual reports after 2007 and the 2014 data

are the most recent data that we could obtain. As shown in Table 4.1, by the end of

2014 there were 121 securities firms, with total assets of RMB 4.09 trillion and

operating revenue of RMB 260.3 billion; 95 fund management companies, with

assets under management RMB 6.68 trillion; and 153 futures firms, with total

operating revenue of RMB 19.02 billion (CSRC 2015).

Table 4.1 The growth of securities, futures and fund management firms between 2007 and

2014

Number Total asset Revenue or Total value

Year 2007 2014 2007 2014 2007 2014

Securities 106 121 1.73 trillion 4.09 trillion 284.7 billion 260.3 billion

Futures 177 153 50.23 billion 72.88 billion － 19.02 billion

Fund 59 95 － 102.07 3.28 trillion 6.68 trillion

management billon

Note on the financial variables: revenue is set for securities and futures firms, and total value

means the total assets under management by fund management firms.

Source: Author’s based on the data from CSRC annual reports 2007 and 2014

Second, if we pay special attention to the changing numbers of the securities

industry, the subsectors demonstrate very different evolutionary trends in the past

two decades (see Figure 4.1). A sequence of basic analytical steps reveals a major

!105
change in the position of the securities industry. Generally, the number of securities

firms increased by one-third from 1994 to 2014 (blue curve). In the early stage of

China’s marketization, the number of securities firms grew from 91 to 133, but it

declined quickly from 2004 to 2006 because of bankruptcy, and mergers and

acquisitions, while the number slightly increased after some assets management

firms were established from 2011 onwards, and reached 121 in 2014. The year 2004

was a watershed for securities firms. Many securities firms quickly expanded their

business without building up reasonable business models, proper corporate

governance and internal control measures in the initial development of China’s

capital markets. By early 2004, the whole industry was on the edge of bankruptcy,

with years of risky and sometimes illegal investments and a lack of proper

supervision and enforcement. In response to the crisis, the CSRC launched a

comprehensive restructuring program to turn around ailing securities firms and

implemented three critical strategies, including the liquidation and restructuring of

failed companies, stricter supervision and industry capacity building; it also initiated

the comprehensive restructuring of securities firms (CSRC 2008).

Meanwhile, the tendencies of futures and fund management firms depicted sharp

opposites on the changing numbers of firms after the 1990s. The number of futures

firms fell from 329 to 150, a decrease of more than 50%, while the number of fund

management firms rose dramatically, from six to 95, after 1998. Differentiating from

the stock market, one main characteristic of China’s futures market is that the

development of futures firms took place before the reorganization of futures

exchanges. There was more than 300 futures firms in the mid-1990s. However, after

the first round of reform and regulation in 1993, the annual trading volume of the

futures market shrank for several consecutive years, which gave rise to the great
!106
failure of futures exchanges and futures companies. Over 100 futures firms went

bankrupt between 1993 and 1995. In August 1998, the State Council issued a notice

signaling its intention ‘to further rectify and regulate the futures market’, which

opened the second round of adjustment of the industry’s structure system. The 14

existing futures exchanges were reduced by 11 and only the DCE, ZCE and SFE

have been preserved. After 2000, the futures market gradually became mature and

the number of futures firms slightly decreased because of mergers and acquisitions.

In contrast, the fund management industry was established after the initial

establishment of China’s market economy in 1997, thus. The process of its growth is

much less complicated than that of securities and futures firms. To summarize, the

changing number of fund management firms reflected real market forces. The CSRC

began to launch reforms to promote the development of China’s fund management

industry in 1998, after cleaning up the ‘old funds’. Starting from 2000, the CSRC put

forward a strategy to aggressively develop institutional investors. In 2002, gradual

liberalization of the funds approval system was initiated by the CSRC (CSRC 2008).

After 2002, the number of fund management firms demonstrated a rapid rise. In

2014 they numbered 95.

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Figure 4.1 The changing number of securities, futures and fund management firms

Source: Author’s based on the data from China Securities and Futures Statistical Yearbook

1996–2014

Third, we should stress that China gradually opened its domestic capital markets to

global finance after China participated in the WTO in 2002. China had fulfilled the

commitments it made at the time of its accession to the WTO to open up the

securities market. The opening up of China’s securities market accelerated the

internationalization of the capital markets and related market reforms (CSRC 2008).

China issued the Rules for the Establishment of Securities Firms with Foreign

Investment and the Rules on the Establishment of Sino–Foreign Joint Venture Fund

Management Companies in 2002. By the end of 2014, China had 11 Sino–foreign

securities firms (see Table 4.2) and 10 representative offices of oversea exchanges

(see Table 4.3), most of which are conglomerated in Beijing and Shanghai. This

!108
analysis concludes that Beijing and Shanghai are crucial gateway cities for the

Mainland’s capital markets (CSRC 2015).

Table 4.2 External connections: Joint ventures with foreign securities firms on the Mainland

Firms Headquarters Shareholding ratio

China International Capital Corporation Beijing 49%

Goldman Sachs Gao Hua Securities Beijing 33.3%

UBS Securities Beijing 24.99%

Credit Suisse Founder Securities Beijing 33.3%

JP Morgan First Capital Securities Beijing 33.3%

Zhongde Securities (Deutsche Bank) Beijing 33.3%

Morgan Stanley Huaxin Securities Shanghai 33.3%

Citi Orient Securities Shanghai 33.3%

Bank of China International Shanghai 37.14%

Everbright Securities Shanghai 33.3%

Hua Ying Securities (RBS) Wuxi 33.3%

Source: Author’s based on the data from 2015 annual report of the CSRC

Table 4.3 List of overseas exchanges with representative offices

Exchange Jurisdiction Location on the Mainland

HK Exchanges & Clearing Hong Kong SAR Beijing

New York Stock Exchange USA Beijing

Nasdaq Stock Market USA Beijing

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Exchange Jurisdiction Location on the Mainland

Tokyo Stock Exchange Japan Beijing

Korea Exchange South Korea Beijing

Singapore Exchange Singapore Beijing

London Stock Exchange UK Beijing

Deutsche Boerse Germany Beijing

Toronto Stock Exchange Canada Beijing

BM&FBOVESPA (Brazil) Brazil Shanghai

Source: Author’s based on the data from 2015 annual report of the CSRC

4.4 The geographical distribution and concentration of headquarters locations

The section firstly discusses the geographical breakdown of headquarters at

subsector level. It is very popular in the general literature, and in some more

scholarly accounts, to use the concentration of major headquarters as an indication

of a city’s status as a financial center at multi-scalar level.

Figure 4.2 shows the distribution of the headquarters of securities, futures and fund

management firms by the end of 2014, at city level. A number of variables determine

which corporate headquarters become concentrated in major domestic securities

centers. First, the development of securities and futures firms took place within the

institutional legacy of the command and planned economy, and the path

dependencies created by decisions made in the early reform years of China’s capital

!110
markets (CSRC 2008). Therefore, it can be noticed that each provincial capital

possessed at least one securities and futures headquarters in 2014. The securities

and futures firms show a more dispersed pattern than fund management firms, while

the total share of Shanghai, Beijing and Shenzhen was less than 50% of securities

and futures firms, but more than 90% of fund management firms by the end of 2014.

As Wu, Chen and Mao (2004) have argued, the spatial organization of securities

firms was due to China’s planned and transition economy, and securities companies

spatially distributed in each province in the 1990s. In contrast, the fund industry

emerged and grew after the establishment of China’s market economy in the late

1990s. Therefore, fund management firms were mainly concentrated in Shenzhen,

Shanghai and Beijing, and the spatial expansion was controlled more by market

forces than by governments (Deng 2010, Chen 2015). Second, profound

deregulation and accelerating marketization in the past 15 years has encouraged

firm consolidation and market expansion. In response, the larger and more newly

established companies have chosen to locate their headquarters in nationally

leading securities centers. For instance, Shanghai, Beijing and Shenzhen are far

ahead of any other city in each subsector. Third, the nature of the domestic urban

system in China is a critical factor in the geographical distribution of corporate

headquarters (Sassen 2012). Sharp urban primacy tends to entail a disproportionate

concentration of headquarters in the first tier cities, no matter which subsector is

being investigated. The geography of headquarters distribution mirrors the existing

urban hierarchy in contemporary China.

!111
Figure 4.2 Distribution of headquarters of securities, futures and fund management firms

!112
Source: Author’s based on the data from Headquarters data of securities firms, available at:

http://jg.sac.net.cn/pages/publicity/securities-list.html；headquarters data of futures firms,

available at: http://www.cfachina.org/cfainfo/organbaseinfoServlet; headquarters data of fund

management firms was collected from the 2014 China Securities Investment Fund Fact

Book

Second, I explore and examine the geographical distribution of the securities

industry by analyzing critical financial indicators at the city level. The data of total

assets and revenues of securities firms, total transaction fee revenues of futures

firms and total value under management of fund management firms are employed to

support my analysis. The data for these indicators are, respectively, taken from the

official annual reports by the Securities Association of China, the China Futures

Association, and the Asset Management Association of China. The city data are

!113
based on the geographical breakdown of headquarters of subsectors at city level. As

shown in Table 4.4, Shanghai, Shenzhen and Beijing play the leading roles in

domestic securities geographies, in a way that is quite similar to the multipolar

banking hierarchy (Zhao et al. 2015). However, Shanghai is the unrivaled domestic

securities center, which makes it more comparable with Beijing in terms of the

geography of domestic banking. In addition, subsectors thrive on the specialized

differences of some second tier financial centers and it is this factor that gives these

cities their particular advantage in China’s securities landscape. For instance,

Guangzhou and Nanjing are important securities centers because the large

securities firms Guangfa Securities and Huatai Securities are located in Guangzhou

and Nanjing, respectively, which reflects the power of the Guangdong and Jiangsu

provincial governments. Meanwhile, Hangzhou is the capital of China’s private

economy and, with a risk-taking culture that is famous across China, it is prone to

investing in futures markets in the quest for high revenues. In terms of the fund

industry, Tianjin is a rising star, in that the largest fund management firm—Tianhong,

established in 2004—is based in Tianjin.

Table 4.4 The top 10 securities centers at subsector level

Securities firms Futures firms Fund management

firms

Total assets Total revenue Transaction fee Total value

revenue
1 Shanghai 915,769 Shanghai 51,153 Shanghai 2,366.3 Shanghai 1,557

2 Shenzhen 911,882 Shenzhen 50,413 Beijing 1,686.5 Shenzhen 1,004.

7
3 Beijing 580,719 Beijing 44,169 Hangzhou 1,342.9 Beijing 976.9

4 Guangzhou 259,448 Guangzho 13,532 Shenzhen 1,089.8 Tianjin 589.8

u
!114
 5 Nanjing 222,150 Nanjing 11,009 Guangzho 534.7 Guangzhou 228.3

u
6 Changsha 118,285 Changsha 7,138 Nanjing 314.5 Zhuhai 133.5

7 Hangzhou 103,119 Hangzhou 6,667 Hefei 252.5 Chongqing 19.7

8 Fuzhou 83,491 Chengdu 6,657 Wuhan 246 Fuzhou 14.4

9 Wuhan 78,206 Fuzhou 5,968 Xiamen 203.6 Nanning 11.6

10 Jinan 77,390 Jinan 5,134 Zhengzhou 184 Hangzhou 0.5

Source: Author

Note: The units of security total assets, security total revenue and futures total revenue are

RMB million and the unit of total value of fund management is RMB billion.

In the next step in my analysis I visualize the geographies of securities industry by

Arcgis. As is demonstrated in Figure 4.3, it is immediately clear that each subsector

is extremely concentrated in the mega-regions of coastal Eastern China – especially

the fund industry – and growth inequality between Eastern, and Central and Western

China is dramatic. More specifically, taking into account that securities services are

highly associated with the scale of the real economy, we see an unsurprisingly

dominant position of Beijing-Tianjin, the Yangtze River Delta and the Pearl River

Delta. Additionally, some Central and Western cities, such as Hefei, Chengdu,

Chongqing, Changsha and Wuhan, are significant service centers in the command

functional system of securities firms and futures firms. The securities and futures

firms show a more dispersed geography than firms in the fund management industry.

The similar geographies of securities and futures firms can be explained by

reference to ‘the institutional legacy of the command and planned economy, and the

path dependencies created by decisions made in the early reform years of China’s

!115
capital markets’ (CSRC 2008). In contrast, the emergence and the vitality of the fund

industry depends more on the market economy and these firms primarily open

business in the developed mega-regions of Eastern China. The production of these

geographies of subsectors is based on the distribution of corporate headquarters.

This issue is examined in the next section.

Figure 4.3 The geographies of the securities industry at subsector level in 2014

!116
Source: Author’s based on the data from the industry data of securities firms, available at:

http://www.sac.net.cn/hysj/zqgsjysj/; the industry data of futures firms, available at: http://

www.cfachina.org/cfainfo/organbaseinfoServlet; the data of fund management firms were

collected from the 2014 China Securities Investment Fund Fact Book.

Third, I examine the changing geographical concentration between 2000 and 2014

by reference to the Herfindahl-Hirschman Index (see Figure 4.4). Headquarters

concentration is linked to specific economic stage. The data of futures firms are only

available from 2011, but their curve shows a similar trend to that of securities firms.

Their indices increased gradually during this period. The securities rose from 0.0384

to 0.0845, while the futures increased from 0.0668 to 0.0833 between 2011 and

2014. This change seems to be linked to the combination of the increasing

marketization and the ongoing process of deregulation of capital markets. As firms

need easy access to market information, they tend to locate in national leading

centers. Shanghai and Shenzhen are capital market centers, where the SSE and

SZSE are located, and they provide the latest information for market trends. Beijing

is the regulatory center and it attracts institutions since it is the primary source of non-

standardized policy information (Wang, Zhao and Wang 2007). Meanwhile, though

the concentration of fund management firms was always much higher than that of

securities and futures firms, a declining tendency has been evident since 2000. In

the late 1990s, most fund management firms were concentrated in Shenzhen,

Shanghai and Beijing. The market expansion after 2000 gave rise to the emergence

of some second tier financial centers, along with the increasing extension of

marketization. Overall, the concentration index descended from 0.44 to 0.309 over

the whole period.

!117
Figure 4.4 Comparison of geographical concentration of securities, futures and fund

management firms

Sou

rce: Author

Note: The changing geographical concentration index of headquarters is calculated as:

Where Si is the share of headquarters in city i. The value of the HHI increases, with the

degree of concentration reaching its upper bound of 1 when all the headquarters are

concentrated in one city. HHI takes the lowest value 1/N, where N is the number of cities in
!118
every year’s headquarters list, when headquarters are evenly distributed across the

Mainland. As an absolute measure, this indicator displays a weighting towards large cities.

4.5 The branch networks of the securities industry: connectivity analysis

There is a growing multidisciplinary body of research focusing on city networks as

relevant objects of study. This research has found evidence for strong economic and

financial integration binding cities across provincial borders on the Mainland (Zhao et

al. 2015). Today, this has emerged as a major issue of interest in the field of financial

geography.

In this section I employ the GaWC’s interlocking city network model to map China’s

city network in terms of the securities industry at subsector level, and to measure the

connectivity of key nodes embedded within the networks. Derudder et al. (2012) and

Taylor et al. (2012, 2014) have developed a methodology and several data sets that

allow them to measure intercity networks. In this analysis, I apply their model but

make an improvement with respect to the input of data. They measure a city’s

importance as a location for a firm and score the city on a scale of 0 to 5. My

empirical research uses the actual number of branches in each city, rather than the

city’s score. To analyze the intercity connectivity, I use data on the branches of

securities, futures and fund management firms across the whole Mainland. By the

end of 2014, 121 securities firms had 778 branches across 123 cities, while 1571

branches across 174 cities and 163 branches across 20 cities were opened by 153

futures firms and 95 fund management firms, respectively. The branch data are,

respectively, taken from the official websites of the Securities Association of China,

the China Futures Association, and the Asset Management Association of China.

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The branch networks represent the aggregation of space of flows within each single

company. With the help of Peter Taylor’s model, I specify the processes of city

network formation emerging out of the spatial expansion of securities, futures and

fund management firms. Its operationalization requires an n*m matrix V,

summarizing the geographical distribution of m firms across n cities in their

respective networks. The values in the matrix cells are determined by the number of

branches in each city and I assume that they indicate the status and importance of

each city in a firm’s network. Thus, in this model, the intercity connectivity between

cities a and b generated by intra-firm flows within firm j is shown by:

where Vaj and Vbj represent the number of branches of firm j in cities a and b, and

rabj indicates the grade of connection between cities a and b generated by firm j.

The intercity connectivity between two cities a and b is then calculated by the

aggregation of intra-firm connections rabj across all firms:

Finally, the total network connectivity (TNC) of city a is generated by aggregating the

city’s connections to all other cities.

!120
For ease of interpretation, securities connectivities are presented as percentages of

the most connected city within the network. Clearly, these connectivities are a

measure of how they fit in domestic securities networks of securities, futures and

fund management firms.

To start with, securities firms serve as the primary geographical focus for this

analysis, where a relatively high reliance on stock markets renders them somewhat

representative of the whole securities industry. Figure 4.5 points to the complexity of

the domestic city network based on the branch links of the 121 securities firms,

which signals potential capital, information and professionals flows within cities. The

Figure 4.5 shows all intercity linkages and a city’s size in the graph represents its

overall connectivity. The lines represent the magnitude of their links. More

specifically, it is immediately visible that some important nodes are extremely

concentrated in the Yangtze River Delta and Pearl River Delta. As Sassen (2012)

has argued, major shifts in the scale, spaces and content of economic activity which,

refers to securities expansion here, engender novel spatial formats. Among the most

prominent of these is the mega-region (Harrison and Hoyler 2015). The formation of

a securities network has contributed to the rise of mega-regions in the Yangtze River

Delta and Pearl River Delta.

Table 4.5 shows the connectivity results for the top 10 cities, and offers some

immediate insights – namely that Shanghai is the preeminent city and largest node,

with the highest level of connectivity, followed by Shenzhen and Beijing. Five cities

are located in the Yangtze River Delta and Pearl River Delta, which underlines my

argument above. Additionally, the analysis suggests that some second tier cities also

play strong roles as well, particularly those with strong regional functions, such as

!121
Hangzhou, Nanjing, Wuhan, Xi’an and Zhengzhou. Generally, these are provincial

capitals and critical hubs for the geographical expansion of securities firms in specific

regions. Meanwhile, if we focus on the city-dyads, eight of the 10 largest individual

intercity positions are all claims on Shanghai, which highlights Shanghai’s status as

a dominant securities center.

Figure 4.5 Visualizing the branch networks of securities firms

Source: Author

!122
Table 4.5 Top 10 nodes and city-dyads in securities firms’ branch networks

Rank Node Connectivity Relative City-dyads Connectivity Relative

1 Shanghai 1067 1.00 Beijing-Shanghai 85 1.00

2 Shenzhen 867 0.81 Shanghai-Shenzhen 78 0.92

3 Beijing 794 0.74 Beijing-Shenzhen 58 0.68

4 Nanjing 478 0.45 Shanghai-Wuhan 40 0.47

5 Wuhan 475 0.45 Shanghai-Chengdu 39 0.46

6 Xi'an 472 0.44 Shanghai-Zhengzhou 36 0.42

7 Hangzhou 470 0.44 Shanghai-Guangzhou 35 0.41

8 Guangzhou 457 0.43 Shanghai-Jinan 32 0.38

9 Jinan 457 0.43 Shenzhen-Hangzhou 32 0.38

10 Zhengzhou 444 0.42 Shanghai-Xi’an 32 0.38

Source: Author

Secondly, while futures firms are a different subsector from securities firms，I argue

that, analytically, we can identify similar dynamics at work in both. Two such

dynamics stand out. Making a comparison between Figures 4.5 and 4.6, the first

similarity is the hierarchy and network. Shanghai is also the top city in the futures

firms’ pyramid. Nine of the 10 largest city-dyads are all claim on Shanghai, which

indicates that Shanghai is undoubtedly the center of the futures firms’ network (see

Table 4.6). The other dynamic that the futures firms’ network shares with that of

securities firms is the interaction between geographical dispersal across the whole

country and spatial concentration in national leading centers and some second tier

cities that function as gateways and hubs. In this case, network and nodes are

!123
operating, respectively, within a domestic territory and within a city space that

incorporates over 100 Mainland’s cities.

