Ape Rifle

For some reason, many people in China (both locals and expats) can’t see to inhabit that comfy middle ground when it comes to discussing the nation’s two largest cities. Beijing is often decried as ‘too political’ or ‘too conservative’, while Shanghai gets slandered as ’soulless’ and ‘too superficial’. The dreary concrete jungle of the former is cherished by some, while others swear on the gaudy faux-glitz of the latter. It’s either Beijing or Shanghai, the traffic jams or the princesses.

I will admit right now that I’m a bonafide Beijing kind of guy. Sure, for the most part it’s a horrible concrete jungle, but that is a pretty weak charge when discussing Chinese cities (as if Shanghai isn’t??). Sure, it gives new meaning to the word showcase, but then again that is what national capitals are supposed to be: centres of empire are not shoddy slums. Being somewhat partial to the lands north of the Chang Jiang, I find Beijing to have that certain northern Chinese je ne sais quoi, not to mention some outstanding neighbourhoods. Beijing, despite its shortcomings, lives and breathes genuine city, while I find Shanghai to be little more than a collection of trophy skyscrapers. But that’s just me: I know many people who prefer Shanghai, and that’s their business. I’m just not one of them.

Both cities have firmly entrenched themselves in modern Chinese lore as specific ‘functional’ places: Beijing is a political and cultural centre while Shanghai takes care of business. Shanghai is the king of capitalism, the mecca of banks and finance, the home of free-wheeling entrepreneurship. Beijing, on the other hand, has the grandiose historical sites, the monumental offices of state and a lot of very big boulevards with sweeping views of other boulevards. So, imagine my surprise this summer when I came across an article by some researchers in Hong Kong predicting that Beijing, not Shanghai, would ultimately become the nation’s premier financial centre. Uhmm, what?

Yes, I know. At first, it sounds absolutely absurd. The Olympics? Sure. High technology? Why not. But international financial services? That’s going a little too far. Everyone knows that Shanghai is already the country’s financial centre. After all, what is Lujiazui over in Pudong supposed to be? Beijing is about affairs of state, while Shanghai is about money.

Or is it? In Determining Factors of the Development of a National Financial Center: The Case of China, Simon Zhao, Li Zhang and Danny Wang argue that, given the current nature of China’s economic system, Beijing is the location more like to see a significant agglomeration of international financial and corporate services. It’s quite simple, really: given the heavy state presence in nearly all areas of the Chinese economy, an essential business strategy for big international players is to be connected into the national bureaucracy and regulatory commissions. The Chinese politico-economic system, they argue, is ripe with “information asymmetry”, in which the regulators (state bodies) have much more information than the regulated (foreign financial firms, corporations, etc.). In other words, given the fluid nature of the Chinese political/commercial environment, in which ‘laws’ are constantly re-interpreted, contradicted and arbitrarily ignored or enforced, an industry like financial services, which is pretty dependent on regulatory information, can hardly rely on any ’standardized’ procedure. It necessitates close connection to the machinations of the political world.

Therefore, in this type of environment, it makes sense for major financial and corporate players to cluster around the major national decision-making powers of Beijing rather than the important, but regional, industrial centre of Shanghai. The latter, although heavily promoted by the central government throughout the 1990s as China’s financial hub, does not have national administrative functions. As much as Shanghai is about business, it is missing the crucial attraction of central political connectivity, seen as essential in China’s business environment. This seems all the more relevant considering that much of the favour lavished on Shanghai was due to the “Shanghai clique” of Jiang Zemin rising to power in Beijing and funneling national resources into their coastal baby. With the changing of the guard at the national leadership level over the past few years, there are certainly signs that this preferential treatment shown to Shanghai is waning.

Of course, the authors do not ignore the importance of Shanghai within the Chinese economy. It continues to be a major industrial force, and will likely become an important centre of financial and corporate activity given its geographic centrality and driving role in the Chang Jiang delta region. Zhao et al. are careful to note, however, that as big and important as Shanghai is, it will not necessarily become the international financial nerve centre of the country. Given the current nature of the Chinese system, in which politics, bureaucracy and economic decision-making are inseparable, the financial industry will gravitate towards Beijing to hook into vital policy-making ebbs and flows.

I guess the common mistake we often make is to assume that China will have a ‘Washington’ and a ‘New York’, separate political and financial nerve centres. But when you think about China’s bastard child economic system, in which a monopoly state itself is the major player in the business environment, then it only makes sense that the political and financial hubs converge into a single location. In the end, we make the mistake of buying into the liberal economic theory that politics and business are largely separate spheres: this line of thinking is suspect at best in most Western states, and quite simply absurd in a place like China.

Personally, I find it sort of funny that the circumstances pushing Shanghai as the international financial hub of China, that is the stubborn determination of the central Chinese state to control, direct and interfere in economic development, are perhaps the very ones that will ultimately drive major financial players to Beijing instead.

This entry was posted on Friday, November 11th, 2005 at 8:21 pm and is filed under China, Urban Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.