Is London or New York the highest-ranking financial centre this year? And is Hong Kong or Singapore in third place? This tends to be the focus of most commentary around the bi-annual release of the Global Financial Centres Index. But further down the rankings, something more interesting is happening.
A new generation of financial centres is developing that are catering to fast-growing markets in emerging and frontier economies. To succeed as a financial centre, contenders require both push and pull factors: a large addressable domestic or regional market that is geographically or otherwise remote from other centres; as well as a supportive and proactive state that is willing and able to create an environment conducive to a globalised, trust-based, intangible services industry.
One new entrant into the Global Financial Centres Index this year is northern Chinese city of Tianjin, home to 15 million people and one of four national central cities of the PRC. Since 2006, the city has been opening up to financial services and markets through a reform agenda and in 2014 the city was incorporated into the national strategy as a ‘Financial Innovation Operational Demonstration Area, and Reform and Opening-up Preceding Area.’
India does not have a natural financial centre of gravity with Mumbai at 73rd place globally, while New Delhi, is a new entrant in the rankings this year at 78th. The Indian government, it seems, has other plans entirely. Its pet scheme is in the western region of Gujarat, a special economic zone that it hopes to turn into a tax haven for foreign investors, to rival Hong Kong. For now, it is far from the hustling metropolis its architects intend.
But financial centres require much more than just fiscal incentives and sky scrapers. Success normally requires a confluence of factors, only some of which can be imposed.
Astana, the capital of Kazakhstan, is an intriguing example. The city was effectively launched as a financial centre by government decree in 2017. In the same year, the Astana International Financial Centre joined the Global Financial Centres Index, just behind Helsinki and Moscow and ahead of Athens and St Petersburg, in 88th place. This year, the capital surged up the rankings to 61st, just behind Milan, Bahrain, Stockholm and Guernsey.
Part of its success is unquestionably planned. Astana became the country’s capital as recently as 1997 and a competition for world-renown architects resulted in an ultra-futuristic city, based on the Japanese architectural concept of Metabolism. It is a smart city, as well as being, in every sense, a living breathing one, with a population of over a million people, a figure that has doubled since the millennium. But the intention was not to create a purely administrative hub.
Over the past ten years, the government has introduced a radical agenda of economic liberalisation, low tax rates, and the introduction of English common law. The stock exchange, AIX, has a strategic partnership with Nasdaq and Shanghai Stock Exchange, and it is seen as the main platform for financing China’s Belt and Road projects across the CIS. With a regional market of 300 million consumers, it is ideally placed to become a major regional hub in the coming years.
The world’s major financial centres were not built overnight. But new technologies, and rapidly changing demographics could well turbo-charge the emergence of new financial services clusters across emerging markets. There will be many losers, but those that win will become a major asset to their countries and to the international financial system at large.
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