Figure 4.6 Visualizing the branch networks of futures firms

Source: Author

Table 4.6 Top 10 nodes and city-dyads in futures firms’ branch networks

Rank Node Connectivity Relative City-dyads Connectivity Relative

1 Shanghai 2474 1.00 Beijing-Shanghai 172 1.00

2 Beijing 1708 0.69 Shanghai-Zhengzhou 115 0.67

3 Hangzhou 1266 0.51 Shanghai-Hangzhou 115 0.67

4 Shenzhen 1147 0.46 Shanghai-Shenzhen 115 0.67

5 Dalian 1064 0.43 Shanghai-Dalian 104 0.60

6 Zhengzhou 1035 0.42 Shanghai-Guangzhou 87 0.51

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7 Guangzhou 967 0.39 Shanghai-Wuhan 81 0.47

8 Ningbo 848 0.34 Beijing-Shenzhen 79 0.46

9 Chengdu 782 0.32 Beijing-Dalian 77 0.45

10 Wuhan 777 0.31 Beijing-Hangzhou 77 0.45

Source: Author

Thirdly, turning to fund management firms, a great degree of differentiation is

revealed in Figure 4.7 and Table 4.7, which helps further explain the evolution of

China’s securities industry. In contrast to highly nationalized securities and futures

firms’ networks, the fund management network is a comparably very simple one. As

Figure 4.7 demonstrates, only 20 cities host fund management branch offices, while

Beijing emerges as the most influential center, ranking highest in connectivity

measures, and hosting six of the 10 largest city-dyads.

Figure 4.7 Visualizing the branch network of fund management firms

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Source: Author

Table 4.7 Top 10 nodes and city-dyads in fund management firms’ branch networks

Rank Node Connectivity Relative City-dyads Connectivity Relative

1 Beijing 174 1.00 Beijing-Shanghai 54 1.00

2 Shanghai 157 0.90 Beijing-Shenzhen 43 0.80

3 Shenzhen 129 0.74 Shanghai-Shenzhen 33 0.61

4 Guangzhou 83 0.48 Beijing-Guangzhou 23 0.43

5 Chengdu 69 0.40 Shanghai-Guangzhou 20 0.37

6 Nanjing 38 0.22 Beijing-Chengdu 16 0.30

7 Shenyang 31 0.18 Shanghai-Chengdu 14 0.26

8 Xi’an 26 0.15 Chengdu-Shenzhen 11 0.20

9 Fuzhou 26 0.15 Guangzhou-Shenzhen 11 0.20

10 Hangzhou 23 0.13 Chengdu-Guangzhou 10 0.19

Source: Author

To summarize the findings thus far, of the three subsector networks, securities and

futures firms have similar geographies, while nodes within the fund management

network are the least well connected. Furthermore, the city-dyad Beijing-Shanghai is

always the most connected vector in each subsector, and all other important city-

dyads are related to Beijing or Shanghai. This phenomenon implies that power is

most consolidated amongst a few key cities, such as the first tier cities and cities with

a stock or futures exchange, while lesser nodes are less connected to each other –

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supporting the notion that the financial world is mediated from a handful of top

centers (Wójcik 2013).

In conclusion, based on the theoretical, literature and empirical analysis discussed

above, the findings are threefold. To start with, China’s capital market evolved from

the transition economy and this brings with it the legacy of the planned system

(CSRC 2008). In the early stage of industry development, securities and futures

firms were initially set up by provincial and local governments. Therefore, the

securities and futures firms that started their business in the early and mid-1990s

mirrored the process of China’s marketization. When China’s policy-makers

embarked on a path of economic reform, they chose not to break sharply with the

structures of the planned economy, but to take a gradual approach to reform (Heep

2014). The governments then protected their local securities and futures firms from

bankruptcy during this stage, since they were still the major owners of securities and

futures firms. This kind of ownership and governance impacted the geographies of

securities and futures firms. In the initial development, the number of securities and

futures firms were very high but along with the proposal of China’s market economy

after 1998 their numbers declined because of the involvement of market forces, such

as in mergers and acquisitions. In contrast, the fund management firms emerged

after the establishment of the market economy and their number increased gradually

alongside the reform of the CSRC and the growth of China’s capital market.

Second, as Wójcik (2011, 2012) has argued, a securities industry is one form of

dramatic agglomeration economies, and thus some critical securities centers have

arisen in the past 25 years. Shanghai is the most important node within the networks

because it is the center of capital markets, being where the SSE, SFE and CFFE are

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located. Similarly, Shenzhen is a big hub on the map of securities firms, while

Zhengzhou and Dalian are key locations on the map of futures firms. Beijing also

plays a crucial role due to its advantages in terms of regulatory affairs, national

champions and the talent pool (Wójcik 2015). The expansion of securities, futures

and fund management firms brings with it the formation of differentiated hierarchical

networks but show distinguished features respectively. The securities and futures

firms demonstrate more complicated networks than fund management firms because

the former originated from the planned economy.

The final finding is related to the first and second findings. The evolutionary history of

securities and futures firms, and the rise of critical nodes within their networks, has

led to the increasing geographical concentration at city level in these two subsectors.

By contrast, the fund management firms were initially concentrated in Shenzhen and

spread to Shanghai and Beijing after 2000. Some second tier cities have also

become more important in the last decade (Deng 2010; Chen 2015). Therefore, the

fund management industry is experiencing decreasing spatial concentration.

4.6 The competition between leading securities centers and the case of CITIC

Securities

The processes of securitization on the Mainland bring with the formation of the

Mainland’s national trinity in the securities industry, which is comparable to the New

York–London axis in the global financial network. Compared to the geography of the

banking industry, the results shown in Section 4.5 and 4.6 confirm that Shanghai is

the predominant center in the securities industry but Beijing is growing very fast in

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each subsector. In this section, I attempt to analyze the competition between China’s

leading securities centers. Taking the changing number of headquarters of securities

firms as an example, Figure 4.3 shows Beijing’s rapid development in the stock

market, which, together with the analysis of Deng (2010) and Chen (2015), highlights

Beijing’s ascending status in the Chinese securities industry. In 2000, Beijing had

five companies, when Shenzhen and Shanghai had 13 and 7, respectively. 2001 and

2002 saw 34 new firms established, including four in Beijing, compared with four in

Shenzhen and eight in Shanghai. At the end of 2001, Shenzhen was at the peak of

its dominance over the securities industry, hosting the headquarters of 15 out of 64

firms. Beijing started to catch up with Shenzhen and Shanghai in 2003. Out of 26

new firms created between 2003 and 2011, 13 were created in Beijing. At this pace,

Beijing surpassed Shanghai in 2008, and Shenzhen in 2011, becoming the

headquarters location of the majority of securities firms. After 2012, some new asset

management firms were established in Shanghai, which is considered as a new

component of securities firms. As a result, for the first time Shanghai ranked the top

in terms of number of headquarters hosted.

Beijing’s success can primarily be ascribed to its proximity to regulatory

departments, such as the PBOC and CSRC, supplying services for the national

champion firms and Fortune Global 500 that are largely derivative of the planned

economy and politics. Additionally, Beijing is also the domestic innovation and R&D

center, being where a large number of competitive high-technology start-up firms are

based and are carrying out stimulating innovation activities. Its development is also

due to the interdependence between banking services, securities services and

related professional services.

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Figure 4.8 Changing number of headquarters of securities firms in leading securities centers

Source: Author’s based on the data from China Securities and Futures Statistical Yearbook

2001–2014 and 2014 annual report of the CSRC

In the next step in my analysis I track Beijing’s growth in the past 15 years through

the lens of China’s largest securities firm—CITIC Securities. This analysis is based

on the information from CITIC’s official website and an interview with a vice president

from the Investment Banking Committee of CITIC Securities, which took on 11

October 2014. Currently, CITIC Securities is the largest securities company in

Mainland China. In accordance with the data from the Securities Association of

China, in 2015, CITIC Securities ranked No.1 among Chinese companies for both

total assets and total revenues. Originally established in Beijing in 1995, it later

moved to Shenzhen, attracted by cheaper land, and lower corporate income tax

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because of Shenzhen’s policies at the early stage of reform and opening up, as a

special economic zone. It then moved back to Beijing, and then back again to

Shenzhen.8 There is generally a lot of competition from Shenzhen to attract

headquarters of companies. At present, although the company is headquartered in

Shenzhen, 70% of headquarters employment is in Beijing, 20% in Shenzhen, and

10% in Shanghai. There are some 2,000 people employed at the headquarters in

Beijing, out of a total of approximately 10,000 employed across the whole of CITIC.

CITIC was subject to an IPO on the SSE in 2003 and on the Hong Kong Stock

Exchange in 2012, before IPOs in China were suspended due to stagnant prices.

CITIC is the first Chinese securities company with both A and H shares. CITIC

recently took over 100% ownership of CLSA, a leading Hong Kong based securities

company with a global network. Thus, they now consider themselves the biggest in

the domestic market (having about 10% of the brokerage services market in

Mainland China), and the most internationally connected Chinese securities firm –

considered as the Goldman Sachs of China.

The success of CITIC Securities offers a miniature of Beijing’s growth in the past 15

years. The securities industry has become ripe for consolidation by virtue of market

forces. The number of firms exceeded capacity before 2004, as has been discussed

in Section 4.3 (CSRC 2008). The main barrier is local and provincial government

ownership of securities firms, because local governments try to keep these firms,

and relationships with local governments are necessary to do business anyway – a

legacy and path dependency of the command economy. However, the overall

8 http://www.cs.ecitic.com/en/Corporate-information_Milestones.htm.
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efficiency of the whole industry was quite low and a lot of firms faced bankruptcy

(Wang and Cheng 2009). In 2005–2006, securities firms were struggling and were

very cheap. The consolidation that ensued was orchestrated by the government,

which may be one reason for the increasing concentration in Beijing. Companies

with government backing had a better chance of surviving during this ‘war’. Beijing

has a special advantage in regard to attracting firms:

As the vice president of CITIC Securities explained, Shanghai is the capital of the Chinese

securities industry, as the central government aims to build Shanghai into a truly

international financial center after the global financial crisis. However, some firms tend to

conglomerate in Beijing rather than Shanghai. The vice president explained that Beijing is

better in the provision of asymmetric information and labor market quality than Shanghai.

Shanghai-based firms possess the advantage of regional and local business, which is

ascribed to the prosperity of the Pearl River Delta, which grows much faster than Northern

China. (vice president of investment banking committee, CITIC securities, 11 October 2014)

Connections to the PBOC, CSRC and the central government are crucial for

business expansion in the securities industry. The government tends to choose

advisers on capital market transactions for firms controlled by the government. The

CSRC make the decision as to whether to approve a transaction or not, and they

reject the majority of applications for IPOs. Before the application of the registration

system, this gave Beijing an advantage that Shanghai did not possess. Another

strength of Beijing is its headquarters economy. For example, CITIC’s biggest IPO

was that of the China Railway Construction Company, which is a Global Fortune 500

and state-owned enterprise based in the capital city.

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4.7 Summary

The main objective of this chapter was to explore the geographies of the securities

industry in Mainland China after the marketization reforms in the 1990s. We

compared the key indicators between 2007 and 2014, analyzed the changing

numbers of each subsector in the past two decades and discussed the openness of

China’s capital markets. The analysis and discussion highlighted the rise of the

Mainland’s securities industry in the contemporary financialized economy. The

changing number of firms in each subsector also reflected the progress of the

Mainland’s transition economy. The legacy of the planned economy and the initial

reform policies dominated by central government contributed to the landscape of the

securities industry and thus confirmed the leading roles of Shanghai, Beijing and

Shenzhen in the spatial configuration, while the restructuring of the geographies of

each subsector was probably driven by market forces after China’s accession to the

WTO. Meanwhile, the distribution of joint ventures with foreign securities firms and

representative offices of foreign exchanges that congregated in Beijing and

Shanghai mirrored these cities’ central positions in the securities industry. Moreover,

the headquarters locations and branch networks were examined and the

differentiated hierarchical networks of each sector were visualized, mapped and

interpreted. This analysis showed the changing geographical concentration of each

subsector by headquarters data. With the application of three connectivity measures

to the headquarters and three distinct industry subnetworks, this segment specifically

shed new light on the actually existing processes by which securitization connects

cities around the Mainland.

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The empirical evidence of this part of the chapter strengthens my argument that

Shanghai, Beijing and Shenzhen are critical securities nodes for financial circuits

within the subnetworks and they also reveal that three distinct hierarchical networks

emerged and formed in the past 25 years. The empirical study showed that the

connectivities of the subnetworks are highly influential in situating cities within the

domestic system. This chapter was unable to attribute the different indicators, like

total assets and revenues, to the exploration of changing spatial concentrations of

each subsector (if that is indeed possible in the future); however, it is clear that the

trends of subsectors are shown by headquarters distribution. To sum up, the

establishment of the organizational hierarchies of the securities industry is a hybrid,

which is driven by regional organization and the path dependence of planned

economy, and the dynamics of command and control, such as the spatial expansion

of securities centers .

Finally, I investigated the competition between Beijing, Shanghai and Shenzhen, and

described the main factors that contributed to the landscape of the securities industry

and its transformation. We should recognize that the production of financial

geographies on the Mainland has been driven by a complex interplay of policy

directions and organic market development, which is in contrast to that of more

advanced markets (CSRC 2008). These key drivers characterizes the competition

and changes between Shanghai, Beijing and Shenzhen, and the discussion of CITIC

Securities points to a classic case. This analysis provides a complementary

understanding of urban positionality and highlights the importance of face-to-face

contact in the securities industry, which differentiates it from traditional banking.

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In conclusion, the geographies of the securities industry in Mainland China are the

result of a mix between its path-dependent history and institutional change (Martin

and Sunley 2006), political economy (Leyshon 1995; Heep 2014), and sectoral

differentiation (Wall and Van der Knaap 2011). On the one hand, like the New York–

London axis in global financial markets (Wójcik 2013b), Shanghai, Beijing and

Shenzhen contribute to a national trinity for China’s securities industry. The growth of

Shanghai and Shenzhen depends on market forces, which therefore suggests the

need for the further reform and openness of the capital markets. For example, the

proposal of a more transparent registration system is significant to underline

Shanghai and Shenzhen roles in the networks of the securities industry. Regarding

Beijing, the establishment of the National Equities Exchange and Quotations in 2012,

which is more like a real NASDAQ board in Mainland China, may well strengthen the

role of Beijing in China’s securities landscape (Pan, Zhao and Wójcik 2016). On the

other hand, diverse historical and institutional advantages explain why a handful of

second tier cities, such as Nanjing, Hangzhou and Tianjin, play important roles in

some subnetworks but not in others. This suggests the need for a spatial

embeddedness development strategy for specific city.

Both chapter 3 and chapter 4 emphasize Shanghai’s position as a leading financial

center in Mainland, especially for attracting and receiving foreign capital. They also

show that politics and state interventions play the critical roles in shaping the

developments of financial centers in China. Furthermore, in the latest strategic

planning, such as the Yangtze River Delta Mega-region planning, the 13th Five-Year

plan of Shanghai and Shanghai 2040, both the central and local governments aim to

upgrade Shanghai’s status as an influential IFC in a world economy by 2020. As

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such, in chapter 5 and chapter 6, I attempt to understand the development of China’s

financial centers through a crucial case of Shanghai’s IFC.

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Chapter 5 Examining the clusters of financial and business services

within Shanghai city

5.1 Introduction

One of the key characteristics of contemporary IFCs is the interdependency between

the financial sector and the related professional services. In this chapter, I focus

attention on the clusters of FABS which encompass a very board range of economic

activities that were first clearly identified as APS by Sassen (1991) in her global city

thesis, or recognized as ABS by Dicken (2011) and Wójcik (2013a). The strengths of

cluster approach are articulated as follows. Firstly, it does not relate to the financial

industry separately, while it emphasizes the interplay between financial and business

services like consulting, accounting and legal services in some way (Sassen 2012a).

Second, a cluster is defined not just in terms of firms but also in terms of supporting

institutions. These kinds of institutions are able to play a critical coordinating and

facilitating role in robust clusters. For example, the financial regulatory authorities

and financial intermediation, such as the second headquarter of PBOC, the branch

of CBRC, CIRC, and CSRC, and SSE, contribute to the rapid growth of financial

agglomerations and clusters in Lujiazui, Shanghai Pudong New Area. Third, non-

market linkages are highlighted. Cooperation, borne out of a common culture and

trust, is known to be particularly important with respect to knowledge spill overs and

financial innovation (Clark and O’Connor 1997; Storper and Venables 2004). Finally,

the geographies of FABS encourage us to think about this spatial form as a

complicated system and micro foundation of the IFC and global city dynamics. It is

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this very complexity that enriches the components of the IFC in the era of global and

digital capitalism and that makes them difficult to replicable (Clark 2002).

In the case of Shanghai, FABS are considered as crucial drivers for its formation as

an IFC and global city (Shanghai 2040)9. Recent empirical studies have shown

Shanghai’s dynamics as an IFC and global city from a comparative perspective (Lai

2011, 2012a, 2012b; Woo 2015, 2016a; Taylor et al. 2014). However, they fail in

explaining how the internal spatial distribution of FABS impacts on Shanghai’s

dynamism at the local scale. In addition, as a contemporary global city, the modern

manufacturing sector remains an important generative force in Shanghai’s local

economy, especially when seen as incorporating the production of information,

industry-linked FABS, and the emerging New Economy, such as the high technology

industry, the platform economy, and so on.

This study contributes to mapping the geographies of Shanghai’s FABS at the local

scale in a perspective of clusters. I examine the geographies of clusters at two

spatial levels: the district level and an intensive cluster level (functional zone). More

importantly, I try to answer questions which are central to this chapter: who is

constructing the FABS clusters? How are they constructing the FABS clusters? And

why are they constructing the FABS clusters? It also examines the

interdependencies and local networks of different sectors in the context of Shanghai

Pilot FTZ through integrating finance into the GPNs.

The empirical analysis is based on the data of headquarters, regional headquarters

and representative offices of financial firms and authoritative institutions, and

business services firms in Shanghai. It also involves the data of local listed

9 http://www.supdri.com/2040/
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companies at the SSE. All of these data are available, thus allowing an intelligible

and innovative geographical analysis of the clusters of FABS in Shanghai. The

findings reveal the uneven geographies of FABS within Shanghai city and close

linkages between finance and real economy in the FTZ. First, I investigate the

geography of FABS, and also examine the geography of domestic firms, and foreign

and joint-venture firms in FABS separately. These geographies are quite similar but

slightly different from one another. Second, I map the spatial distribution of financial

services and business services separately and then make a comparison. While the

geography of finance services is generally mono-centric, the spatial pattern of

business services demonstrates a poly-centric landscape. Third, at the intensive

cluster level, Lujiazui dominates the financial services, while Lujiazui, West Nanjing

Road and Central Huaihai Road are identified as the top three clusters for business

services. Finally, the Lujiazui Financial Zone as a financing platform contributes to

the formation of a cohesive FTZ and drives the process of financialization in

Shanghai.

