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Comparative study on Asian financial capitals' competitiveness: focused on strengths and weaknesss of the city of Seoul

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Comparative study on Asian financial capitals' competitiveness: focused on strengths and weaknesss of the city of Seoul

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COMPARATIVE STUDY ON ASIAN FINANCIAL CAPITALS’ COMPETITIVENESS:
FOCUSED ON STRENGTHS AND WEAKNESSES OF THE CITY OF SEOUL

by

Jae Hoon Park

A Thesis Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(ECONOMICS)

August 2012

Copyright 2012 Jae Hoon Park

ii

Table of Contents

List of Tables

List of Figures

Abstract

1. Introduction
1.1. Purpose of Study
1.2. Globalization of Cities and Finance
1.3. Concepts and Classification of the Financial Capital
1.4. Effects of Financial Capital Advancement
1.5. Key Factors for a Successful Financial Capital
1.6. Composition of the Paper

2. Comparative Analysis of Asian Financial Capitals
2.1. Analysis Methods
2.2. Priorities of Competitiveness Factors
2.3. Comparative Analysis of Competitiveness by Four Indices
2.3.1. Overall Evaluation Analysis
2.3.2. Evaluation Analysis by Sub-Indices
2.4. Detailed Analysis of Each Index
2.4.1. GFCI (Global Financial Centers Index)
2.4.2. IFCD (International Financial Centers Development) Index
2.4.3. FPGC (Foreign Policy Global Cities) Index
2.4.4. WCCI (Worldwide Centers of Commerce Index)

3. Case Studies of Comparable Cities
3.1. Historical Trends of Financial Capitals Development
3.2. Hong Kong
3.3. Singapore
3.4. Shanghai
3.5. Dubai

4. Conclusions

References
iii

iv

v

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7
9

10
10
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45
iii

List of Tables

Table 1: Evaluation Dimensions of Each Index

Table 2: Ranks of Asian and Middle East Cities by Four Indices

Table 3: Top 10 Cities by 4 Indices

Table 4: Seoul’s Ranks on Each Dimension

Table 5: Top 10 Cities by Sub-indices of GFCI

Table 6: Evaluation indicators of each dimension in GFCI

Table 7: Evaluation Indicators of Each Dimension and Ranks of Target
Cities in IFCD

Table 8: Evaluation Indicators of Each Dimension and Ranks of Target
Cities in FPGC

Table 9: Evaluation Indicators of Each Dimension and Ranks of Target
Cities in WCCI

Table 10: Trend of Seoul’s rank and rating in the GFCI

Table 11: The Ten Centers 1) Promising / 2) New Offices are likely to
be opened

11

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15

17

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24

41

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iv

List of Figures

Figure 1: The GFCI Rating Trends of Leading Cities from 4 Different
Regions

Figure 2: GFCI ratings of Target Cities

Figure 3: IFCD ratings of Target Cities

Figure 4: FPGC ratings of Target Cities

Figure 5: WCCI ratings of Target Cities

14

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21

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v

Abstract
Most globally influential cities such as New York, London and Tokyo are also appraised
as financial centers. In addition, many emerging countries try to promote their capital
cities as regional or global financial centers, and the competition to become a successful
financial capital is getting tougher. This is because the financial services industry not only
is a high-value-added industry itself but also can have huge effects on other service
industries like accounting, consulting and legal services. Besides, powerful financial
capitals can lead the economic growth of their countries by attracting foreign investment
or entrances by global enterprises. Recognizing that its level of financial-sector
development paled in comparison to those of other developed countries in spite of its
status as the world’s 12th largest economy, South Korea also initiated and implemented a
development plan to promote financial industries as a new driving force for national
economic growth. This thesis analyzes the strengths and weaknesses of the City of Seoul
as a financial center compared to other comparable Asian cities, using four indices which
global institutions or presses publish periodically. This study concludes that Seoul must
improve several elements in order to become a successful financial capital. Although
Seoul is one of the cities most frequently cited as a promising financial center and
recently showed great improvement in diverse aspects, still efforts should be made to
make the city more competitive as a financial capital. Seoul must design its own strategic
approach if it wishes to be more competitive in financial industry among Asian cities.

