The rivalry between financial centers and technology centers is one of the two hottest topics in today's competition among cities.
Whichever city wins in building these "two centers" will become a true first-tier city. Conversely, even the most formidable city will decline.
Over the past five years, nine top cities in mainland China have competed fiercely for financial-center status. With the 2016 data now released, the "interim results" of this contest have come into view.
In one sentence: Shanghai is reviving, Beijing remains powerful, Shenzhen is catching up fast, Guangzhou is pushing ahead, and Hangzhou and Nanjing are rising.
There are many indicators for comparing financial strength, and the analysis is complex. This article focuses on the two most important indicators: "total deposits in local and foreign currencies of financial institutions" (hereinafter "total funds") and "value added of the financial industry."
I. Total Funds
"Total deposits in local and foreign currencies of financial institutions" is the result of inter-city competition and the foundation for the next stage of economic development, so it is far more important than GDP. This figure is published by the central bank and is not part of officials' performance assessments, so its accuracy is very high. It is also very useful for studying the competitiveness of a city's financial sector.
Below are the nine mainland cities with the largest total funds. Suzhou ranks 10th and Wuhan 11th; since both remain some distance from the RMB 3 trillion mark, they are not included in this comparison.
Comparison of total funds in Beijing, Shanghai and Shenzhen (unit: RMB trillion)
2011 2016 Growth Projected in 5 years at same rate
Beijing 7.50 13.84 84.5% 25.5
Shanghai 5.82 11.05 90.0% 21.0
Shenzhen 2.51 6.44 157% 16.5
Guangzhou 2.65 4.75 79.2% 8.51
Hangzhou 1.84 3.34 81.5% 6.06
Chengdu 1.71 3.26 90.6% 6.21
Chongqing 1.61 3.22 100% 6.44
Tianjin 1.76 3.00 70.5% 5.11
Nanjing 1.42 2.84 100% 5.68
The table above shows that Beijing has overwhelming strength, with total funds 1.25 times those of Shanghai. If Hong Kong were included, it would only rank third; Taipei would fall somewhere before Hangzhou and after Guangzhou.
Over the past five years, Shenzhen's funds grew fastest, at 157%. Two reasons explain this: first, Shenzhen's high-tech industries developed rapidly, driving high-quality economic growth; second, the expansion of the SME Board and ChiNext boosted activity in Shenzhen's capital market, at one point even surpassing Shanghai's.
Chongqing and Nanjing both saw funds grow by 100%, a dazzling performance. Chongqing's rapid development in recent years has benefited from large fiscal transfer payments from the central government and massive infrastructure investment, but preferential policies cannot last forever, so Chongqing's future growth requires further observation.
By comparison, among the strong second-tier cities, I am more optimistic about Hangzhou and Nanjing. After being overtaken by Chengdu and Chongqing for several years, Hangzhou regained the lead in total funds at the end of 2016 — a development well worth noting. Nanjing's growth is even stronger: in intra-provincial competition over the past few years, it first comprehensively surpassed Wuxi and then overtook Suzhou in total funds.
Guangzhou and Tianjin sit at the bottom in funds growth, but Guangzhou has deep reserves, and its position as the fourth city by funds is unlikely to be challenged in the short term. Tianjin's economic growth was once dazzling, but the change in total funds suggests its period of rapid growth is ending. In the long run, both Tianjin and Chongqing could repeat Suzhou's story: Suzhou once challenged Shenzhen and Guangzhou but has slipped quickly in recent years, and its total funds may soon be pushed out of the top ten by Wuhan.
II. Value Added of the Financial Industry
Value added of the financial industry is the GDP of the financial sector. These figures are published by statistics bureaus under local governments, so their accuracy depends on the publishers' conscience.
Comparison of financial value added in Beijing, Shanghai and Shenzhen (unit: RMB 100 million)
2011 2016 Growth Projected in 5 years at same rate
Beijing 2055 4267 108% 8860
Shanghai 2240 4763 113% 10128
Shenzhen 1562 2876 84.1% 5295
Guangzhou 775 approx. 1807 133% 4213
Hangzhou approx. 680 approx. 1100 61.7% 1779
Chongqing 705 1643 133% 3829
Chengdu 651 (2013) 1254 (2015) --- ---
Tianjin 702 1588 126% 3592
Nanjing 552 1242 125% 2795
From the table above, we can see that in the contest among the three financial centers of Beijing, Shanghai and Shenzhen, although Shenzhen's total funds grew rapidly, the growth of its financial value added over the past five years has been unexpectedly low. The gap with Shanghai and Beijing is widening, and Guangzhou is closing in.
Over the past few years, Shenzhen's financial sector has suffered two major setbacks:
First, the New Third Board was taken by Beijing;
Second, the CSRC adjusted the allocation of new share issuance, and the IPO advantage Shenzhen had enjoyed through the SME Board and ChiNext was caught up with by Shanghai.
In other words, over the past five years, the No. 1 and No. 2 players both took a share from No. 3, leaving No. 3 somewhat weakened. But Shenzhen's financial sector has always been like this: every few years something is taken away by the top two — what can you do when your positioning is lower than Beijing and Shanghai!
After years of wrestling with Beijing — and even being overtaken by it — Shanghai's financial value added has finally pulled well ahead again. This is related to the central government's strong support for Shanghai's financial sector: in recent years the Shanghai Stock Exchange reversed its IPO disadvantage against Shenzhen, and the Shanghai Free Trade Zone obtained many pilot rights in finance. In addition, six of China's ten national exchanges are now in Shanghai.
Beyond Beijing, Shanghai and Shenzhen, the financial GDP of Guangzhou and the five strong second-tier cities is interesting, with a chaotic relationship to total funds. For example, Hangzhou's total funds exceed those of Chongqing, Chengdu, Tianjin and Nanjing, yet its officially published financial value added is much lower than theirs.
Guangzhou's financial value added grew fastest among the nine cities even though its total funds growth ranked near the bottom. Chongqing, with total funds slightly below Hangzhou's, somehow produced 1.5 times Hangzhou's financial value added.
So financial value added can only serve as a reference, because the data are published by the "contestants" themselves rather than by a third party such as the central bank.
III. Conclusion
Below is a one-sentence comment on each of the nine cities' financial sectors:
Beijing: money tilts the world — it will never lose its No. 1 ranking in total funds.
Shanghai: with strong central support, it has regained the advantage.
Shenzhen: catching up with Shanghai on finance alone is mission impossible; combined with high-tech and emerging industries, dawn may appear in ten years.
Guangzhou: with deep reserves, it remains hard for the "pack of wolves" among second-tier cities to overtake. But the gap with Beijing, Shanghai and Shenzhen also seems hard to narrow.
Hangzhou: back to fifth place in total funds, it is now preparing to challenge Guangzhou.
Chengdu: having painfully lost fifth place in funds, what it lacks is not just money but popularity.
Chongqing: its period of rapid economic growth is about to end; from now on it will mainly rely on its own internal strength.
Tianjin: watch out for Nanjing and Wuhan behind you!
Nanjing: it has locked onto Hangzhou as its rival, paying little heed to Chengdu, Chongqing or Tianjin.
Source: Phoenix Finance comprehensive report, 2017-02-12
Author: Liu Xiaobo, Source: Tiantian Shuoqian (ID: liuxb0929)