The structure of this chapter is arranged as follows. Section 5.2 reviews the concepts

and theories in order to underpin the importance and geography of FABS within a

city, which is followed by an analysis of the existing study on the geography of

financial services within a city. Section 5.3 introduces the data and methods

employed in the empirical study. In Section 5.4, I map the geographies of FABS from

two levels of the clusters respectively. It also draws attention to the FTZ and

discusses the local interactions between different functional zones. Finally, in Section

5.5, I summarize the main findings.

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5.2 The FABS: importance, centrality and geographies within a city

5.2.1 The FABS: critical role for IFCs, global cities and world economy

A range of theoretical approaches have been used to investigate the importance of

FABS or similar articulations, such as producer services, APS or ABS. As Wójcik

(2013a) argued, ABS, as a complex, hold considerable power, which they exercise in

a large measure by operating legal, accounting and financial vehicles. Dicken (2011)

also emphasized that ABS are central to the operation of the economy. Not only are

they the lubricants to all production circuits but they also have become increasingly

dominant in GPNs in particular.

In 1990s, Beyers (1992) highlighted that it is becoming increasingly clear that

researchers must account more directly for the role of services in the processes of

industrial restructuring in progress reports on producer services. As Wood (1991)

argued:

The possibility that the role of service functions may be fundamental in capitalist change

has been neglected. There is nevertheless growing, if disjointed, recognition that such

change implicates services in important ways, whether through financial circulation,

innovative producer services, the changing role of the state, or even the style and

organization of consumption.

In this chapter I draw special attention to FABS, including both financial instruments

and specialized services that were first clearly articulated as APS in the global city

model (Sassen 1991), while APS are very important for understanding contemporary

cities in globalization and financialization. Sassen (2012a) contended that global

cities are strategic sites for the management of the global economy and the

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production of APS and financial operations. The added complexity and uncertainties

involved in running global financial markets and the need for highly specialized

knowledge about the consulting, accounting, law, advertising, business cultures has

meant that a growing interdependencies between headquarter functions and APS. In

contrast with Friedmann and Wolff’s (1982) world cities, Sassen added two

additional functions to the global city model: global cities are post-industrial sites for

APS and are transnational marketplaces where global actors—firms, governments,

non-government entities and individuals—can buy or sell APS.

Sassen further pointed out that

those APS firms engaged in the most complex and globalized markets are subject to

agglomeration economies. The complexity of the APS they need to produce, the uncertainty

of the markets they are involved with either directly or through the headquarters for which

they are producing the services, and the growing importance of speed in all these

transactions, is a mix of conditions that constitutes a new agglomeration dynamic. The mix

of firms, talents, and expertise from a broad range of specialized fields makes a certain type

of urban environment function as an information center. Being in a city becomes

synonymous with being in an extremely intense and dense information loop. (Sassen 2005)

More importantly, in the framework of global cities, centrality remains a key feature of

the contemporary world economy at the local scale. However, there is no longer a

simple, straightforward relation between centrality and such geographical entities as

central business district (CBD). Due to the development of IT and advanced

information infrastructure, the spatial correlates of the center can assume several

geographic forms, ranging from the traditional CBD to a new global grid of cities

(Sassen 2005): a case that is well illustrated by recent development in cities as

diverse as London and Paris.

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5.2.2 Centrality and clusters of FABS within cities

Since the early 1990s, O’Brien’s response to the growing importance of international

capital flows was to argue that the globalization of capital and the rapid development

of IT technology were resulting in a homogenization of financial space, which in turn

was leading toward what he described as the ‘end of geography’ (O’Brien 1992). At

first sight, IT developments would appear to release business services, especially

financial services, from geographical constraints. However, the contemporary

financial landscape shows a highly uneven distribution, not only across different

cities but also within cities. Indeed, we find that, at global, national and local scales,

FABS continue to be extremely strongly concentrated geographically (Dicken 2011).

Spatial economists Gordon and McCann (2000) distinguished three ideal-typical

models: the pure agglomeration model, the industrial-complex model and the social-

network model. They used the case of London’s city-region to explore the relation

between concentration and different forms of linkage. Duranton and Puga (2004)

reviewed some of the micro foundations underlying localized-scale externalities,

covered the detailed theoretical research and then distinguished it as three

mechanisms—sharing, matching and learning. The localized nature of relationships

between skilled labor, customers and suppliers is a critical factor which helps firms

achieve innovative solutions (Taylor et al. 2003). This kind of theoretical approach

can explain why cities differ in terms of financial agglomerations, however it cannot

tell us why the geography of FABS is so spiky within a city (for instance, clusters

such as the West End in London and MidTown in New York City) because

economists have more or less neglected the importance and role of space and place

in producing geography.
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Meanwhile, economic geographers provide the possible approaches to explain the

uneven development of FABS, especially financial services, not only at the city level

but also within a city through the perspective of the heterogeneity of space, place

and location, such as cultural economy, information and knowledge, institutions,

networks, and most recently, ‘geographical’ political economy and financialization,

which is a recent growth of geographical treatments of money and finance after

1990s. These attributes are interlocking processes and I have carefully investigated

in chapter 2.

5.2.3 Geographies of FABS within a city

Financial services have attracted the most attention, mainly because of their historic

role in managing the world economy, and supporting international trade and

arbitrage. However the many non-financial forms of professional business services

are less attractive. In the very beginning of the 21st century, Cook et al. (2007) and

Taylor et al. (2003) reported a one-year study which investigated the clusterings of

FABS activities in London. This examination of the geography of London’s FABS

demonstrated a distinctive east–west concentration, and they identified four separate

clusters: a very cohesive City of London cluster, a less cohesive West End cluster,

an incipient general cluster north of the City of London, and the law cluster that

straddles the City of London and the West End. In particular, Roberts (2008)

introduced the City as London’s global financial center in terms of geography, history,

financial markets, banking, insurance, professional services, maritime finance,

regulation, and global competitiveness, as well as the City’s weaknesses and

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challenges. In contrast with Cook et al. (2007) and Taylor et al. (2003), he told us

why the City has been able to flourish for over three centuries.

Similarly, Wood and Wójcik (2010) pointed out that business services are more

diffuse than financial services within central London, geographically. Local clusters

are evident only in disparate areas, such as the legal quarter west of the City, around

Holborn; and media and advertising in Soho–Fitzrovia. Furthermore, they identified

two significant trends during 2000–2006. The City of London and the West End lost a

lot of financial jobs but gained in professional business services. These losses,

however, were largely balanced by the emergence of Canary Wharf. Their study

confirmed that the central London economy depends as much on professional

business services in the West End as on financial activities in the City and Canary

Wharf. In Roberts’ book, he narrates the emergence of Canary Wharf as the second

most dominant financial center in central London since 1980s. Since the mid-1990s

a procession of leading banks and investment banks have relocated their London

operations to shiny new buildings at Canary Wharf. These financial institutions

include Credit Suisse, Morgan Stanley, Citigroup, HSBC, Barclays Capital and

corporate lawyers Clifford Chance. In addition to being a home for major

international banks and firms in the financial services sector, Canary Wharf is an

important base for professional services firms as well as advertising firms and media

organizations. Fitch Ratings, Infosys, KPMG, Moody's, State Street, and Thomson

Reuters are also based in Canary Wharf. By the end of 2007, Canary Wharf

comprised 24 office buildings with a working population of 80,000 people. In 2014,

the total employment of this CBD reached 105,000.

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In the case of New York, Gong and Keenan (2012) examined the impact of terrorism

on the changing geography of financial services in the New York metropolitan area

after 9/11 and how it interacted with agglomeration economies, technological

changes, and globalization to shape the geography of financial services within and

around the Manhattan. They summarized that prestige, public transportation, and

proximity to clients and other financial services, as well as terrorism, are important

determinants for location strategy. The innovation of this research is that it provides

information about the location of financial services at the establishment level, with

much more detail than the county level. The result shows that according to the 79

establishments surveyed, 54 kept stable, 15 relocated permanently, and 10 migrated

after 9/11 but later returned to their pre-9/11 locations. All of those establishments

that moved but returned are located in Downtown, especially around the World Trade

Center site. Two trends of relocation are worth noting. One is the relocation from

Downtown to eastern Midtown, which was much anticipated after 9/11. Another trend

is the relocation from Midtown out of Manhattan. Four small establishments moved

all or a majority of their businesses to New Jersey, Connecticut, South Carolina, and

Texas respectively.

Lastly, take Morgan Stanley as an example, in New York city, Morgan Stanley’s

global headquarters moved from Wall Street to Broadway, Midtown in 1995. But,

currently, Morgan Stanley is considering moving into a new skyscraper at the

Hudson Yards development on Manhattan’s far west side, potentially sharing a

building with BlackRock Inc. Hudson Yards has also attracted financial firms KKR &

Co. and Point72 Asset Management, as well as companies including Time Warner

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Inc., Boston Consulting Group and L’Oreal USA.10 Morgan Stanley has also moved

other offices away from core business areas to newly developed business areas in

the other leading IFCs. In 1977, Morgan Stanley opened its European headquarters

in the City of London. It then moved to the 20 Bank Street building, Canary Wharf,

after its completion in 2003. With a presence in Hong Kong since 1987, the Central

serves as Morgan Stanley's Asia Pacific (ex-Japan) headquarters, as well as the

gateway for raising capital in China. In 2009, Morgan Stanley relocated its office from

the Central to the International Commercial Center, Kowloon.

5.2.4 Geographies of FABS in China and Shanghai

In China, Pan et al. (2015) investigated the locational patterns of headquarters of

publicly listed firms located in Beijing and concluded that these patterns are shaped

by both market and state forces. However, very few scholars draw special attention

to the geography of FABS – even the distribution of financial services at the city

level. Horesh (2009) documented that the Bund used to be the preeminent financial

center in Shanghai, with a high degree of banking agglomeration. By the end of

1937, a total of 54 headquarters of banks and 128 branches were located here,

making it the leading location in China in this regard. Meanwhile, the Central Bank of

China, Bank of China, Bank of Transportation and Bank of China Farmers were

based in Shanghai, while they had 491 branches nationwide.

In general, however, the existing literature on Shanghai’s FABS study present

several shortcomings. First, most research has discussed Shanghai’s financial

services as a whole, and has neglected the uneven development and clusterings of

10Source: https://www.bloomberg.com/news/articles/2017-02-10/morgan-stanley-said-to-
consider-moving-to-new-hudson-yards-tower
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financial services within the city. Lai’s (2012b) analysis focused on the rise of Lujiazui

as an emerging IFC, but her research was mainly based on interviews and lacked

quantitative data. Second, the importance of business services has been neglected.

Roberts (2008) and Pan et al.’s studies inspired me to carry out an empirical study

to examine Shanghai’s FABS at the local level. Third, no study draws attention to the

linkages between financial services and the New Economy, such as the information

industry, high technology, advanced manufacturing and so on, which are critical

drivers for integration between GFNs and GPNs.

As GFNs that sustain capital and information flows expand and infiltrate more and

more places, a growing number of nodes and hubs in Shanghai play increasingly

important roles in linking their local resources to the multi-scalar level of GFNs,

forming what Sassen refers to as a global city and as ‘geographies of

centrality’ (Sassen 2012a). From an empirical standpoint, in this chapter I seek to

build on these studies by answering three basic questions. First of all, what are the

geographies of centrality in terms of FABS within Shanghai? Second, what is the

primary node in the rise of a networked space for the financial sector and is there

any migration within the city from a historical perspective? Third, because of the

distinct characteristics, the geographies of financial services and the business

services probably demonstrate different landscapes. Thus, why is the spatial

distribution of business services differentiated from the financial sector?

To address these unanswered questions, this chapter proceeds in three stages.

First, I introduce the data and methods in Section 5.3. Second, Section 5.4 examines

and maps the basic geographies of FABS within Shanghai’s city level, and make a

comparison between the financial sector and business services both at district level

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and an intensive cluster level in Section 5.4.1 and 5.4.2. In Section 5.4.3, I also

discuss the structure of the FTZ and its role in Shanghai’s IFC and global city

formation. Finally, Section 5.5 concludes this chapter.

5.3 Data and methodology

In this study, I consider Shanghai city as the local scale for my geographical

discussion. Shanghai city is one of four directly-controlled municipalities in China

with a population of more than 24 million in 2016.11 Shanghai is administratively

equal to a province and is divided into 16 county-level districts (see Figure 5.1).

Pudong New Area is a very special district in Shanghai, which comprises both urban

and suburban areas. Puxi, the older part of Shanghai’s urban area on the west bank

of the Huangpu River, is divided into seven districts. These seven districts are

collectively referred to as Shanghai proper or the core city, which comprises

Huangpu, Xuhui, Changning, Jing'an, Putuo, Hongkou, and Yangpu. The suburban

area includes eight districts: Baoshan, Minhang, Songjiang, Jiading, Jinshan,

Fengxian, Qingpu and Chongming.

11 http://www.shanghai.gov.cn/shanghai/node27118/index.html.
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Figure 5.1 Administrative divisions of Shanghai

Source: Official website of Shanghai Municipal Government

As Taylor et al. (2004) have clarified, the degree of clustering of firms in a sector is

positively related to the number of firms in the cluster. There are strong functional

and locational linkages between corporate headquarters and producer services at

both the inter-metropolitan and intra-metropolitan levels (Sassen 2012a; Gong and

Keenan 2012). It is a very common notion that the number of headquarters is what

specifies a cluster of FABS for global city dynamics (Sassen 2012a; Taylor 2012).

However, such a statistical ordering only tells part of the story: to fully understand the
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nature of the clustering of Shanghai’s financial services and business services

requires an investigation of their specific different geographies.

This study requires the presence of offices of major FABS firms and institutions

across Shanghai. In practice, this implies a data collection strategy in which I need to

select firms and confirm the addresses of firms. In order to map the uneven

development and different geographies of FABS in Shanghai, I employ two datasets.

The first covers financial services firms, financial authorities and financial services

intermediaries. The second covers business services firms. My initial pools of data

contained more than 650 firms. Data on the financial sector are collected from the

Shanghai Finance Year Book 2015 and 2016, and the dataset of the GaWC for world

cities network analysis, which includes 75 financial firms and 100 business services

firms, while the data on the business services firms are gathered from the Shanghai

Bar Association for law firms, the Chinese Institute of Certified Public Accountants for

accounting firms, and the major recruitment websites for consulting and advertising

firms, such as Zhilian, 58Tongcheng and 51job, based on the scale of these firms

(for instance, the total employment), as well as a combination of the business

services firms in the GaWC dataset.

However, some firms listed in the GaWC dataset do not have subsidiaries in

Shanghai, and some consulting and advertising firms are too small – for example,

having less than 10 employees – which cannot reflect the importance of a firm’s

establishment. Therefore, I remove micro-enterprise from the dataset and then the

number of each sub-sector of business services firms is unequal in my dataset. The

end product of this collection reduces my data base to a detailing the addresses of

614 institutions and firms: the first part includes 307 financial companies engaged in

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banking, insurance, securities dealing, fund management, derivatives, foreign

exchange and bullion markets, and seven financial regulatory institutions. The

second includes 300 business services firms including 72 legal services, 77

accounting, 81 consulting and 70 advertising services, both of which together

constitute the clusterings of FABS in Shanghai. This group of firms is a mixture of

most globalized business services firms with a presence in Shanghai, as well as

major domestic and local business services firms, which allows us to consider both

globalization and localization agents.

The initial task of Section 5.4 is to provide a very basic geography of FABS within

Shanghai. The locations of financial firms and institutions, and the business services

firms, have been investigated. In essence, for FABS there are two levels of

abstraction in the construction of the clusters:

• The level of district (county level)—maps are constructed of the distribution of

all firms and institutions in each administrative district to provide a preliminary

geography of clustering and dispersion of financial industry and business

services separately in Section 5.4.1. I also examine the geography of foreign

firms and joint-ventures in order to check whether it is similar with the patterns

of overall FABS.

• The level of an intensive cluster—defined as a financial or business functional

zone with more than 25 firms. The local official documents and planning

recognize some critical zones for FABS. Maps of these clusters for the

financial services and business services sectors are shown in Section 5.4.2.

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In Section 5.4.3, I employ the data of 66 firms listed on the SSE, which are based on

different functional zones in the FTZ. This analysis helps us to understand the intra-

linkages within the FTZ.

5.4 Mapping the clusters of FABS in Shanghai

This section aims to contribute to this endeavor by examining the geographies of

FABS within Shanghai. More specifically, it tries to explore the locational structure

and dynamics of Shanghai’s financial center and global city in the context of the FTZ.

5.4.1 Examining the basic geographies of FABS and financial regulatory institutions

at the district level

To start with, generally the spatial landscape of FABS and financial regulatory

institutions engaged in 614 firms is visualized in Figure 5.2. More than 95% of the

investigated objects are located within the city center. This organizational pattern

exhibits a very spiky geography, and uneven spatial development, socio-spatial

polarization and territorial inequality remain pervasive and endemic features of

modern financialization of the economy. The analysis of Shanghai reveals two forms

of concentration and dispersal. The first, the main focus, is the disproportionate

concentration of FABS in Pudong New Area since 1990s, when there was the option

of locating in Puxi. Second, no establishment of any firm is shown in Chongming and

Fengxian districts, which is partly ascribed to their poor transportation links and their

poor location.

The formation of spiky geographies of FABS can be partly ascribed to the policy

initiatives and authoritative planning. It is not only the national strategy that has a

special focus on the financial industry, but also, the municipal and district

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governments highlight the importance of FABS for the local economy. The policy

support for Pudong and the FTZ, as well as the planning of the Yangtze River Delta

Mega-region Planning by the State Council, promote the growth of FABS in

Shanghai. The 13th Five-Year Plan of the Shanghai municipal government,

Shanghai 2040, and the special planning of Pudong, Huangpu and Jing’an at the

local scale all attract the establishment of FABS, especially for foreign capital.

Figure 5.2 The geography of FABS and financial regulatory institutions at the district level

Source: Author

Secondly, I examine the geography of domestic institutions, and foreign and joint-

venture firms respectively. The aggregate of the latter group accounts for

approximately 40% of the total number engaged in FABS. Figure 5.3 demonstrates
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that some domestic firms are based in suburban areas, while companies engaged in

foreign capital tend to be located within the city center. For instance, Pudong New

Area is the primary center for foreign institutions, especially Lujiazui, where 101 of

102 foreign and joint-ventures firms in Pudong are located, followed by Huangpu and

Jing’an in terms of the geography of foreign capital.

Since 1990 onward, Shanghai provides a vibrant and cosmopolitan environment for

foreign firms and international capital. This is ascribed to two key geographic

determinants: social and cultural construction (Thrift 1994). Horesh (2014) and Karen

(2012b) drew upon Shanghai’s historical success as an IFC in the early-twentieth

century to account for its contemporary cosmopolitanism and receptiveness to

foreign investment, ideas and practices. Foreign firms show a greater preference for

city center compared to domestic firms, because they are global actors and some

places in the city center that are activated by both market forces or policy regimes

possess competitiveness in international markets with very specialized and

professional capabilities. Meanwhile, domestic firms depend more on local

customers and suppliers, which has an impact on the locations of these firms. In

contrast with foreign capitals, the clusters of domestic firms are precisely the result of

a mix of specific, differentiated and localized relations.

