Editor’s Note: As China’s wealth and power grows, Shanghai, its most populous city, with a long history of thriving commerce and trade, also strives to become a financial center on the global stage. In conjunction with a project of the John L. Thornton China Center and the American Chamber of Commerce in Shanghai, Brookings’ Economic Studies Fellow Douglas Elliott looks into the prerequisites for Shanghai to succeed as a top-notch financial hub in the world, and the key lessons it could draw from other global and regional financial centers that have achieved such status before its time.
The government of the People’s Republic of China has set a 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. This objective is a highly desirable one for Shanghai, and China as a whole, because breaking into the very exclusive inner circle of such centers 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 defined financial industry, but also from a wide range of positive spillover effects, not the least of which is the creation, or sharp growth, of a number of related industries that are interconnected with finance.
This paper examines other global financial centers, and some regional financial centers that strove to become truly global, in order to draw lessons for Shanghai about the prerequisites for success as a global financial center. There is no rulebook that will guarantee success if followed scrupulously, since there are only a very small number of such centers from which to draw lessons and they grew in part due to very particular circumstances that could not, and probably should not, be repeated. Every city is unique and must build on its own strengths and work to shore up its own weaknesses; these strengths and weaknesses are themselves often a reflection of the time in history and the larger world and local circumstances. However, a comparison with other centers still yields a number of useful clues, some of which are intuitive and others of which are not.
The body of the paper is organized around a set of major questions:
- What is a global financial center?
- Who are the core participants in a financial center?
- Why do financial centers exist in our electronic age?
- What are the benefits of being such a center?
- What can we learn from theory?
- What can we learn from survey research?
- What do surveys and experts indicate are critical attributes necessary for success?
- What are the global financial centers today?
- What are London’s overall strengths and weaknesses?
- What are New York City’s overall strengths and weaknesses?
- Why is Tokyo not a truly global financial center?
- Why are Frankfurt and Paris not global financial centers?
- What are the key lessons for Shanghai from all these comparisons?