China’s Financial Fetish

With the drum beating for the development of the costal areas of Tianjin near Beijing, the curtain seems to be rising on yet another “financial center” in China. When Shanghai sought a similar role several years ago, bankers and investors around the world wondered whether the aim was really for Shanghai to replace Hong Kong as China’s financial heart. In the current pilot project, Tianjin in China’s north and Shanghai in the south are competing against each other, prompting even more second-guessing.

Once upon a time, no one had any idea about how to create a “financial center.” A financial center was simply a great metropolis where enormous financial dealings took place. Cities such as London and New York became known as financial centers only after they had proved themselves in the role.

Policymakers in China seem to be unaware that many major cities have not had the luck to become financial centers. There is no economic or other theory that explains why a city called a “financial center” should be more valuable or lovely than others. Why, then, should China make developing global financial centers a vital national goal? Does China really need its own financial centers of world standing? Does the world need China to have them? Or is such a goal necessary because a financial center can determine the fate of a great metropolis?

Nothing in the history of finance, the evolution of cities, or modern economics provides a clear answer. It is the Chinese who have endowed the term “financial center” with such weight and meaning by trying to dissect the functions of such cities and quantify every detail. As a result, politicians are prepared to pick a city and order it to create the functions of a financial center, as if such a thing can be constructed like a building – a concept that could not be more off the mark.