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Figure 5.3 The geography of domestic institutions (green), and foreign and joint-ventures

firms (blue)

Source: Author

Thirdly, in order to make a comparison between financial sector and business

services, I visualize their geographies separately, as depicted in Figure 5.4. The

financial sector has exhibited a strong tendency to cluster in select locations and, as

such, a large proportion of financial activities are concentrated within a relatively

small group of financial centers, chief among which is Pudong New Area, with two-

thirds of total financial institutions and firms, especially in the emerging IFC—Lujiazui

Financial Zone, which will be discussed in Section 5.4.2. In the Puxi area, Huangpu

is the largest financial cluster. The financial industry in Huangpu created 17% of

Shanghai’s financial GDP and produced more than one-third of local GDP in 2015.

The other districts in Puxi are far behind Huangpu and the aggregate of their firms’
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figures is approximately equal to Huangpu. Additionally, it should be noticed that only

three firms are registered in the suburban districts. Meanwhile, the distribution of

business services outlines a different geography from that of the financial sector. The

analysis of the location of business services demonstrates a distinctive Puxi-Pudong

concentration, which shows a relatively low degree of primacy in contrast with

financial industry. In brief, the geography of business services shows a more

dispersed characteristic than that of the financial sector. More specifically, Huangpu

is the primary business center, followed by Jing’an, while Pudong only ranks third.

However, the primacy of Huangpu in business services is much lower than Pudong’s

in financial industry, since the number of the business services firms in Huangpu

accounts for just 25% of the total number. In contrast with the three financial services

establishments, 14 business services firms are located in the suburban districts.

Huangpu is the second most important financial center and the primary business

cluster in Shanghai, which can be partly attributed to the merger between Huangpu

district and Luwan district in 2011.12 Jing’an has the second largest concentration of

business services. According to the official statistics of the local government, the tax

revenue contributed by office buildings accounted for 62% of total tax revenue in this

district, and the number of office buildings whose annual tax revenue exceeds CNY

100 million was 63 by the end of 2016. The expansion of business services also

brings with the establishment of multinational firms. To date, there are 67 regional

headquarters of multinational firms in Jing’an.

12Luwan district was a district in central Shanghai until its merger with Huangpu District,
Shanghai, in June 2011.
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Figure 5.4 Comparison between the geographies of the financial sector (orange) and

business services (purple)

Source: Author

To summarize, the degree of agglomeration in the financial industry is much higher

than that for business services. The geographical structures of the financial sector

and business services are different from each other. While Pudong dominates the

financial industry, the geography of business services demonstrates a three-pillar

pattern: Huangpu, Jiang’an and Pudong. For the financial industry, institutions create

unequal distributions of financial opportunities and flows within and between cities

(Clark 2005). In China and Shanghai, the growth in the importance of Pudong can

mainly be understood as an outcome of a policy of competitive deregulation of the

financial sector by PBOC, CSRC and CBRC since the establishment of Pudong New

Area, especially after China’s participation in the WTO and the proposal of the first

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FTZ in Pudong. The financial regulatory reform is heavily biased toward Pudong, and

the latest progress has seen financial experiments and innovations such as the

convertibility and internationalization of RMB conducted within FTZ. This kind of

institutional advantage contributes to the formation and consolidation of Pudong as

the preeminent financial cluster. In contrast with the financial sector, the geography

of business services does not show a unipolar trend, in that the formation of

business services clusters is mainly driven by market forces, while the geography of

financial services is dramatically produced through a range of political discourses

and programs.

5.4.2 The intensive clusters: Lujiazui, West Nanjing Road and Central Huaihai Road

Inspired by Taylor et al. (2003), and Hong and Keenan’s (2010) research on London

and New York, this study further provides information about the location of FABS at

the functional zones level, which is the intensive cluster than the district/county

scale. The existing city strategic reports and planning, such as Shanghai

headquarters economy development and commercial layout 2015, and Shanghai

2040, underline the belt of Lujiazui—the Bund—Yan’an Road—Shanghai Hongqiao

Commercial Zone as the crucial spatial platform for FABS. In this section, I focus in

particular on the clusters embedded in this belt.

Based on my dataset of 307 financial firms and seven financial regulatory

institutions, Lujiazui Financial Zone is the only financial cluster at this level. Likewise,

I identify three clusters for business services: namely Lujiazui, West Nanjing Road

and Central Huaihai Road (see Figure 5.5).

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Figure 5.5 The location of Lujiazui, West Nanjing Road and Central Huaihai Road

Source: Google Map

Regarding the geography of the financial sector, there is one distinctive sub-

concentration that is the Lujiazui. After the central government made Pudong’s

development a priority in the 1990s, Liujiazui has gradually established itself as an

emerging IFC. More recently, Liujiazui has become the critical component of the FTZ

to carry out the financial reform and innovation since the FTZ’s expansion in

December 2014. In my analysis, while 205 financial firms and institutions are located

in Pudong New Area, 200 of them are concentrated within Lujiazui Financial Zone.

First, Lujiazui has built a large, diverse system of capital markets and regulatory

entities. It hosts China’s most important capital market institutions and Shanghai’s

local regulatory authorities (see Table 5.1 and Table 5.2), including the second

headquarters of PBOC, the national foreign exchange trading center, the national

bond trading center, the country’s largest stock exchange, and so on.

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Table 5.1 Major national capital markets in Shanghai

Capital Markets Institutions Year established Location

SSE 1990 Lujiazui

National FX Trading Exchange 1994 Zhangjiang

Shanghai United Assets and Equity Exchange 1994 Putuo

Shanghai Futures Exchange 1999 Lujiazui

Shanghai Gold Exchange 2002 Huangpu

China UnionPay 2002 Lujiazui

China Financial Futures Exchange 2006 Lujiazui

Shanghai Clearing House 2009 Huangpu

Shanghai Insurance Exchange 2016 Lujiazui

Shanghai Commercial Paper Exchange 2016 Huangpu

Source: Author’s based on the data from Shanghai Finance Yearbook 2016

Table 5.2 The distribution of Shanghai’s financial regulatory authorities

Regulatory Authorities Location

The Second Headquarters of PBOC Lujiazui

CBRC (Shanghai) Lujiazui

CSRC (Shanghai) Lujiazui

CIRC (Shanghai) Lujiazui

State Administration of Foreign Exchange (Shanghai) Lujiazui

China Trust Registration Co., Ltd Lujiazui

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Shanghai Finance Office Huangpu

Source: Author’s based on the data from Shanghai Finance Yearbook 2016

In addition, Lujiazui is home to the headquarters, branches and representative

offices of over 100 foreign firms, which contributes to its high degree of

internationalization. In Table 5.3, we can see the dramatic density of foreign financial

companies in Lujiazui, which had been vacant before 1990. The case of Lujiazui is

interesting because all of the hard and soft infrastructure in the CBD has been built

since the 1990s, the age when finance was beginning to boom after the adoption of

neoliberal practices in the Anglo-America world and the establishment of China’s

institutional transition from a planned economy to a market economy.

Table 5.3 The geographical centrality of foreign financial institutions in Shanghai (2014)

Shanghai Lujiazui % of total

Locally incorporated institutions 22 19 86%

Foreign bank branches 58 44 76%

Foreign bank representative offices 80 38 47%

Non-banking institutions representative offices 11 6 55%

Source: Author’s based on the data from Shanghai Finance Yearbook 2015

Note: ‘% of total’ means the percentage of Lujiazui out of the Shanghai total

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Lujiazui is the only remarkable and predominant financial cluster and it is used as a

territorial fix for financial and monetary authorities in both China and Shanghai in its

development as the first and leading IFC in Mainland China. In terms of the financial

sector, incomplete knowledge and asymmetric information matter in an increasingly

speculative and digitized market economy. IFCs, and especially the great diversity

and complexity in global cities, are the sites of information-rich milieux that provide a

complicated mixture of elements—the social infrastructure for global connectivity

(Sassen 2012b). Within Shanghai, the urban knowledge capital and asymmetric

information of embeddedness reflects the notion that financial activities and global

city dynamism are inseparable from China’s current economical and political system.

In the context of China’s political-economic relations, the financial industry, especially

securities and fund management services, as well as foreign firms, demand greater

production of urban knowledge capital and interpretation of asymmetric information,

which depends greatly on the collection, interpretation and diffusion of financial

information and the function of the global city.

Additionally, as Allen (2010) argued, GFNs have little choice other than to go through

the CBD for certain types of transactions. Pudong is the primary financial center in

Shanghai and Lujiazui is distinguished from others, by the concentration and

interaction of foreign financial resources at their disposal. Shanghai is a critical node

in GFNs, while the city is a network of networks at a local level. One starting point in

order to explain the significance of the concentration in Lujiazui is the financial

network which looks at how a financializing economy organizes its use of spaces

and places. The interactions of globalization and localization consist of two vertical

linkages that comprise reflexive, evolutionary and dynamic processes with the

engagement of globalization and localization. The central role of Lujiazui acts as a

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node or hub that integrates the local financial network into the global domain and

localizes global finance into the scope of Shanghai by the intermediation of

multinational firms.

In the remainder of this subsection I focus my attention on the three clusters for

business services—Lujiazui, West Nanjing Road and Central Huai Road (see Figure

5.5). As demonstrated in Figure 5.6, the geography of business services consists of

three distinct clusters of varying importance. These three clusters account for nearly

40% of the total business services firms. The two main zones are Lujiazui and West

Nanjing Road in Jing’an. Lujiazui features a cluster of firms in consulting, accounting

and legal services. This is a cohesive cluster zone of both financial firms and

business services first, compact buy with the absent of advertising and media

services. In this sense, we can clearly become aware of the close relations between

financial and business services, especially accounting, such as Baker Tilly

International, Crowe Horwath International, Ernst & Young and global prestigious law

firms: for instance, Allen & Overy International, Baker & McKenzie International, DLA

Piper International, Kirkland & Ellis National, Latham & Watkins National, Linklaters

International, McDermott Will & Emery National.

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 Figure 5.6 The top three clusters of APS firms

Lujiazui West Nanjing Road Central Huaihai Road

30

23
22

15
14
12 12
11
8 9 9
8 8

3 3
0
0
Consulting Accounting Legal service Advertising

Source: Author

The second zone is West Nanjing Road in Jing’an, featuring a cluster of firms in

consulting, accounting, legal services, and advertising/media. This is a larger but

less cohesive cluster, including all services that I am examining in this study. Within

this cluster, the multinational firms tend to concentrate in the Grade A office buildings

– for example, the Jing’an Kerry, the Hang Lung Plaza and the Shanghai Center –

while the domestic firms exhibit no great preference. The tax revenue created by this

cluster zone increased from CNY 11.7 billion to CNY 22.1 billion during the period

2011–2015. And 22 regional headquarters of multinational firms, including not only

FABS but also other sectors, such as L’Oreal, Pfizer, AkzonNobel, and Inditex, are

based in this business services zone. By the end of 2015, 21 office buildings on

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West Nanjing Road produced CNY 14 billion in tax revenue and accounted for

44.44% of total tax revenue in Jing’an.13 There is a third, less important, cluster that

is nevertheless interesting—Central Huaihai Road featuring consulting and

advertising. There are other services that feature in this zone at lower levels of

abstraction. The most important fact is that this zone hosts the largest number of

consulting firms, including the world leading giants—McKinsey, PwC Consulting,

Mercer LLC, NERA Economic Consulting, Hewitt and so on. In the 12th and 13th

Five-Year Plans (2016–2020) of Huangpu district government, the Central Huaihai

Road is selected as one of the six modern service industry cluster zones in this

district.

Figure 5.7 Grade A office buildings and business services cluster in West Nanjing Road

Source: Author

13Data source: http://www.jingan.gov.cn/xxgk/

016001/016001001/20170515/5875d5ed-8149-4622-802f-f07074f582bf.html
!165
To conclude, 40% of business services firms are concentrated in Lujiazui, West

Nanjing Road and Central Huaihai Road; these are the preeminent business

services clusters. First, in the context of spaces of flows, all cities, to very different

degrees, are to some extent under the stress of the connection of each key center or

cluster, of each key activity in the respective global network. In this regard,

Shanghai’s global city does not mean the whole or even the majority of this city and

it mainly exhibits on the FABS clusters from a geography perspective, namely

Lujiazui, West Nanjing Road and Central Huaihai Road. These kinds of places

connect talent, firms and places to one another and enable information and capital to

flow for business services. Second, the strategic planning from both the municipal

and district level points to Lujiazui, West Nanjing Road and Central Huai Road as

critical functional zones for FABS. For example, in 2017, Jing’an district government

proposed a special plan that particularly focuses on the development of ABS in West

Nanjing Road. Moreover, both West Nanjing Road and Huaihai Road used to be

critical parts of Shanghai’s old concession, and they possess a long history of

business and a receptiveness to foreign firms. More importantly, the agglomerations

and clusters in Lujiazui, West Nanjing Road and Central Huaihai Road should be

seen as actor networks: associations of actors and resources. The dense networks

of interaction at the micro-level between global actors within these places facilitates

processes of financial and business innovation, and also helps to overcome critical

knowledge asymmetries and uncertainties.

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5.4.3 Integrating FABS into the GPNs in the architecture of the FTZ

GFNs are an indispensable necessity of GPNs because the agglomerations and

clusters are exactly places for integrating FABS into real economy for flows of value

(Coe et al. 2014). Taylor et al.’s (2003) research shed new light on the relationship

between the City of London and Canary Wharf and they argued that Canary Wharf is

viewed as an adjunct of the City and not as a separate, rival cluster. Similarly, in the

case of Shanghai FTZ, this includes three new types of industrial cluster: Lujiazui,

Zhangjiang and Waigaoqiao-Jinqiao. Has it formed functional interconnectivity based

on local specialization within the FTZ? For example, does any evidence show the

inter-firm networks and relational geographies between Lujiazui, Zhangjiang and

Waigaoqiao-Jinqiao.

Figure 5.8 demonstrates the geographical area of the FTZ. In December 2014, the

State Council approved the expansion of Shanghai FTZ by incorporating Lujiazui

Financial Area, Jinqiao Export Processing Zone, and Zhangjiang High Tech Park,

enlarging the FTZ from 28.78 square kilometers to 120.72 square kilometers to

provide more space for reform trials (see the official website of the FTZ14).

Zhangjiang is a base for innovations as Shanghai implements the national strategy

for sustainable growth. Jinqiao is focusing on administrative and financial reforms,

creating a good business environment to facilitate trade, and fostering strategic

growth industries for sustainable growth and international competition. Waigaoqiao,

which is a neighbor of Jinqiao, is an area designated for free trade logistics. Both

Jinqiao and Waigaoqiao are export-oriented zones. The great progress of financial

14 http://en.china-shftz.gov.cn/About-FTZ/Introduction/
!167
innovation in the FTZ shows China’s ambition to build Shanghai into an influential

IFC and a global city in the post-Brexit and Trump era.

Figure 5.8 Map of Shanghai FTZ after expansion in December 2014

Source：Shanghai Daily

Beyond the concentration of FABS, the interactions within the FTZ are also important

to show Lujiazui’s growth as an IFC and global city at the local scale. In

contemporary capitalism, the manufacturing sector remains a primary generative

force in urban, regional, national, and global economies, especially when seen as

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incorporating the production of information, industry-linked financial and professional

services, and the so-called New Economy. This brings me to a discussion of the

interactive relations between Lujiazui, Zhangjiang and Jinqiao-Waigaoqiao during

Lujiazui’s ascendance as an IFC and global city.

Lujiazui promotes the process of financialization in the FTZ. Here, I use the case of

FTZ-based firms that are listed on the SSE to exemplify the combination of finance

and the real economy, and the integration of the production network and financial

network, which is the simplest way of financing production. By the end of 2015, 157

firms in Shanghai city were listed on the SSE and 66 of them were based within

Lujiazui, Zhangjiang and Jinqiao-Waigaoqiao (see Table 5.4), amounting to more

than 40% of the total. As Pryke (2011) believed, when these listed companies raise

money from external sources through the stock exchange, they are exposed to

varied forms of scrutiny and influence from different groups of FABS located within

the IFC, such as legal services, financial consulting, accountancy and other business

services. Through such channels, finance thus affects corporate geographies and

the geographies of production network, and three specialized zones—Lujiazui,

Zhangjiang, and Jinqiao-Waigaoqiao—are able to closely link with each other and

achieve mutual cooperation. In addition, innovation-driven firms that are part of the

rising role of the New Economy in contemporary capitalism are crucial for the

reconfiguration and engagement of globalization and localization (Martin 2009). As

shown in Table 5.4, in the FTZ, especially Zhangjiang, six of the 11 listed firms focus

on the areas of the New Economy. The growing enterprises in the New Economy, as

well as the sophisticated financial institutions, contribute to the micro foundation of

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Shanghai and Lujiazui’s prosperity as an IFC and global city, and also bring with the

FTZ an ascending significance for the urban and national economy.

Table 5.4 The distribution and categories of FTZ’s firms listed on the SSE (by the end of

2015)15

Total Manufacturing Finance Real Estate New Economy Others

Lujiazui 36 8 3 5 3 17

Zhangjiang 11 3 0 0 6 2

Jinqiao- 19 5 2 2 2 8

Waigaoqiao

Note: Financial firms include banking, insurance, securities, fund management and related

financial services firms; New Economy firms comprise modern manufacturing industry,

information services and biomedical firms; others refers traditional industry, trade services

and linguistic services.

Source: Author’s based on the data from the official website of the SSE

5.5 Summary

The objective of this chapter was to analyze the clusters of Shanghai’s FABS at city

level, and to discuss the FTZ that is potentially facilitating Shanghai’s formation as

an IFC and global city through intensifying the Lujiazui Financial Zone and

integrating finance into real economy, as well as a cohesion between the GFNs and

GPNs. The main findings of the research are addressed here. First, the unequal

growth of FABS within Shanghai is dramatic, while these geographies highlight that

15 http://www.sse.com.cn/assortment/stock/list/area/
!170
Pudong dominates in financial services, but business services show a structure of

polycentric geography at the district level. Second, at the intensive cluster zone level,

I recognize one cluster for financial services—Lujiazui—and three clusters for

business services: namely Lujiazui, West Nanjing Road and Central Huaihai Road,

that serve the dynamics of Shanghai’s IFC and global city. Third, it also

demonstrates the linkages between FABS, modern manufacturing, and high

technology, which offers a substantial foundation for Shanghai’s formation as an IFC

and global city based on the processes of the newly established FTZ.

This work has done much to help us understand Shanghai’s IFC and global city

dynamics. Empirically, it illustrates the fact that there is a dramatically uneven growth

of FABS within Shanghai, while the existing literature generally considers Shanghai

as a whole on its IFC investigation. In addition, conceptually and theoretically, this

perspective provides a new understanding of Shanghai’s IFC, because the

clusterings of FABS are inevitably necessary to sustain Shanghai’s IFC and global

city dynamics. This analysis underlines the fact that business services clusters are

emphatically the critical components of IFCs in the local context since the extant

study draws exclusive attention to the financial industry. It also shed light on the

importance and impacts of modern manufacturing and high technology, and the

dynamic interactions between different functional zones in Shanghai, a context in

which the role of the IFC and global city have been under-studied and rarely

combined with the analysis of Shanghai’s modern manufacturing and high

technology sectors. The geographies of FABS in Shanghai are similar to the spatial

landscapes in Beijing, London and New York, which demonstrates a preeminent

financial cluster and a polycentric configuration in terms of business services.

!171
The focus of this study identifies the commonalities in terms of IFC dynamics

between Shanghai and the centres from western countries. I employ the global city,

culture, information, institution, network, ‘geographical’ political economy and

financialization approaches to explain the geographies of FABS and test the validity

of these ‘oversea’ approaches in China’s case. At the same time, we should also

notice that geographies of FABS, especially the incredible rise of Lujiazui in the last

27 years, is dramatically produced through a range of political discourses and state

interventions. As Hall (2017) highlighted we should foreground the role of politics,

and state and government in IFC formation. Therefore, chapter 6 attempts to

examine the policy regime of Shanghai’s IFC that is a state-led model beyond

neoliberal orthodox. In the following chapter, it evaluates the strategic effects, points

out the constraints of this model and explores a different pathway to an influential

IFC within the framework of this model.

