By Dan Steinbock?
IT is the economic promise of China and emerging Asia that fuel the emerging Chinese financial hubs ? not just the debt crises in the West.
Recently, Dow Jones ended above 13,000 for the first time since 2008. However, risks remain huge in the financial markets in the West.
At the same time, financial hubs in Asia, particularly China, have been expanding their breadth and deepening their specialization in global financial markets.
Only two months ago, the Hong Kong SAR (Special Administrative Region) overtook the United States, the UK and Singapore to top the World Economic Forum?s annual Financial Development Report. It was the first Asian financial center to achieve this rank.
Nonetheless, changes in the financial markets are occurring faster than anticipated because current indicators do a better job in looking behind than seeing ahead.
First, current indicators assess future performance on the basis of past success. That makes sense when development is incremental, but not when it is as disruptive as today. Even in fall 2008, the World Economic Forum Report portrayed the US and UK as global financial leaders, although the two were the primary catalysts of the plunge in the financial markets.
Second, financial success is often measured on national basis without adequate attention to economies of scale. While, for instance, China ranks 19th in the WEF Report, after Sweden and Denmark, few expect Stockholm or Copenhagen to rule global financial markets in the future.
Large economies of scale drive global financial markets. That is why the 20th century belonged to Wall Street and City ? and why Chinese hubs could thrive in the 21st century.
During last fall, the three top hubs ? London, New York and Hong Kong ? had almost equal ratings in the global financial centers index.
Wall Street cannot avoid being exposed to the structural erosion of the US economy.
In turn, London is not immune to the eurozone crisis, which has potential to escalate dramatically in the future, or to proposed regulatory changes which would constrain City?s market power.
At the same time, emerging Asian financial centers have steadily improved their positions, despite volatility. Some of these hubs comprise cities (Tokyo, Taipei) that have deeper ties with the West and have thus been more exposed to financial risks. Others have great political and entrepreneurial capital (Beijing, Shenzhen).
Conversely, the more robust players in the long-term comprise Hong Kong, Singapore, even Seoul but especially Shanghai, which has gained increasing scale and is rapidly internationalizing in financial markets. Historically, rising economic stature has been a necessary, but not sufficient condition for strong financial performance.
Leading positions
In the Global Financial Centers Index, China has several leading positions, including Shanghai (5), Beijing (19), and Shenzhen (25). Interestingly, other large emerging economies ? including Mexico City (47), Rio de Janeiro (53), Moscow (61), and Mumbai (64) ? are well behind.
In contrast to their counterparts in large emerging economies, Chinese centers have been more successful in expanding their scale economies and deepening their specialization in financial markets.
Ultimately, it is the underlying long-term economic potential that creates winning financial hubs. And today this momentum is regional ? in emerging Asia.
Historically, New York has been the superior financial engine of North America, while London has been the center of the European markets.
In turn, Hong Kong?s financial stature, for all practical purposes, has been predicated on China?s economic rise.
Given peaceful international environment and sustained cohesion in China, Chinese financial hubs are favorably positioned to emerge as global financial hubs ? through cooperation with the West, but primarily through the economic potential and internationalization of China and emerging Asia.
Dr Dan Steinbock represents the India, China and America Institute (USA), the Shanghai Institute for International Studies (China) and EU Center (Singapore).
Source: http://www.chinamedia.com/news/2012/03/05/global-role-seen-for-chinas-finance-hubs-like-shanghai/
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