The current brouhaha over Dubai is a good lesson in the difference between hard work and big dreams. While Dubai has grabbed attention in recent years by attempting to become an international financial centre (IFC) through mere ambition, other cities have been climbing the ranks through quieter, more traditional approaches. Now that the Dubai miracle has been set back, who stands poised to emerge as the next big IFC, especially as the world economic balance shifts towards Asia?
For years, London and New York have shared top dog status, now joined by Hong Kong and Singapore, according to the September 2009 Global Financial Centres Index (GFCI). Shenzhen, Zurich, Tokyo, Chicago, Geneva and Shanghai round out the top 10 (Dubai placed 21st). While Asian cities claim half the top spots, they are entirely absent from next 10.
To earn these spots, IFCs attract investors with a flexible regulatory environment, political and legal stability and a talented, educated workforce. Dubai, though it boasts attractive incentives such as no income taxes, doesn?t offer the stability and transparency of a democracy.
Shanghai and Shenzhen, the relative newbies among the GFCI top 10, have excellent potential, as they still have great strides to make in implementing these investor-friendly criteria. Their high rankings in the most recent GFCI show promise: Shanghai jumped 25 places since the March 2009 GFCI, and Shenzhen wasn?t included in that index for lack of data. The GFCI query about which financial centres were likely to become more significant in the next few years netted 91 mentions for Shanghai and 84 for Shenzhen. By comparison, Hong Kong, Beijing and Singapore were mentioned 27, 14 and 14 times (in previous GFCIs, Dubai was repeatedly mentioned in this category).
China, fully aware of its potential, has decided to maximise its chances of global financial centre status by focusing on just one promising city and choosing to christen Shanghai as its future financial leader. Earlier this year, China?s State Council released a document outlining the steps to making Shanghai an international financial and shipping centre by 2020. While China has a large population and a growing economy to its advantage, its regulatory environment has room for improvement and its non-democratic government leaves some wary.
A more distant consideration is an Asian nation that is attempting a Dubai-like breakthrough: Malaysia. The country is building a financial centre called Iskandar along its southern border, just across from Singapore, aiming to capitalise on this proximity to the world?s fourth global financial centre (much as Shenzhen did with Hong Kong), luring investors over the border with 30% lower wages, rent and other costs.
Iskandar?s planned development is disturbingly reminiscent of Dubai. It, too, has ?biggest and best? ambitions. Iskandar?s centrepiece, the Asia Pacific Trade and Expo City (APTEC), at more than 3,50,000 square metres, would be Asia?s biggest trade and distribution hub, and APTEC?s factory outlet mall would have the largest selection of Asian consumer products under one roof. Malaysia has Dubai-like plans to develop the surrounding area and make Iskandar a vacation destination. The 20-year investment in Iskandar is projected to top $100 billion.
As for Mumbai, ranked 53rd in the GFCI, any hope of becoming a leading financial centre is reserved for the distant future. However, the government has already started dreaming, and a blueprint for that dream was released in 2007. The report outlined Mumbai?s strengths, which include a large economy in rapid growth, high quality human capital at a low cost, strong IT skills, a convenient location for serving Europe and Asia, and a democratic government. Despite these strengths, IFC status will remain pure fantasy unless the government attacks its obstacles, notably the structure of India?s financial system and regulations. Without political commitment to this goal, India will never be a credible contender as a major Asian IFC.
Today, London, New York, Hong Kong and Singapore are securely positioned as the world?s leading financial centres. In the decades to come, this group may need to make room for another Asian city. Barring a surprise from Malaysia?s dark horse or a determined push from Mumbai, Shanghai?s claim on that place appears secure.