!172
Appendix 5.1 Distribution of FABS at district level, Shanghai

Financial Financial Business Services

District Total regulator Services
y Consulting Accounting Law Advertisin
g
Shanghai 614 7 307 81 77 72 70

Pudong 252 6 199 13 12 22 0

Huangpu 128 1 53 29 18 10 17

Jiang’an 77 17 13 12 16 19

Xuhui 47 8 13 6 5 15

Changning 40 9 8 10 5 8

Hongkong 27 15 1 7 2 2

Putuo 19 2 2 7 4 4

Yangpu 7 1 1 2 2 1

Suburban 17 3 1 3 6 4

Appendix 5.2 List of financial regulatory institutions and FABS firms

Financial regulatory (7)

The Second CBRC (Shanghai) CSRC (Shanghai) CIRC (Shanghai)

Headquarters of
PBOC
State Administration China Trust Shanghai Municipal
of Foreign Exchange Registration Co., Ltd Office of Finance
(Shanghai) Shanghai Finance
Office

!173
Financial services (307)

Shanghai Stock National FX Trading Shanghai United Shanghai Futures

Exchange Exchange Assets and Equity Exchange
Exchange
Shanghai Gold China UnionPay China Financial Shanghai Clearing
Exchange Futures Exchange House
Shanghai Shanghai Insurance
Commercial Paper Exchange
Exchange
Firms in GaWC dataset 44

ACE DnB NOR Banca MPS Svenska

Handelsbanken
UBI Banca Resona Holdings Mapfre KB Financial Group

FirstRand Goldman Sachs State Bank of India Chubb

Group Group
Santander Woori Finance Westpac Banking Wells Fargo
Holdings Group
UniCredit Group Türkiye Is Bankasi State Street Standard Bank
Group
Société Générale Shinhan Financial Natixis National Australia
Group Bank
Munich Re Intesa Sanpaolo Generali Group Deutsche Bank

Commonwealth BBVA-Banco Bilbao Barclays Bank of Nova Scotia

Bank Vizcaya
Bank of New York Bank of Montreal Bank of America Morgan Stanley
Mellon
Toronto-Dominion JPMorgan Chase Icici Bank Banco do Brasil
Bank
Sun Life Financial Royal Bank of Zurich Financial Nordea Bank
Canada Services
Banking 54

Postal Saving Bank Tianjin Bank China Construction Wenzhou bank

of China Bank
Xiamen International Ningbo Bank Jiangsu Bank Beijing Bank
Bank
Bohai Bank Zheshang Bank Ping An Bank China Merchant
Bank
Minsheng Bank Huaxia Bank Everbright Bank Citic Bank

Shanghai Rural Shanghai Bank Bank of Bank of China

Commercial Bank Communication

!174
Agricultural Bank of ICBC Exim Bank of China China Development
China Bank
Zhejiang Mintai Industrial Bank ZHEJIANG Agricultural
Commercial Bank TAILONG Development Bank
COMMERCIAL of China
BANK
China Guangfa Bank Nanjing Bank Shanghai Pudong Hangzhou Bank
Development Bank
Pudong Silicon Bangkok Bank Zhengxin Bank Australia and New
Valley Bank Zealand Banking
Group
DBS Bank Standard Chartered Starbright Finance RBS
Co.
The Bank of Tokyo- Sumitomo Mitsui Mizuho Bank Nanyang
Mitsubishi UFJ Banking Corporation Commercial Bank
HSBC Fubon Bank (China) OCBC Bank East West Bank

Citi group Hang Seng Bank BNP Paribas Bank of East Asia

Crédit Agricole・CIB United Overseas

Bank
Securities firms 22

Haitong Securities Haitong Asset Shanghai Securities Oriental Securities

management
Oriental Asset Shenwan-Hongyuan Huatai Asset Qilu Asset
management Securities management management
Guotai-Junan Asset Morgan Shidan BOC International Shanghai Huaxin
management Lihuaxin Securities Securities
HwaBao Securities Huajin Securities Haiji Dahe Securities Guotai-Junan
Securities
Tebon Securities Changjiang Aijian Securities Everbright Asset
Financing Services management
Citi-Oriental EverBright Securities
Securities
Fund management firms 45

Guotai Tebon MIRAE JYAH

China nature Golden Trust Huafu Fund Max Wealth fund

Sinopac
Xinyuan BOSC Industrial Fund Donghai fund

Taiping Fund Chang’an Fund Caitong fund FUANDA fund

Niuyin Meilong Fund BOC fund Lombarda China Zhonghai Fund

Fund

!175
Galaxy Huatai-PineBridge Aegon-Industrial CITIC-Prudential
Investments Fund Fund
Wanjia Fund Taixin Fund China International ABC-CA fund
Fund
Nordisk Fund BOCOM-Schroders Jinyuan Bilian Fund Huitianfu Fund

HFT Fund Hsbc Jintrust Fund Huafu Fund Fortune SG Fund

Huaan Fund GTJA Allianz Guohaifu Lankelin Fullgoal Fund

Fund
Soochow Asset Changxin Everbright Pramerica Axa Spdb
Fund Investment
Managers
Shenwan Lingxin
Fund
Futures firms 28

Hicend futures SDIC futures Dongxing Futures Tianhong Futures

Dalu Futures Zhongrong Huixin Everbright Futures Haitong Futures

Hengtai Futures Huawen Shanghai East East Asia Futures

futures
Oriental Securities Jinyuan Futures Tongxin Jiuheng UBS Futures
Futures
Tonglian Futures Shanghai Zheshi Zhongcai Futures SHZQ Futures
Futures
Shenyin-Wanguo CES Futures Xinhu Futures Guotai-Junan

Soochow Huaxin CCB Futures Guosen

Insurance firms 50

Zhongmei Liantai AIA Group Great Wall CPIC Life Insurance

Metropolis Life Changsheng Life
Insurance Insurance
SAMSUNG STARR Minsheng Tonghui Huatai P&C
INSURANCE Insurance
RGA America General Reinsurance Hannover Re XL Insurance
Reinsurance AG
Company
Lloyd's of London Cathay Insurance Tokio Marine & AIG
Nichido Fire
Insurance
Chubb Limited RSA Insurance Mitsui Sumitomo CPIC Asset
Group Insurance Group
Ping’an property Huatai Property China CMG property AXA Tianping P&C
Insurance Insurance Insurance

!176
Alltrust Property China Continent Tianan Insurance CPIC Property
Insurance Property & Casualty
Insurance
China Pacific Anxin Agricultural Zhong'an online CPIC Asset
Insurance Insurance property insurance management
BoCommLife AEGON-CNOOC CPIC Allianz Health Pramerica Fosun
Insurance Life Insurance Insurance Life Insurance
Allianz China Life HSBC Cathay Lujiazui Life Founder Group
Insurance Insurance
ICBC-AXA Manulife-Sinochem Great Eastern Life Ping’an health
Life Insurance
Yangtze River Social Taiping pension Ping An Annuity CCB Life Insurance
Endowment Insurance
Guohua life Taiping Life
Insurance
The other financial firms 54

China Zhonghai Trust Shanghai Far East China Huarong Asset

Union(Shanghai) Zixin Assessment Management
Limited Company
Bank of SPDB Financial Aijian Trust FosunGroup Finance
Communications Leasing Corporation Limited
Financial Leasing
Shanghai Purang Shanghai CFETS- Tullett Prebon Sitico Shanghai
NEX International （China） Limited Dongzheng
Money Broking Automotive Finance
Brilliance-BEA Auto Ford Finance Shanghai General Dong Feng Nissan
Finance Motors Finance Auto Finance Co.,Ltd
Yangtze United Sinopec Finance Sino - Australian Taiping & Sinopec
Financial Leasing International Trust Financial Leasing
Co.,Ltd
ABC Financial CMB Financial Panasonic Finance Waigaoqiao Limited
Leasing Leasing China
Double Coin Shenergy Group ZHONG CHUAN SPDB Financial
Finance FINANCE Leasing
COMPANY
Baosteel Group Huabao Trust Great Wall Asset Clearing center for
Finance management city commercial
banks
CES Finance Shanghai Jinguo Bright Finance Shanghai Electric
Consultation Finance
Shanghai Automobile China Cinda Asset Shanghai Credit Huajie Rating
Group Finance Management Information Services
Company

!177
CCXI Shanghai Brilliance BOC Consumer Fiat Financial
Credit Rating & Finance services
Investment servics
China Power Hitachi Capital Shanghai Industrial Shanghai Bailian
International Investment Finance Finance
Development
Jinjiang Finance Zhongtai Trust Zhonghai Finance Anxin Trust

Shanghai China Oriental Asset

International Trust management

Business services (300)

Consulting 81

Fesco Accor services Gleeds IMs

Mango associates Booz Allen Hamilton Hays McKinsey

Alvarez & Marsal Colliers International DDI Aon Hewitt

Arthur D. Little Mercer LLC NERA Economic Booz & Company

Consulting
The Boston FTI Consulting, Inc. Hudson Euromonitor
Consulting Group
Interbrand Unisys Autoliv Navigant Consulting,
Inc.
Capgemini Monitor Group Nielsen Futures First

TUV Consulting Credit D&B Abeam consulting Qiantan Consulting

AlixPartners, LLP Bain & Company DTZ L.E.K. Consulting

Roland Berger ZS Associates Arvato Dow Jones &

Company
Merkle (China) Deloitte Haygroup Opera

A.T. Kearney Swifttrade The Parthenon Towers Watson

Group
IBM Global Business Kantar Media CIC Meritco services ARUP (Shanghai)
Services
Evalueserve Talent consulting Hitachi consulting frost&sullivan

Oliver Wyman AAS (Advanced WT partnership Langdon & Seah

Analytic Service) China

!178
TYZX 上海汇聚领航 Energy source Essence IMC

China-Co HR Excellence Blackboard 优克锡企业管理

Center

思八达 Capvision Forecast CRI consulting

AMT consulting Synovate EIC education Bokesoft

P&T group Bebeyond Accenture Parsons Brinckerhoff

Fleishman Hillard

Accounting 77

DFK International Geneva Group PwC HLB International

International
BDO International IAPA RSM International Moore Stephens
International
Kreston International AGN International BKR International IGAF Worldwide

Ernst & Young Crowe Horwath Baker Tilly MSI Global Alliance
International International
Praxity Leading Edge KPMG International Deloitte Touche
Alliance Tohmatsu
UHY International Pan-China Certified Shanghai Ruihe Shanghai Credential
Public Accountants Certified Public Certified Public
LLP Accountants Accountants
Shanghai Guanghua Shanghai Wenhui 上海申威联合会计师 Dahua CPA
CPA CPA
事务所（普通合伙企
业）
Shanghai Huashen Shanghai Cairui CPA 上海东洲政信会计师 Shanghai
CPA Chengchang CPA
事务所有限公司
Shanghai Shanghai Honghua 上海中财信会计师事 Shanghai
Gongzheng CPA CPA Lixinjiacheng CPA
务所有限公司
Shanghai Hugang Shanghai Donghua Shanghai Qiushi Shanghai Tiancheng
Jinmao CPA CPA CPA CPA

上海迈伊兹会计师事 Shanghai Yongcheng Shanghai Shanghai Shangzi

CPA Shenzhoudatong CPA
务所有限公司
CPA
Shanghai Qianyi Shanghai Linfang Shanghai Wanlona Daxin CPA
CPA Certified Public CPA
Accountants
ShineWing CPA Ruihua CPA Huapu Tianjin CPA MY CPA

Zonghui Mazars CPA Acumen Group Shanghai Zhonghui

CPA

!179
Shanghai Well CPA Jinrun CPA Shanghai CPA Shanghai Shenbei
partnership CPA
Shanghai Huzhong Shanghai Xinghua CPA Zhongxincai
CPA Zhongchuanghaijia Guanghua CPA
CPA
Shanghai Oriental Zhonghua CPA Shanghai Shanghai Zhaoxin
CPA Zhongjiayongxin CPA
Grant Thornton Shanghai Wenhui Shanghai Zhonghe Shanghai Gongxin
CPA CPA CPA
Yongtuo CPA Shang shen CPA 上海新正光会计师事 Fu xing ming fang
Certified Public
务所有限公司
Accountants
Hongda Dongya CPA
firm
Law 72

Clifford Chance Sidley Austin Greenberg Traurig Jones Day National

International (U.K.) National (U.S.) National (U.S.) (U.S.)

Morgan, Lewis & McDermott Will & Linklaters Latham & Watkins
Bockius National Emery National International (U.K.) National (U.S.)
(U.S.) (U.S.)
Kirkland & Ellis Freshfields DLA Piper Baker & McKenzie
National (U.S.) Bruckhaus Deringer International International (U.S.)
International (U.K.)
Allen & Overy White & Case Weil, Gotshal & Skadden, Arps,
International (U.K.) International (U.S.) Manges New York Slate, Meagher &
Flom National (U.S.)
Reed Smith National Paul, Hastings, Mayer Brown Lovells International
(U.S.) Janofsky & Walker National (U.S.) (U.K.)
National (U.S.)
PKF International K&L Gates 上海精诚海众律师事 Jinmao PRC lawyers
务所
Chang An Law Form Evergright law Firm Shanghai Jianwei Jin Mao Partners
Law Firm
Jun He Law Offices Hui Ye Law Firm W&H law firm Shanghai Junyue
Law Firm
King&Wood Hiway Law firm Huarong Law firm Sloma & Co
Mallesons
Longan Law Firm WATSON & BAND Sunhold law firm Shanghai Jiahua
Law Firm
Dingli Law Firm Bohe Law firm Shanghai Push Law Shanghai Bright &
Firm Young Law Firm
Rolmax Law Office Wintell & Co Ganus Law Trend Law Firm

!180
Llinks Law Offices Shenda law firm Zhongyin Law firm SG &CO PRC
lawyers
Co-effort law firm Zhonglun 大成Dentons Allbright law offices

Deheng law offices Barry law firm Capital Equity legal Heqin Lawyear
group
Xinmin Zhongxia Xubo Jiehua Law firm Brilliance Law firm
lawyers
Debund law offices Fangda partner Grandall law firm Shenzhong law firm

Yingke Zhenghan law firm Boss & Young, Shanghai United

Attorneys-At-Law Law Firm
Advertising & Media 70

TSM Carat Dentsu Adways

OMP WTM JCDecaux Epsilon

OgilvyOne Fullsix Activation Group Lowe Worldwide

Worldwide
Hakuhodo FCB BBDO Worldwide McCann Erickson
Worldwide
Teein Mecool Inne media ACME

Y&R Touchmedia Publicis Wunderman

Satchi and Satchi Razorfish OMD Worldwide Media Consulta

Leo Burnett TBWA Worldwide Worldwide Ogilvy and Mather

Worldwide
Kantar Group JWT Always DDB Worldwide

Grey Modernmedia Ruder Euro RSCG

Worldwide
Asatsu-DK Unisono Dun&Bradstreet Cathay Advertising
fieldmarketing Roadway
Young & Rubicam UUCMM柚柚传媒 灵智精实 上海致趣广告
mediacone CCE Group Allyes EPC Eventplus

lansunmedia BlueFocus GroupM UTOPPR

篱笆广告 Mediabrands DDB BJ 上海声色广告公司

艾曦广告 山河斋 Raisen 上海星竹广告

Shanghai Shine Shanghai Juxiao 上海弗兰广告 Dynamic Advertising
Advertising
Lecast 上海信泽得风 Shanghai Advertising
Limited

!181
Chapter 6 The dynamics of Shanghai’s IFC formation: a state-led model

beyond the neoliberal orthodoxy

1. Introduction

In the age of quicksilver global finance, we have witnessed the rise and

establishment of a highly interconnected GFNs, along with the practices of

globalization and the rise of IT technology. IFCs, where the metropolizes become the

strategic sites of immense concentrations of financial power, bring with them a vast

mix of knowledgeable people, lucrative deals and complex transactions (Wójcik

2013b). As such, the development of IFCs is of great interest to policymakers and

business around the world, due to the benefits they bring for employment and tax

revenue, as well as the geopolitical and geoeconomic impacts. As a consequence,

some cities have ambitions to establish themselves as IFCs. One such city is

Shanghai.

The growth of China has fueled demand in the global financial market and

restructured the geography of global finance (Clark 2015). As a consequence,

Chinese cities are increasingly embedded into global systems of production, capital

flows and accumulation (Taylor et al. 2014). Against this backdrop, in March 2009,

the central government set the goal of turning Shanghai into a true global financial

center by 2020, a target with which the municipal government of Shanghai is in

enthusiastic agreement (Shanghai Daily 2009). The latest 13th Five-Year Plan of the

Shanghai Municipal Government and the financial innovations in the Shanghai FTZ

also underpin the hope that Shanghai will become an influential IFC by 2020.

!182
However, this ambition on the part of China and Shanghai has not inspired a

sufficient impetus attention from economic geographers. This is especially true due

to Shanghai’s IFC dynamics, which reflect a state-led policy regime.

Hall (2010) pointed to the need to develop a more politically and geographically

nuanced of money and finance and understanding of the geographical heterogeneity

of the international financial system. Hall (2017) also highlighted that research needs

to better understand the role of the state, and particularly financial authorities.

Likewise, French et al. (2011) also argue that the financialization literature requires a

far greater engagement with the wider political economy literature on money and

finance. Therefore, this chapter attempts to explore a different pathway for IFC

formation, based on the special characteristics of China’s political economy and

policy regimes, which provides a complementary approach to the orthodox theories

derived from Anglo-American financial capitalism.

The first objective of this chapter is to provide a conceptual and theoretical analysis

of IFCs by focusing in particular on the IFCs’ main characteristics, categories and

dynamics. The chapter then reviews the policy initiatives driving Shanghai’s IFC

formation, both from central and local governments, and evaluates the strategic

effects of these policies in a way that emphasizes the differential pathways through

which an emerging IFC can potentially become an influential one outside of the

Anglo-American model. I try to do this by moving outside of the empirical terrain of

the IFCs in the developed world, such as New York and London, to Shanghai. In

brief, this is a discourse that focuses on the theoretical basis of IFCs, and

Shanghai’s pathways towards being an influential IFC with Chinese characteristics,

!183
including the role of the government in intentionally devising pathways to IFC

formation.

The organization of this chapter proceeds as follows. Section 6.2 establishes the

conceptual and theoretical foundation, as well as providing an investigation of the

relevant literature on Shanghai’s IFC through the lens of financial geography. In

Section 6.3 I review Shanghai’s historical success and its decline after 1949, and I

discuss the policy and strategy model and evaluate the evidence on Shanghai’s

progress since the 1990s. Section 6.4 explores the underlying factors and examines

the disadvantage of Shanghai’s IFC dynamics. The last section concludes and

provides two strategic proposals for Shanghai’s IFC enhancement in the context of

FTZ and OBOR initiatives.

6.2 IFCs: concept, theoretical basis and relevant literature review

In order to develop an analytical framework for evaluating Shanghai’s IFC progress, I

first introduce the concept of the IFC by outlining its main characteristics, and then

discuss the classification of major onshore IFCs. This is followed by an evaluation

and assessment of the implications of the existing studies on the analysis of

Shanghai’s IFC growth.

Finance and financial activities, which are central to the operation of the system of

financial products exchange, have become spatially concentrated in a few particular

and developed cities (Sassen 1991; Pryke 2011). In previous studies, Fratianni

(2009) revisited the historical record on IFCs with a much longer time horizon than

that used by Kindleberger (1974) and Cassis (2006), who just focus on the 19th and

!184
20th centuries. In this chapter, I pay close attention to the development and evolution

of onshore IFCs in the era of globalization and post-Fordism, to fit my purpose in my

discussion of Shanghai’s strategic planning as an IFC since the 1990s.

6.2.1 What is an IFC in the contemporary world economy?

The concept of financial center as well as IFC, has been evolving since the last five

centuries. In the very beginning of modern capitalism budding, the IFCs are places

where banking activities are concentrated and that served the commercial and

maritime trade. However, currently, they have evolved into the focus of all kinds of

financial activities in the financial networks. Fratianni (2009) and Kinderberger (1974)

found evidence of a long evolutionary chain of banking and finance by revisiting the

historical record of IFCs in Western Europe and North America. Nevertheless, in this

chapter, I mainly focus on the IFCs in the era of post-Fordism with the main

characteristics of digital economy, neoliberal financialization and globalization, and

its academic trajectory since 1970s and years afterwards. Based on my discussion in

chapter 2.2, in brief, the key characteristics of IFCs in the contemporary economy

include:

(1) a high-degree agglomeration of financial intermediation and related advanced

professional services, such as financial services, legal services, accounting,

consulting, information services and so on;

(2) strategic sites and key nodes in the structure of GFNs and the global interurban

network for outward and inward flows of capital, information and elites. High

connectivity to other IFCs and hardware through electronic trading systems,

!185
providing fast, reliable data links, coupled with remote access to financial markets,

reducing the need for physical proximity in conducting global transactions;

(3) major places of information collection and knowledge spillovers for financial

innovation and sites for producing knowledge components that address the problem

of incomplete knowledge of firms and investors in market economies;

(4) high-degree of internationalization of financial markets. Capital markets have

deep market liquidity, contributed by a wide range of cross-border financial services

and being host to large numbers of foreign listed firms;

(5) a high standard of regulation is provided by regulators with deep industry

knowledge and technical skills appropriate for complex financial business, reinforced

through flexible and co-operative relationships between the industry and regulators;

(6) strategic locations to redirect inward and outward flows of capital and value in

search of spatial and territorial fix for global financial integration;

(7) openness to a highly-skilled, internationally mobile workforce with a depth and

breadth of financial and related services’ knowledge and experience, encouraged by

government policy in immigration and education; and

(8) specific territories that exhibit most strongly the culture of global finance that is

difficult to replicable in the other places.

!186
6.2.2 Classification, policy regimes and the stages in the development of IFCs

IFC is not a completely universal category, although IFCs always share some

commonalities and features: it is a specific category that is always dependent on

concrete conditions and historical developments. In this section, I try to assess the

key IFCs worldwide, to understand the differentiations, and to build theorizations to

support new pathways for Shanghai’s IFC formation.

I begin with distinguishing between the different types of IFCs. Based on the theories

of legal frameworks proposed by La Porta et al. (1998) and Wójcik (2011), the main

onshore IFCs can be classified into two large groups: the Anglo-American centers

and the continental centers (see Table 6.1). While there are several important IFCs

today, two stand out—London and New York—and both share a common institution,

culture and language. As Hall (2003) pointed out, London and New York are very

special cities and in this sense they represent the two poles of a transatlantic

metropolis. While New York commands access to the largest and most liquid

domestic financial market in the world, London’s physical, political and historical

geography implies access to a different time zone, European markets, and global

connections (Clark 2002; Wójcik 2013b). Beyond New York and London, Hong Kong,

Singapore, Toronto, Dubai 16and Sydney also belong to the Anglo-American group,

though with relatively less global influence, and are generally capital market-

oriented. In contrast, there are a large number IFCs within the civil law framework,

such as Tokyo, Frankfurt, Paris, Beijing and Shanghai. This group of the IFCs are

16 The Dubai IFC employs common law, see https://www.difc.ae/laws-regulations.

!187
often dominated by banking, non-English-speaking and coordinated market

economies.

Table 6.1 Different categories of contemporary IFCs according to legal family

legal family Function Financial centers Main characteristics

Anglo-American law Global hub and node London, New York Capital market-

system oriented; English-

speaking

Macro region Hong Kong, Capital market-

gateway Singapore, Dubai, oriented; English-

Sydney speaking
Civil law system Macro region node Tokyo, Frankfurt, Banking dominant;

Paris, Beijing, non-English-

Shanghai speaking
Islamic law system Macro region node Istanbul, Jakarta, Sharia law-rooted;

Kuala Lumpur more of a socially

just finance system

than a conventional

finance system (Lai

and Samers 2017)

Source: Author

Meanwhile, according to Park (2011), IFCs can also be divided into three types in

terms of their operational and geographical reach (see Table 6.2). Currently,

Shanghai primarily functions as a regional player that serves Mainland China.

Additionally, the GFNs also include some well known offshore financial centers, such

!188
as the Cayman Islands, the British Virgin Islands, Jersey and the Bahamas.

However, in this chapter I mainly focus on the onshore IFCs.

Table 6.2 Different categories of contemporary IFCs according to geographical impact

Geographical Financial centers Main characteristics

impact
Global players London, New York They serve a global clientele in the broadest

range of financial services and are in the

forefront of financial innovations.

Regional players Frankfurt, Tokyo, They primarily cater to their regional-market

Shanghai, Hong clients as their comparative advantages lie in

Kong and their intimate knowledge of, and their close

Singapore, Beijing geographical proximity to, their clients located in

the respective regions.

Niche players Sydney, Zurich, They specialize in certain financial service

Luxembourg and sectors.

Edinburgh

Source: Park (2011)

Secondly, the importance to understanding policy regimes can be found in the

variegated capitalism literature (Dixon 2011, Coe et al. 2013, Peck 2016), which

represents an institutional approach in economic geography to differentiating market

economies. Importantly, the ways in which markets are embedded within different

sociopolitical institutions, are associated with the emergence and sustenance of

different types of financial systems (Zysman 1983). Therefore, this section aims to

conceptualize the financial policy regimes of London, Hong Kong, Singapore and

Shanghai, and to provide a clearer and more critical understanding of how

!189
sociopolitical relations impact IFC development. Then, I am able to extend the

analysis of Shanghai’s IFC strategies beyond the orthodox Anglo-American

understanding of preconceived structuralism. As illustrated in Table 6.3, Woo (2015)

identified four distinct policy regimes by studying the varying role of government and

industry actors in financial policy. Shanghai’s financial policy regime exhibits a high

level of state intervention by central and local government, and industry actors in the

local context possess little or no influence over the policymakers.

Table 6.3 A policy regime comparison between London, Hong Kong, Singapore and

Shanghai

IFC Drivers Impacts of industry

actors
London Market-oriented, low level of Influential

state intervention
Hong Kong Market-oriented, low level of Not influential

state intervention
Singapore Hybrid dynamics Influential; a close-knit

network of state and

industry actors
Shanghai State-dominant, strong state Not influential

intervention by both central and

municipal government

Source: Woo (2015)

Thirdly, IFCs take time to evolve, and I identify two stages in their development, as

outlined below, in order to make a comparison between Shanghai and London in the

empirical analysis. Based on the three categories of global city formation proposed
!190
by Olds and Yeung (2004), I attempt to theorize the spatial functions of two kinds of

IFCs: hyper IFCs, like London and New York, with global influence and emerging

IFCs, such as Shanghai. As portrayed in Figure 6.1, a hyper IFC is a truly global

financial center and is very well integrated into the GFNs through both outbound and

inbound flows (Taylor et al. 2014), while an emerging IFC shows more reliance on

inward flows from global finance.

For every financial center, the network analysis generates estimated work-flows to

every other financial center. This pattern of flows is called a financial center’s

hinterland (Taylor et al. 2004; Zhao et al. 2004, 2005). Generally, hyper IFCs and

their global city-regions are well embedded into the GFNs; therefore, they

simultaneously generate a vast information hinterland by relational geographies. In

contrast, emerging IFCs have only limited relational linkages with the other financial

centers, which results in their hinterland being relatively narrow.

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Figure 6.1 A comparison between emerging IFCs and hyper IFCs

Source: Adapted by the author from Figure A topology of global cities in Olds and Yeung

(2004: 504)

6.2.3 The chances for a latecomer: Shanghai’s IFC from a financial geography

perspective

Although the state plays a critical role in Shanghai’s IFC dynamics, the policies and

strategies, as well as the central–local political relations regarding IFC formation,

have not attracted much attention from the financial geography perspective to date.

Xu (2009) started with revisiting the strategy evolution and policy support of

Shanghai’s IFC from 1990 to 2006. Then he discussed the advantages and

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disadvantages of Shanghai as an IFC, and introduced the 11th Five-year Plan for

Shanghai’s IFC ambition. In conclusion, he believed that Shanghai would be one of

the most important IFCs in the Asia-Pacific Region. Additionally, both the 13th Five-

Year Plan of the local authority and the latest Shanghai 2040 global city planning

confirm that Shanghai will become an influential IFC by 2020.

However, most scholars are not so optimistic about Shanghai’s prospects. For

example, Yeung (2010) believed that Shanghai lacks political and economic freedom

and its rule of law needs improvement to adjust the international standards. Besides,

Shanghai has few financial-related decision-making institutions as most of these are

based in Beijing. Similarly, in regard to the institutional and regulatory context, Jarvis

(2011) pointed out that Shanghai’s financial sector development is not its own but

reflects a national development strategy that is substantially controlled by Beijing

(the central government). Rescaling of governance as greater financial and political

power is transferred from the central government to the local municipal government

but in a process which is not always contiguous, consistent or predictable (Lai 2006).

Therefore, Jarvis argued that Beijing remains a major obstacle to Shanghai’s desire

to liberalize its financial services sector and implement policies aimed at speeding up

the process of financial clustering and increasing financial density, and concluded

that Shanghai would likely prove to be laggard. More recently, Zhang (2014)

examined Shanghai’s IFC progress in the context of Shanghai’s global city formation

and highlighted the complexity of a state-led model of IFC and global city formation.

She underpinned that despite the long-term efforts by the state, Shanghai’s progress

towards becoming an IFC and global city is relatively slow due to the inflexibility in

the orientation of the state–market relation as well as the central–local politics.

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After the establishment of the FTZ in 2013, a revisit of Shanghai’s IFC evaluation is

needed. First, the central government is speeding up the process of financial

innovation and policy dexterity, and has announced a series of new initiatives in the

contexts of the FTZ and OBOR initiatives. Second, with the process of

financialization globally, global financial markets are gradually building a cross-

border, correlated and sophisticated network of IFCs. However, the previous

assessments of Shanghai’s IFC were often confined within its local territory or

involved comparisons with Hong Kong or Beijing by focusing on the financial

agglomeration and clusters, and neglected the flows, connectivity and relational

geographies within the GFNs. Third, the conventional analysis examines Shanghai’s

achievements and failures within the framework of the neoliberal model, instead of

considering China’s political and institutional context. In order to meet the research

gaps mentioned above, I propose the following questions. What have been the

changing policy initiatives for Shanghai’s IFC since the 1990s? What are the

strategic effects and the weaknesses of this kind of policy regime? Is there a model

beyond neoliberal dynamics that can contribute to upgrading Shanghai’s IFC in the

future?

6.3 Shanghai’s development as an IFC: historical success, contemporary

strategies and outcomes

6.3.1 Shanghai’s historic success as an IFC and its decline after 1949

Murphey (1953) cast pre-war Shanghai as an all important bridgehead of Western

innovation in East Asia, against the backdrop of the Communist takeover of the

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Mainland. The headquarters of the government’s financial department and most

foreign banks were located in Shanghai in the 1930s. ‘The only gold market, vibrant

business environment, various capital markets, financial talents cluster, and active

financial culture’ actually reflected Shanghai’s prosperity in financial activities in the

first half of the 20th century. In Shanghai’s Finance in the 20th Century, Hong (2004)

argued that Shanghai was the most important IFC in the oriental world during the

first half of the last century. In addition to the objective conditions, like its

geographical location, the government’s policies also played a critical role in the

development of the financial industry at that time. The central bank was officially

established in the Bund in November 1928, which not only attracted the other banks

to build their headquarters or branches in Shanghai, but also strengthened the

financial influence of Shanghai (Yatsko 2001). The growth of the central bank was

beneficial to the development of Shanghai as a financial hub.

The Bund used to be the preeminent financial center in Shanghai, with a high degree

of banking agglomeration (Horesh 2009). By the end of 1937, 54 headquarters of

banks and 128 branches were located there. The Central Bank of China, the Bank of

China, the Bank of Transportation and the Bank of China Farmers were based in

Shanghai, and had 491 branches nationwide in total. 36 of 73 China’s commercial

banks had their headquarters in Shanghai. These 36 commercial banks had a total

of 278 branches in China, which accounted for 68.1% of the total number of

commercial bank branches in the country. In addition, Shanghai had 27 foreign

banks, while other major cities were far behind. Meanwhile, in other cities there were

17 foreign banks in Hong Kong, 14 in Tianjin, 10 in Peking, 10 in Hankou, 7 in

Dalian, 7 in Guangzhou, and 6 in Qingdao (Wu 1994). In 1949, Shanghai was Asia’s

leading financial center, hosting 24 state banks, some 200 private lending entities,
!195
trust companies and financial institutions, and home to the world’s third largest stock

market, behind New York and London (Laurenceson and Tang 2005).

The destiny of Shanghai’s financial development was completely reversed after the

founding of the People’s Republic of China in 1949. Firstly, most headquarters of

domestic banks migrated to Beijing. Secondly, due to the foreign policies of the

Party, all foreign financial institutions revoked their branches and the central

government confiscated their asserts in China. They then closed all capital markets,

in accordance with Communist rules. As a consequence, Shanghai lost its position

as a financial center and trade hub, and became a totally industrial city (Yusuf and

Wu 2002). Shanghai’s new role in state socialism has been described as that of a

dragon head of state-led industrialization and modernization (Wu 2000a, 2000b) and

is linked to the central government’s priority of developing national defense capacity

through the process of industrialization (Lai 2006).

In the early stage of China’s reform and opening up, Guangdong and Fujian were

selected as the institutional experimental areas to strengthen China’s links to the

world economy. Although Shanghai was designated as one of the 14 Open Coastal

Cities in 1984, compared to other fast-growing provinces over the period 1979–1989

Shanghai’s growth rates in terms of national income were considerably lower (see

Table 6.4).

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Table 6.4 The growth of Shanghai and selected Eastern Coastal Provinces (%), 1953–1989

Shanghai Shandong Jiangsu Zhejiang Guangdong National

average

1953–1978 8.7 5.7 5.6 5.6 5.3 6.0

1979–1989 7.6 10.4 11.0 12.8 11.6 8.1

Source: Cheung (1996: 53); Lai (2006)

After the 1990s, Shanghai gained a new opportunity to reinvent itself as an IFC. The

nation needs Shanghai as a strategic site to be integrated into the globalizing

economy. The experiments and innovation in Shanghai Pudong New Area after 1990

have helped it become a financial center of national strategic significance. Pudong

was granted some privileges in China’s second round of economic and institutional

reforms.

6.3.2 The central–local policy initiatives in the strategic vision and institutional

building for a state-led IFC

In Bergère’s viewpoint (2009), Shanghai is the gateway and hub for China’s

modernity, and it has also been an economic and financial portal for

internationalization and neoliberal practices during the latest steps of opening up.

The central government has promulgated a series of policies and strategies to

support Shanghai’s regeneration as an IFC since 1990. These policy initiatives can

be divided into three phases: the 1990s, between 2001 and 2008, and after 2009.

The first stage was the 1990s, when China underwent a dramatic transition from a

planned economy to a market economy. As documented in Table 6.5, in April 1990,

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the State Council officially announced implementation of the strategy of developing

and opening up in Pudong, and thus Shanghai became the dragon head for China's

second round of reform and opening up. More importantly, a modern capital market

—the SSE—was also established in Shanghai, igniting the regeneration process of

Shanghai’s financial center. 1992 was the first year for the Mainland’s reform to build

market economy dynamics. The State Council ‘Report on the Work of the

Government’ proposed that Shanghai should gradually develop into being one of the

economic, financial and trade centers in the Far East, and the report of the 14th

National Congress of the Party also highlighted the critical role of Shanghai’s IFC in

local, regional and national development. Both of these strategies accelerated the

progress on developing the capacities necessary for Shanghai’s financial sector.

Second, in the 21st century the growth of Shanghai’s IFC has entered a new stage,

and China’s accession to the WTO has brought with it an agreed timetable for

financial liberalization on the Mainland and Shanghai, including the proposal for

more complicated financial instruments and a trading platform, and the localization of

foreign banks. Between 2001 and 2008, Shanghai witnessed one of the most

concentrated periods of financial expansion in its history after 1949. During this

period, the central government rolled out a series of market institutions, such as the

Shanghai Foreign Exchange, the Shanghai RMB bonds trading center, the Shanghai

Gold Exchange, and the SFE (Jarvis 2011). Meanwhile, in the 10th and 11th Five-

Year Planning of the local authority, the upgrading of Shanghai’s IFC was one of the

main targets for urban development.

Third, after the eruption of the global financial crisis, China’s role in the world

economy and globalization started to transform. Its rising economic power was

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reflected in the policies in respect of Shanghai’s IFC. In March 2009, the government

set the goal of turning Shanghai into a true IFC by 2020. Furthermore, in September

2013 the first FTZ was established in Pudong in order to deepen the reform and

innovation, including the convertibility of the Chinese Yuan under the capital

account, market-oriented interest rates in the financial market, cross-border use of

RMB, and pilot reform of foreign exchange administration.

In the past three years, Shanghai has enjoyed an incredible financial deepening and

innovation. Shanghai-Hong Kong Stock Connect was launched in November 2014,

which indirectly accelerated the internationalization of SSE. Meanwhile, in

December, the State Council approved the expansion of the FTZ by incorporating

Lujiazui Financial Zone, Jinqiao Export Processing Zone, and Zhangjiang High Tech

Park, enlarging the FTZ from 28.78 square kilometers to 120.72 square kilometers to

provide more space for reform trials. In 2015, the central and local government jointly

issued a progressive proposal to accelerate Shanghai’s integration into global

finance, which includes 40 suggestions on financial innovation, reform and

openness.17 For instance, the convertibility and cross-border flows of RMB, the

establishment of Shanghai Insurance Exchange, encouraging SSE to establish an

international financial assets exchange platform in FTZ, reforms on financial

institutions and regulations, and so on. In 2016, RMB officially joined the IMF’s SDR.

The inclusion in the SDR is a milestone in the internationalization of the RMB, and is

an affirmation of the success of China's economic development and the results of the

reform and opening up of the financial sector. The latest policy initiatives in 2017

include the launch of a new free trade port inside the zone, attracting foreign

17 http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/2970998/index.html
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investors to issue yuan-denominated financial products, and cutting taxation on

companies or projects that are involved in the "Belt and Road" initiative. The State

Coucil also supports the growth of the BRICs Bank and attempts to establish an

international board at SSE.

Table 6.5 The strategic evolution of Shanghai’s ambition to become a truly IFC

1990 The experiments in Pudong New Area after 1990 made Shanghai a city of national

strategic importance; it was to drive the growth of the Yangtze River delta and

Yangtze River region and connect China to the global economy through its

financial and trade sectors. The SSE was established in Pudong.

1992 In the report of the 1992 Congress, the Communist Party of China proposed an

ambitious idea: they imagined building an international economic, financial and

trade center in Shanghai as soon as possible, driving the development of the

Yangtze River Delta and the Yangtze River Region.

Shanghai municipal government made a blueprint of the 10th Five-Year Plan that
2001 aimed to build Shanghai into a truly IFC. State Council approved the municipal

development plan of Shanghai as an IFC.

2005 Pudong New Area was selected as the first comprehensive reform experimental

zone in 2005 with the purpose of financial reform, innovation and openness.
2006 Shanghai municipal government announced the blueprint of the 11th Five-Year

Plan that promoted the construction of Shanghai as an IFC.

2009 On 25 March 2009, the State Council Standing Meeting gave the go-ahead for the

municipality’s proposal to speed up Shanghai’s growth into a major IFC after the

global financial crisis. They proposed that Shanghai would be built into a major

international financial center and shipping hub by 2020.

2013 China (Shanghai) FTZ was established in Pudong New Area. The financial reform

and innovation, such as the convertibility of RMB, will definitely accelerate the

growth of Shanghai’s financial center.

2014 The BRICs Bank was established in July and is based in Shanghai.

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 2014 Shanghai Gold Exchange opened its international board in September.

2014 Shanghai-Hong Kong Stock Connect was launched in November, which

accelerates the internationalization of the domestic market.

2015 The PBOC, CSRC, CBRC, CIRC, Ministry of Commerce, State Administration of

Foreign Exchange and Shanghai municipal government jointly enacted a critical

document in order to further promote financial innovation and openness in the

Shanghai FTZ and accelerate Shanghai’s development as an IFC. This document

is usually called Financial Innovation 40.

2016 RMB officially joined the IMF’s SDR.

2017 The central government aims to deepen the financial openness and innovation in

Shanghai FTZ, and promote the process of Shanghai’s development as an IFC.

Source: Author

6.3.3 The strategic effects and outcomes of Shanghai’s IFC

Profound advances in the composition, geography and industry structure of

Shanghai’s economy and finance over the past three decades have had great

implications for its IFC formation and growth. After 25 years of efforts, the

construction and progress of Shanghai’s financial center has achieved preliminary

outcomes. Different kinds of evidence are employed here to assess Shanghai’s

performance in IFC formation.

The first is Shanghai’s changing ranking and rating in the Global Financial Center

Index (GFCI) reports. Based on the GFCI 1-21, Table 6.6 and Figure 6.2 illustrate

some significant features. While the first report of the GFCI was published in March

2007, the GFCI 21 is the latest available one. Shanghai and Beijing experienced big
!201
jumps, not only in ranking but also in rating, between 2007 and 2017. This reflects

the impact of the global financial crisis and the dramatic rise of China in the 2010s.

As shown, Shanghai’s rating achieved a major improvement, with a 139 point

increase and it has narrowed its gap with Anglo-American centers in the last 10

years. Shanghai’s evaluation has remained stable in the past few years. Shanghai

was recognized as the most important emerging IFC by the reports.

Table 6.6 Changing ranking and rating of Shanghai, Beijing and Anglo-American centers

City Ranking Rating Ranking Rating Change in rating

(March (March (March (March (GFCI1-21)

2017) 2017) 2007) 2007)

London 1 782 1 765 +17

New York 2 780 2 760 +20

Singapore 3 760 4 660 +100

Hong 4 755 3 684 +71

Kong
Shanghai 13 715 24 576 +139

Beijing 16 710 36 513 +197

Note: The March 2007 report and September 2016 report covered 46 and 87 cities,

respectively.

Source: Author’s based on the data from http://www.zyen.com/research/gfci.html

!202
 Figure 6.2 Changing rating of Shanghai, Beijing relative to Anglo-American IFCs, 2012–2017

London New York Hong Kong Singapore Shanghai Beijing

850

775

700

625

550
Mar 12 Sep12 Mar13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17

Source: Author

Second, the massive growth in terms of the financial sector and capital markets

demonstrates Shanghai’s potential capability as an emerging IFC. Several important

structural changes are discernible in Shanghai. The GDP of, and employment in, the

financial industry have soared after the global financial crisis. In accordance with

Figure 6.3, the share of the financial sector in the total local economy rose

dramatically, by 10 percentage points, from 2006 until 2016, while the financial GDP

in 2016 was approximately five times that in 2006 and was ranked the first in

!203
Mainland China. Meanwhile, the past 10 years also witnessed an increase in

Shanghai’s financial employment. Shanghai’s financial employment increased from

171,376 to 350,700 and its share in national financial employment nearly doubled

over 2006–2015, which reinforces the city’s status as a leading domestic financial

center. Additionally, the infrastructure for financial markets in Shanghai has come

into greater prominence since the financial crisis of 2008. As shown in Table 6.7, the

number of financial institutions that serve the capital markets rose from 98 to 350,

which represents a response to the financial innovation and state support in the past

few years. In addition, turnover in the stock market, futures market and gold market

witnessed dramatic growth over this period. For example, by the end of 2015, the

SSE altogether had 1,081 listed companies (both A-Share and B-Share) with total

market capitalization hitting 29.5 trillion RMB. Its total annual turnover in 2015 stood

at 266.37 trillion RMB. By the end of January 2016 the SSE ranked fourth in market

capitalization worldwide, while it was second in turnover among the members of the

World Federation of Exchanges.

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Figure 6.3 The GDP of financial industry (above) and financial employment (below) in

Shanghai

!205
Note: Financial GDP means the GDP created by the financial industry, including banking,

insurance, capital market and the rest of the financial sector18; the unit of financial GDP is

RMB 100 million.

Source: Author’s based on the data from Shanghai Statistical Yearbook 2007–2016; China

Labor Statistical Yearbook 2007–2016

Table 6.7 Growth of capital markets in Shanghai after 2009

The number of Turnover of Turnover of Turnover of Turnover of

financial firms SSE SFE CFFE Shanghai

serving capital Gold

markets Exchange
2009 98 44,187.5 73,758.3 － 1,103.0

2010 138 39,839.6 123,479.5 41,069.9 2,020.5

2011 149 45,465.2 86,908.9 43,765.9 4,441.1

2012 193 54,753.5 89,195.4 75,840.7 3,529.7

2013 252 86,509.8 120,833.5 141,006.6 5,224.2

2014 292 128,149.8 126,470.7 164,017.0 6,514.0

2015 350 266,369.1 63,555.3 417,760.5 10,784.2

Source: Author’s based on the data from Shanghai Statistical Yearbooks 2010–2016

Note: The unit of turnover of the capital markets is billion RMB.

18 See http://www.stats.gov.cn/tjsj/tjbz/hyflbz/201310/P020131023306972568040.pdf
!206
Third, FDI and ODI are critical components of the cross-border capital flows. As

shown in Table 6.8, FDI and ODI flows are extremely spiky, but remain concentrated

among a select group of cities or provinces in eastern China. These geographies

display a highly skewed distribution pattern, concentrated on the eastern coastal

belt, which is a favorable location, with economic capacity, outward-oriented

characteristics, and a long history of international trade. Unsurprisingly, Table 6.8

indicates that Shanghai is the largest recipient and preeminent hub for both FDI and

ODI flows. The total value of FDI flows in Shanghai reached US$127.96 billion from

2006 through 2015, while its total ODI flows exceeded US$40 billion over the same

period. The leading role of Shanghai in the geography of FDI and ODI can be

ascribed to its superior location, its well established global connection and its export-

oriented economy.

Table 6.8 The top 10 cities/ provinces in terms of cross-border capital flows over 2006–2015

FDI ODI

Rank City Total volume City/province Total volume

1 Shanghai 127.96 Shanghai 40.11

2 Tianjin 121.60 Beijing 28.45

3 Suzhou 80.19 Shandong 24.61

4 Dalian 80.13 Shenzhen 23.12

5 Beijing 73.84 Jiangsu 23.08

6 Chongqing 67.97 Zhejiang 21.22

7 Chengdu 54.32 Guangdong 20.44

8 Shenzhen 47.02 Liaoning 11.83

9 Hangzhou 45.15 Tianjin 9.62

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 10 Shenyang 44.99 Fujian 7.67

Source: Author’s based on the data from China City Statistical Yearbook and the annual

report of Statistical Bulletin of China’s Outward Foreign Direct Investment

Note: The units of FDI and ODI are US$billion. The data of Guangdong’s ODI excludes

Shenzhen.

Finally, the progress of the financial sector is also articulated through the substantial

construction of the FTZ since 2015 (see Table 6.9). The FTZ has become a

globalizing impulse and has aimed at using liberalization and greater financial

innovation as a tool to rapidly upgrade Shanghai’s status as an IFC since its

expansion. In 2016, FTZ-registered companies achieved 492 overseas investment

projects, involving USD 19.59 billion of investment from China. The Shanghai

Insurance Exchange and Shanghai Trust Registration Company were established in

the Lujiazui Financial Zone. Additionally, the integration between FTZ and OBOR

initiatives injects vitality into Shanghai’s IFC and broadens its international influence.

For example, the world’s second-largest aluminum producer in Russia, UC Rusal,

registered its prospectus for Panda bond issuance at SSE on March 16, 2017,

offering RMB1 billion (USD 14.57million) of bonds with a tenor of seven years. It is

the first OBOR company to issue Panda bonds in China. Meanwhile, China’s

UnionPay, based in the FTZ, is upgrading its clearing system and technology

standards to better integrate with markets in OBOR countries.

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Table 6.9 The key indicators of the FTZ in 2016 and growth since 2015

Indicator Unit Total value Growth rate

General budgetary revenue of local RMB billion 55.938 (%) 23.7

government
FDI USD billion 6.179 28.2

Total investment in fixed assets RMB billion 60.793 9.4

Gross output value of industry RMB billion 431.284 14.2

Total retail sales of consumer goods RMB billion 139.676 6.9

Total sales of goods RMB billion 3,360.923 6.9

Total revenue of service economy RMB billion 416.759 7.0

Total volume of international trade RMB billion 783.68 5.9

Total volume of export RMB billion 231.585 14.5

Regulatory financial institutions Number 815 7.5

New financial firms Number 4651 11.9

Source: Author’s based on the data from http://www.shanghai.gov.cn/nw2/nw2314/nw2318/

nw26434/u21aw1210720.html

To recap on my analysis in Section 6.3, the examination above shows that Shanghai

has achieved great progress as an emerging IFC and in enlarging its financial

agglomeration over the recent period. The growth in the economy of scale and

financial employment, the increasing global influence and the financial innovations

demonstrate Shanghai’s rapid enhancement and the strength of this kind of policy

regime. When China adopted a policy initiative of openness which aimed to attract

foreign banks and expand capital markets, and promote the financialization after the

1990s, Pudong was the primary zone designated for the experimental
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implementation, through the establishment of a second-round special economic zone

and the latest FTZ. As a consequence of Shanghai’s revival as an IFC, it is making

full use of its advantages to upgrade its global influence, using its spatial base for

cross-border investment activities and capital flows in its own geographic orbits and

reactivating their significance as a portal for China’s globalization and

financialization. In this regards, Shanghai’s IFC can be considered as a place for

‘territorial fix’ since 1990s (Christophers 2014b). However, there are many

constraints on the local and central state’s capacities to intervene in Shanghai’s

process of upgrading from being an emerging IFC to becoming a globally influential

one. This will be examined in next section.

6.4 A not-so-internationalized IFC: compare Shanghai with New York and

London

IFCs are places where financial content relating to the global economy and capital

flows are exchanged and shared within the GFNs. As Zhang (2014) argued, although

Shanghai has made some progress in IFC formation and in enlarging its economy, it

is still limited in developing specialized financial and business services, not to

mention global control capability. As key nodes in an evolving global network,

contemporary IFCs are vital territories in the spatial articulation and manifestation of

intersecting global finance and production networks (Coe et al. 2014).

In terms of building the ‘hardware’ of a financial center, Shanghai has caught up

rapidly with other IFCs in the past three decades. However, the greatest barriers to

internationalizing Shanghai’s IFC are the suffocating regulations and bureaucratic

meddling by the government. The development of a financial center’s ‘software’ has

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been much slower, partly due to the constraint on the state of the pace of financial

reforms and economic liberalization: for example the convertibility of RMB, a

shortage of skill labor, the opaque state–market relationship and the degree of

financial openness (Lai 2012b; Zhang 2014).

More specifically, to start with it should be noted that the financing scope of SSE is

quite limited. Figure 6.4 shows the internationalization of selected stock markets: the

percentage of the number of overseas listed firms of all listed firms on the stock

exchange. As illustrated in Figure 6.4, SSE is a completely domestic market for

financing, without the participations of international investors and listed companies.

Thus, the strict financial regulations impose a barrier and a fence between finance

and the real economy, which is not only an obstacle for the internationalization of

Lujiazui’s financial markets, but also prevents the domestic and foreign firms from

financing effectively. For instance, WuXi PharmaTech is a leading global contract

R&D service provider serving the pharmaceutical, biotech, and medical device

industries. This multinational company is based in FTZ and has business in both

China and the United States.19 It is the biggest in Asia, with 19 R&D centers globally,

and it employs over 9,000 professionals worldwide, which enables 2,000

collaborators on this platform. However, it is listed in the New York Stock Exchange

instead of Lujiazui because the Wall Street is a hyper IFC with global impacts, where

the firm is able to attract global investors. This negative case indicates the deficiency

of Shanghai’s financial market, which suggests the need for further financial reform

in the context of the FTZ.

19 http://ir.wuxipharmatech.com/phoenix.zhtml?c=212698&p=irol-homeProfile&t=&id=&
!211
Figure 6.4 The internationalization of selected stock markets by the end of 201520

0.4

35.71%

0.3

0.2 21.07%

14.11%
0.1 11.43%

3.48%
0.00% 0.00%
0
Singapore New York London Euronext Hong Kong Japan Shanghai

Source: Author’s based on the data from Xinhua IFC Development Index Report 2015 and

the World Federation of Exchanges

In addition, in the era of space of flows, capital flows are not only flows of money:

they also collect and transfer financial information between nodes within the GFNs.

As a result, the information hinterland of Shanghai is not so vast as New York and

London. According to my theoretical category in Figure 6.1, London is defined as a

hyper financial center, while Shanghai is an emerging one. As portrayed in Figure

6.1, hyper financial centers and their city-regions are deeply integrated into the

contemporary GFNs. Therefore, these kinds of advanced centers generate a vast

20 The degree of internationalization refers to the percentage of foreign listed companies.

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information hinterland. In contrast, an emerging IFC like Shanghai has only limited

outbound relational linkages with the GFNs. They also rely much more on inward

flows of capital and information from global finance. Thus, the information hinterland

of Shanghai is relatively small.

According to information hinterland theory, an information hinterland is an inevitable

necessity for a world-influential IFC. One of London’s most powerful advantages is

that this center is the hub of the GFNs, which is ascribed to its vast information

hinterland and well-established social network. It is easily perceived that London is

closely linked with major IFCs such as the New York and London nexus, as well as

Hong Kong, Singapore, Toronto, Dubai, Sydney, Mumbai and Johannesburg, and so

on. Simultaneously, social connectivity allows London’s financial market to maximize

the profits of its network connectivity and accelerates the speed of financial

agglomeration in this IFC. Most of the value that modern technologies can produce

for financial services lies in the externalities, which indicates human resources and

the capacity for social networking that maximize the benefits of connectivity. In

addition, asymmetric information requires a complex mixture of elements—the social

infrastructure for global connectivity, which gives London a leading edge. London’s

enviable advantage is attributed to British economic development and colonial

expansion through military force after the first Industrial Revolution. From a historical

perspective, its colonial origins helped London to to be the most connected city in the

WCNs.21 This colonial history has contributed to creating an openness to constant

shift of the urban landscape, and an outward-oriented and relatively cosmopolitan

sensibility (Meyer 2015; Olds and Yeung 2004). Colonialism also helps London to lay

21 see the latest result from GaWC: http://www.lboro.ac.uk/gawc/world2016t.html

!213
the legal, linguistic, technological facility and transportation manufacture foundation

for integration into the contemporary GFNs. In brief, London’s success clearly

depends upon the complex and intertwined influences of historical context and

cultural path dependency. The transformation of London is definitely related to the

historical context such as the rise of Great Britain after the Industrial Revolution and

transnational migration from British colonies to suzerain after World War II, and

geographical embeddedness like national capitals, policies and clustering

advantages (Massey 2007).

Third, Shanghai’s IFC does not meet the international standards for global business.

The disadvantage firstly reflects in the shortage of English-speaking financial elites

and professionals. This then negatively impacts the effect of information collection

and knowledge spillovers. The local labor market has not caught up with the rapid

growth of the financial industry. Global business transactions are very largely

dependent on the English language and Anglo-American common law and this is

perhaps especially true of the financial industry (Wójcik 2011). As a consequence, a

leading IFC must have a large number of fluent English-speakers. Less than 10,000

employers in Shanghai reach international standards in respect of financial

professionals. Furthermore, international location decisions taken by financial and

business services firms often result from a complicated interplay of factors, among

which the state and government interventions act as important drivers of decision-

making. However, the policy supports from the central government are not constant

since 1990. Meanwhile, it is very difficult to ascertain how major policies are made in

China due to its opaque policy regime.

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To summarize, in order to respond to my theoretical and empirical discussion above,

I illustrate Shanghai’s IFC in Table 6.10. With regard to Shanghai’s IFC, it is subject

to civil law, which is mainly based on the German legal system. Currently, it is an

emerging IFC in East Asia, with an increasing influence in the GFNs, but it also

shows some disadvantages in contrast with the global leading IFCs. The state-

dominant dynamics have contributed to its rapid ascension in the past 25 years, but

a state-led model also demonstrates its limitations. To some extent, this kind of

policy regime has also brought with it some uncertainty for Shanghai’s upgrade, due

to the complicated central–local politics.

Table 6.10 The characteristics of Shanghai’s IFC dynamics

Category Characteristics

Legal family Civil law, mainly based on German legal system

Geographical influence Regional IFC. Shanghai mainly functions as a

domestic center in Mainland China, but shows a

growing impact in the world economy, especially in

the Asia-Pacific Region.

Policy regime Definitely state-dominant. A bundle of quite

complicated central–local politics results in fitful

policy support.
Development stage Emerging IFC. Shanghai is a relatively passive

player in the GFNs. It is strong in hard

infrastructure but weak in soft power.

Source: Author

In light of Shanghai’s IFC dynamics, however, I highlight that currently the OBOR

initiatives and FTZ strategy should promote Shanghai as a strategic fulcrum of

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China-led globalization in the era of Bexit and Trump. Shanghai can learn something

from London’s success, described in Section 6.4, but I also highlight Shanghai’s

financial dynamics with Chinese characteristics. Shanghai’s financial hinterland

should be based on economic exchange in the context of OBOR and the growth of

Shanghai FTZ. Against this background, one path that has become increasingly

evident is that we should confirm Shanghai’s critical position in cross-border RMB

transactions. China’s penetration has a remarkable effect in the world economy, with

a vast economic hinterland. As Hall (2017) noted, RMB internationalization has been

identified as the most important process reshaping the global financial system since

the birth of the Euro. Meanwhile, it is necessary to speed up the process of

convertibility of RMB and build the RMB onshore market in Shanghai. In the case of

capital account liberalization, RMB has represented the emerging economies and

merge into the world’s main settlement and reserve currency basket (IMF’s SDR).

Currently, London, Hong Kong, Singapore and Frankfurt are striving to build the

RMB offshore markets, which also indirectly enhances Shanghai’s influence in global

finance. A second path is that Shanghai can try to build a new financial network

through China’s social network worldwide. Shanghai’s financial institutions need to

build an advanced type of interpretation into daily work processes: this will involve

not only financial talent but also information-rich milieus in the future endeavour

(Sassen 2012b).

6.5 Summary

This chapter has identified the key features that IFCs have in common as they grow,

has classified IFCs based on different dynamics, characteristics and stages, both of

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which provide a theoretical basis for my empirical study on Shanghai’s IFC progress.

The chapter then revisited Shanghai’s historic success pre-1949, its decline between

1949 and 1990, and its regeneration as an IFC since the establishment of Pudong

New Area. This chapter also analyzed Shanghai’s policy initiatives and evaluated its

strategic effects from a political economy perspective.

Since the 1990s Shanghai has undergone a dramatic growth in its financial sector

through continuous policy initiatives from both central and local government, which

substantially enhanced Shanghai’s position and connectivity in the GFNs. However,

Shanghai’s policy regime for constructing an IFC also constrains its transformation

and Shanghai’s weaknesses as an IFC include its low level of internationalization, its

shortage of financial professionals and its under-standardized business environment.

Therefore, in this conclusion, I put forward two strategic proposals from the point of

view of financial geography. Against this backdrop, the proposals will potentially help

Shanghai to extend its influence and relations in the world economy through

encouraging both inward and outward flows of talent, capital, services, and

knowledge and information.

As Hall (2017) argued the state plays a significant, yet comparatively neglected, role

in shaping the development and changing nature of IFCs according to the existing

literature. Hall also called for more attention to be paid by economic geographers

and related scholars to understanding finance as a political relation. My research can

be recognized as a response to her appeal: it shows how work on IFCs can respond

to call for the development of more politically sensitive accounts of the geographies

of global finance.

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Chapter 7 Conclusions and implications

7.1 Introduction

The argument I have sought to present here is that when we look at financial centres

in China through a geographical lens, it is far from the rose-tinted vision of

emergence and development of financial centres for all offered by narrow economic

explanations. As the discussion in the previous chapters of this thesis demonstrate,

an understanding of China’s financial centres has developed from a number of

different theoretical standpoints from financial geography approaches.

Thinking geographically about financial centres means much more than

acknowledging this. My strategy has focused on two aspects in the preceding

chapters. On the one hand, I assume that theoretical approaches originating from

western countries can explain the development of China’s financial centres. On the

other hand, I emphasise that China’s geographical heterogeneity cannot be

simultaneously omitted. Given the centrality of money and finance to the market

economy, as well as to China’s particular history and geography, I provide an

interrogation of the wider social, political, institutional, technical and cultural context

for financial centres development in mainland China in chapters 3–6 (following the

literature review in chapter 2). Although each chapter in the empirical study shows

some particular characteristics, they are a cohesive, coherent and concrete body, as

I have emphasised in chapter 1.4. To summarise, my research has a common

objective, and there are conclusions and implications that can only be drawn when

we put the findings of all the chapters together.

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The main objective of Section 7.2 is not to classify and repeat all of the results from

chapters 2–6, but rather to present briefly the major findings of the whole project.

Section 7.3 discusses the contributions and implications of the project for the

literature. Finally, the chapter indicates the limitations of my research and possible

directions for future financial centre study, as well as financial geography research in

China.

7.2 Restatement of findings

Since the 1980s, the geography of money and finance has proven an increasingly

important trend in the research of economic geography. More recently, some

geographers like Clark et al. (2017) and Sokol (2013) argue that the discussion of

finance should move onto the central stage of economic geography. The changing

approach to financial centre research mirrors the coevolution of economic geography

and financial geography in the past decades.

The current body of financial centre theories generally originates from the neoliberal

practices in the developed countries after the end of Bretton Woods System in the

mid-1970s, especially based on the success of London and New York in the post-

Fordism era. It also demonstrates the dramatic impact of the global financial crisis of

2008–2009.

Chronologically, I summarise the evolving approaches to financial centres from the

following perspectives: agglomeration and cluster, world city and global city, cultural

economy, information and knowledge, institution, network, and most recently, ‘new’

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political geography, and financialisation. Each of the above approaches has an

advantage for explaining why financial centres and IFCs can still exist in the age of

digital economy.

The approaches mentioned above have been well developed in existing empirical

studies of developed economies. In contrast, existing studies of China’s financial

centres engage with few approaches and show limitations in theoretical substance,

which gives me an opportunity to address these gaps from a financial geography

perspective in this thesis. I then clarify these shortcomings in the current research

agenda of China’s financial centres and address the specific approach applied in

chapters 3–6.

In chapters 3–6, this thesis answered the research questions proposed in chapter 1

by an investigation of China’s financial centres, particularly Shanghai. Overall, I

attempted to examine the geographies of China’s financial centres, map the

hierarchical networks of these financial centres, and account for these phenomena

through the lens of financial geography. To shed light on this topic, my thesis was

primarily attentive to the analysis of the geographies of financial industry in chapters

3 and 4. It then took Shanghai as an example in chapters 5 and 6.

The main characteristics of China’s financial system are reflected by the progressive

transition of the banking sector and the increasing importance of the securities

industry since the country’s reform and opening up. China’s financial system was

completely controlled by the banking industry during the period of planned economy,

and still is dominated by banking currently; but the nature of banking has changed a

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lot to meet the requirements of market economy reform. I first therefore explore the

changing banking industry that reflects China’s transition from planned economy to

market economy.

The findings of this study outline a hierarchical network of geographies of China’s

commercial banking. This network shows the status of Beijing and Shanghai as the

primary agglomerations in the mainland’s banking system. Beijing is the capital for

domestic banking, while Shanghai is a preeminent centre for foreign banking. At the

same time, Shenzhen, Guangzhou, Tianjin, Hangzhou, Nanjing, and some provincial

capital cities grew quickly, which contributed to the overall dispersal of the banking

sector at the city level. This trend is further exemplified by an analysis of the

geographic concentration index of banking assets, which reveals the dramatically

decreasing trend at the provincial level (and at the city level). On the one hand, the

decentralisation of banking power from Beijing to the provincial level, and the

establishment of the provincial financial system, brought the dispersal of banking

activities. On the other, the process of devolution simultaneously led to the rise of

interprovincial and provincial centres over this period, which produced obvious

banking agglomerations beyond Beijing and Shanghai and resulted in a decreasing

concentration of banking at the city level.

Along with the sweeping reforms of the financial system since the 1990s, capital

markets have played increasingly important roles in contemporary China’s financial

landscape beyond the banking industry. In the same vein, therefore, I attempt to

explore the geographies of securities intermediaries, including securities firms,

futures firms and fund management firms, after the interrogation of banking sector.

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The results of this study show that there also exists a hierarchical network of

geographies of China’s securities industry, which is slightly different from banking. In

terms of headquarter locations, Shanghai dominates across the subsectors of the

industry, followed closely by Beijing, with Shenzhen in the third place. Secondary

centres are far behind in terms of size, but geographically close to the triad, the

largest including Guangzhou and Hangzhou. The analysis of employment and

transactions, in contrast, showed the primacy of Beijing over Shanghai and

Shenzhen. Overall, the geography of securities industry is spikier than that of the

banking industry.

From the institutional and political economy perspectives, what in my view explains

this discrepancy is the tendency of many intermediaries to establish headquarters in

Shanghai and Shenzhen to take advantage of lower taxes and cheaper land, and to

follow the official policy to promote Shanghai as China’s IFC while maintaining and

developing their main operations in Beijing to remain close to the centre of political

power and information. I also stress that the large potential for the institutional

consolidation, innovation and growth of the industry, as well as the complex interplay

of political and economic forces, mean that its spatial footprint remains in a state of

flux. This phenomenon mirrors the complexity and interplay of market forces and

state interventions in (re)producing the geographies of China’s securities centres.

The interrogations on the geographies of the financial industry in chapters 3 and 4

also demonstrate that politics and state interventions play critical roles in shaping the

developments of financial centres in China. In the latest strategic planning, such as

the Yangtze River Delta Mega-region planning and Shanghai 2040, both the central

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and local governments aim to upgrade Shanghai’s status as an IFC and global city in

a world economy by 2020. As such, in chapters 5 and 6, I attempted to understand

the development of China’s financial centres through a crucial case of Shanghai’s

IFC.

After the central government gives Pudong’s development a priority, Shanghai will

function as a gateway between the mainland and the world economy. During this

process, Shanghai will gradually emerge as a global city in the WCNs and GFNs.

Chapter 5 focused attention on Shanghai’s IFC by employing the global city model.

As Sassen (2012a) emphasises, not only financial sector but also business services

are critical components for IFC growth.

This chapter provided a geographical analysis of the clusters of FABS in Shanghai.

The findings revealed the uneven geographies of FABS within the city, and close

geographical linkages between finance and the non-financial sectors in the context

of FTZ. I discussed the FABS firms that enable Shanghai to be global. I also

considered the new intensity and complexity of globally-connected systems of

production, finance and business services, which require Shanghai to build the

organisational architecture for integration into the global network both in terms of

production and finance. This study showed the internal spatial dynamics of Shanghai

as an IFC and a global city, pointing to three leading clusters for FABS (Lujiazui,

West Nanjing Road, and Central Huaihai Road), and also delineating how these

clusters are shaped and why they are important in the process of Shanghai’s

globalisation and localisation.

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Chapter 5 analysed Shanghai’s IFC at the local scale. Chapter 6 built on its insights

to interrogate the following question: what is the developmental model that sustains

Shanghai’s emergence as an IFC and global city in the past decades, and how does

this model compare to other IFCs worldwide? In chapter 6, I started to provide a

conceptual and theoretical basis by summarising the main characteristics of

contemporary IFCs, and the different categories according to legal family,

geographical impact, policy regimes, and developmental stages. The chapter then

reviewed the policy initiatives driving Shanghai’s IFC formation, both from the central

and local government perspectives, and evaluated the strategic effects of these

policies. This empirical study demonstrated the great advances of Shanghai as an

IFC since 1990, but noted at the same time that this developmental model also

brought some obstacles to Shanghai’s progress at the global scale. I identified some

disadvantages of Shanghai’s IFCs, such as the internationalisation of capital

markets, global impacts, and the business environment. In brief, this discourse

focused on the theoretical basis of IFCs and examined the role of politics and state

intervention in IFC formation. In this chapter, I also highlighted Shanghai’s pathway

towards becoming an influential IFC with Chinese characteristics, including the role

of the government in intentionally devising pathways to IFC formation in the context

of OBOR initiatives and FTZ.

To summarise, this thesis provides a geographical understanding of geographies of

China’s financial centres through its focus on the financial industry using a specific

case: Shanghai. On the one hand, it tests and exemplifies the validity of theoretical

approaches on China’s cases. On the other hand, it also shows the different

characteristics of China’s financial centres in terms of their history, politics, culture

!224
and developmental model. This research is therefore a close dialogue of financial

geography between western countries and China through the financial centre study.

7.3 Contribution to literature

The contribution and significance of this thesis are potentially considerable for

existing research. In general, I attempt to build a bridge between Chinese economic

geography and Anglophone economic geography from the perspective of financial

geography. This research provides a concrete step for a cross-country comparative

study, and also contributes to an innovation in Anglophone economic geography by

focusing beyond Anglo-American economies and pursuing ‘engaged pluralism’, as

suggested by Barnes and Sheppard (2007).

In terms of the critical empirical findings, first, chapters 3 and 4 investigate the

geographies of the banking and securities industry, and outline the hierarchical

networks of each. Second, both chapters 3 and 4 highlight Beijing’s critical role in

China’s financial system. This city is never usually considered as a financial centre in

official documents, and its importance is also underestimated in academic studies.

Third, chapter 4 examines the geography of the securities industry for the first time

and shows that Shanghai is the primary centre of the securities industry at all

subsector levels, although it competes for this role with Beijing. Fourth, chapter 5 is

the first attempt to integrate business services into Shanghai’s IFC discussion. It

reveals that the unevenness of FABS at the local scale sustains the dynamics of

Shanghai’s IFC and global city in the GFNs and WCNs, and it essentially posits an

imperceptible economic nexus link between different functional zones in the

!225
framework of Shanghai FTZ, while these kinds of interconnections and

interdependencies integrate finance into the GFNs. Fifth, based on a leading-edge

conceptual analysis on IFC, I evaluate the effects of Shanghai’s policy initiatives,

point out its disadvantages, and propose its upgrade in the context of OBOR and

FTZ.

Theoretically, in this research, I have tried to achieve a combination of financial

geography approaches to conceptualise China’s financial centres. Overall, in

chapters 3–6, this thesis provides an understanding of China’s financial centres from

a ‘new’ political economy approach and highlights that politics and state interventions

are critical in producing and shaping the geographies of China’s financial centres

and the growth of Shanghai’s IFC. Hall (2010) points to the need to develop a more

politically and geographically nuanced view of money and finance, and an

understanding of the geographical heterogeneity of the international financial

system. This thesis explores the different pathway for financial centres development

based on the special characteristics of China’s political economy and its transition,

providing a complementary strand for the other financial centres worldwide.

More specifically, first, in chapters 3 and 4, I use the network, institutional and

political economy approaches to analyse the geographies of China’s financial

centres beyond the agglomeration perspectives, and I also indicate Beijing’s critical

role by emphasising its information advantage. Second, chapter 5 employs the

global city model to explore Shanghai’s IFC’s dynamics. I use the case of FABS to

show an uneven growth within Shanghai to demonstrate how the spiky geography

are vital in supporting the conditions on which the GFNs and WCNs can depend. It

!226
also involves the application of GFNs and financialisation, while focusing on the case

of Lujiazui Financial Zone and the FTZ. Finally, as French et al. (2011) argue, the

financialisation literature requires far greater engagement with the wider political

economy literature on money and finance. Chapter 6 shows that Shanghai’s IFC is a

strategic location to redirect inward and outward flows of capital in search of spatial

and territorial fix for global financial integration, which exemplifies the financial

approach that considers financial centres as intermediaries for spatial and territorial

fix.

7.4 Limitations and directions for future research

While this thesis explores the issue of China’s financial centres, there are limits to its

depth and scope. Several topics integral to understanding the dynamics of China’s

financial centres are not explicitly considered. Given the combination of the

approaches applied here, it is not surprising that this study actually provokes more

questions than it answers. Suggestions for future research that stem from this project

can be divided in several categories. This division partly corresponds with the

limitations of research.

The first limitation is the sectoral focus, which excludes insurance, ‘New Finance’

such as parts of shadow banking, informal financial sector, internet finance, and so

on. Chapters 3 and 4 examine the geographies of mainland’s financial centres

through the lens of the banking and securities industry. Although the banking and

securities sector are important components in China’s financial system, they do not

tell the whole story. For example, the insurance industry is one of the four main

!227
subsectors of China’s financial system, but the geography of China’s insurance

centres has not been investigated by the existing study. Furthermore, the alliance

between finance and IT potentially reshapes and reproduces the geographies of

financial centres in the age of the electronic ‘space of flows’. Meanwhile, China has

been promoting the innovation of internet finance since 2013. Future studies should

consider the impact of ‘New Finance’ on geographies.

Second, chapter 4 is a substantive and innovative research into the securities

industry, but it does not claim to be the end of examining the geography of the

securities industry. The geography of the securities industry in mainland China might

be significantly influenced by national policy initiatives, reform processes, and

institutional changes related to capital markets (Wójcik 2011). Currently, the

implementation of the IPO approval system has been postponed by the CSRC, and

the central government has cancelled the proposal of establishing a new board in

Shanghai for high-technology firms listing in the 13th Five-Year Plan. More

importantly, the CSRC is attempting to transfer Beijing’s New Three Board into a

formal stock exchange, like the NASDAQ, in the capital city. How will these policies

and reforms reshape the geographies of the securities industry? To be more

conclusive, my study would have to extend into the future to allow a comparative

analysis of how the political economy of the mainland’s capital markets affects the

changing geographies of the securities industry.

Third, this research draws little attention to Hong Kong, which serves as China’s IFC.

Hong Kong is part of China politically, but it is a separate entity in terms of economy

and finance. Hong Kong’s IFC is a member of the Anglo-American world in terms of

!228
its institutions, history, language and networks. This thesis, therefore, focuses on the

financial centres on the mainland, but Hong Kong plays a critical role in producing

and shaping the geographies of China’s financial centres. The existing study has

shown the urban vectors and financial nexus between Beijing, Shanghai, and Hong

Kong (Lai 2012a; Taylor et al. 2014). As Wójcik and Camilleri (2015) believe, the

dynamics of Hong Kong’s IFC as a portal between the mainland, China, and the

world economy should be emphasised by a network approach. The study of Meyer

(2015) also reveals that Hong Kong’s financial industry gains competitive

advantages in producing FABS from its network exploitation of its access to

sophisticated information, knowledge, and talents from China and East Asia.

Fourth, I do not explicitly analyse the impact of offshore financial centres in

producing the financial geographies of mainland China and Hong Kong. Wójcik and

Camilleri (2015) have examined the critical role of offshore centres to integrate

Chinese firms into GFNs. They also demonstrate that Hong Kong functions as an

onshore-offshore IFC between mainland and offshore jurisdictions. Existing data, for

example the FDI and ODI, has also shown the close relationship between the cities

in mainland, Hong Kong and offshore financial centres. It is well documented that

China’s financial system is connected to a bundle of offshore financial networks

(Sharman 2012). In future studies, the financial networks between China’s centres

and these jurisdictions should be underlined, especially in the context of OBOR.

Fifth, this thesis makes limited use of expert opinion data and in-depth interviews.

Expert opinion data is a useful proxy for actual evidence when experts are surveyed

on issues within their domain of expertise (Clark 1998, 2002). In the autumn of 2014,

!229
I carried out a number of interviews in the State Council regarding the FTZ and

financial reform. In China, however, policy strategies are often decided by the

Central Political Bureau through opaque processes. Sometimes these decisions

cannot be interpreted from an academic perspective. For example, the experts in the

Ministry of Commerce believed that no new FTZ would be established within a year,

but Tianjin, Fujian and Guangdong FTZ were proposed by the State Council in

December 2014. In future studies, expert opinion and interviews from governments

should be carried out to understand the process of China’s policy decisions.

Meanwhile, intensive interviews on firms and business institutions are also

necessary because we need to obtain more geographical features, for example the

business and finance culture, which cannot shown by quantitative data.

Of course, no single project can cover every relevant parameter, and this project is

already extensive in theoretical and empirical discussion. Instead, the weaknesses in

the thesis offer opportunities for future research geared specifically towards finding

the answers that the shortfalls suggest to be missing.

7.5 Where is the bridge?

In summary, I propose this research study as a bridge between Chinese and western

financial geography through the topic of the financial centre. However, it is just a

beginning for this sort academic exchanges. Future studies ask for a great leap in

the financial geographies of China. This is ascribed not only to the increasing

significance of China in global finance and the world economy, but also to the poor

status of financial geography in China.

!230
Currently, the research paradigm of economic geography in China is quite parochial.

The approaches (especially the post-structural approach) that cannot be extended

by quantitative methods are completely neglected. This leads to the poor condition of

the theoretical construction of economic geography in China. The approaches that I

have introduced in chapter 2 should be developed into a future study of China’s

financial geography beyond a study of financial centres, as well as the broader

economic geography.

Financial geography, as a sub discipline of economic geography, has also not

formed a substantive research body in China. Very few scholars like Simon Zhao

and Fenghua Pan are attentive to this research area, focusing on selective topics. In

western countries, the new millennium has witnessed a shift from the geography of

finance to a much broader financial geography as a subdiscipline in the

understanding of finance. Substantive research foci range from established

concerns, for example IFCs, to some novel research topics: for example the

research on specific financial markets and their global impacts, such as

infrastructure investment, pension fund capitalism, sovereign fund, and investment

management and corporate governance, the sustainable and green finance, the

digital finance, the fintech, and so on. None of these topics is ever mentioned in the

research of Chinese geographers. In chapter 2, I have summarised the evolution of

the financial geography approach, which could possibly help build a basic framework

for financial geography in China.

!231
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