1

1. Introduction

1.1. Purpose of Study
Many global cities in the world typically have strength in the financial sector. While cities
such as New York, London and Hong Kong maintain their positions as world financial
centers, in relative newcomer cities such as Shanghai, Dubai, and Mumbai, the
governments spare no effort to strengthen their financial industries. The financial services
industry is not only a high-value-added industry but one that can have huge effects on
other service industries like accounting, consulting and legal services. Recognizing that
its level of financial-sector development paled in comparison to those of developed
countries in spite of its status as the world’s 12
th
-largest economy
1
, South Korea recently
initiated and implemented a development plan to promote financial industries as a new
driving force for national economic growth. This “financial hub policy” was adopted in
2003 in the Roo Moo-hyun administration, and the Lee Myung-bak administration took
over the policy in 2008, renaming it the “financial capital policy”. Under this plan, the
Financial Capital Construction and Development Act was established (2007.12), and the
government designated Seoul and Busan as financial capitals to foster those cities as
focal points for deregulation and financial development (2008.6). Also, the City of Seoul
began constructing a financial complex, the Seoul International Financial Center (SIFC),
which would provide office space, commercial areas, hotels, restaurants, theaters, etc.
2

This thesis adopts a comparative research approach to assessing the strengths and

1
Based on the GDP scale calculated by IMF as of 2011.

2
SIFC was partially opened in Nov 2011.
2

weaknesses of Seoul as a financial capital compared to other Asian cities. It uses four
main indices published by international institutions to analyze the relative
competitiveness of each city. Each index is calculated using many different dimensions,
and various quantitative data and/or surveys of experts may be furnished to support the
results of these evaluations. This research describes the current conditions in Seoul, and
proposes effective implications and feasible policy alternatives.

1.2. Globalization of Cities and Finance
According to the WCCI report (2008), it was in 2006, that more people began to live in
cities or towns than in the rural country areas for the first time in human history. There
are 161 urban regions where 2.5 million or more people stay, and 707 urban
agglomerations have 500,000 or more people
3
. Sassen (2001) argues that most of these
urban areas are truly “global cities”, serving as critical links in a network which directs
commerce and finance across the world, as the diversity, scale, scope and reach of cities’
economies are revealed to far exceed what people would expect. Many multinational
companies have responded to global urbanization and to an increased need to upgrade
efficiencies by locating their core business functions across international borders. In
addition, they became more interested in leveraging location advantages created by a
broader global network of competitors or partners. Therefore, it became crucial for them
to understand how to capitalize on local market conditions in defining their competitive
advantages (WCCI, 2008).

3 Demographia, World Urban Areas: World Agglomerations (Belleville, IL: Demographia)
3

Savitch and Kantor (2002) explained the enormous transformation of economic,
demographic, technological, and political aspects in post-industrial society, and argued
that “urban society” is the best phrase that can explain this transformation. Economic
transformation includes the change of characteristics in capital and corporate ownership.
Capital became more nimble and more multinational, and corporate ownership is now not
confined solely to a single nation but can span the globe. Demographic change is a large
amount of migration to the European countries or North America. And, political change
can be summarized as the advent of several international institutions which consist of
many members of different countries such as the European Union (EU) and the North
American Free trade Association (NAFTA). Savitch and Kantor (2002) said that cities are
the crucibles through which radical experiments become convention as well as complex
and concentrated environments where people adapt and their resilience can be tested. In
other words, they claimed that cities not only have been the terrain on which
technological, social, and global transformation has occurred, but also have the ability to
guide it and shape its impact.
Knox and Taylor (1995) emphasized the globalization of finance, along with the
globalization of industry and city. They thought that the globalization of finance has been
part cause and part effect of the globalization of industry. They suggested three points as
the main components of the globalization of finance: (1) the growth of the Eurodollar
market and the consequent growth in trading in exchange rates of domestic currencies: (2)
the emergence of transnational banks and investment companies, the development of a
global venture-capital industry, and the advent of 24-hour global trading in capital and
4

securities markets: and (3) increasing interest by national governments, encouraged by
transnational organizations such as the World Bank, the IMF (International Monetary
Fund), and the OECD (Organization for Economic Cooperation and Development), in
attracting foreign investment. The globalization of finance has been an crucial enabling
factor in the globalization of industry, satisfying transnational companies’ demand for
access to enormous amounts of capital for mergers, acquisitions and operational
restructuring (Versluyen, 1981). It has leaded a shift from banks’ traditional role of
assisting trade between nations and firms to one of facilitating the expansion of the
manufacturing capacity of large corporations, and of partnerships between states,
international financial institutions, and private capital (Sachar, 1990). At the same time, it
can be claimed that some key aspects of the globalization of finance were a result of the
special needs of manufacturing corporations in their desire for multinational production
and marketing capacity (Knox and Taylor, 1995).

1.3. Concepts and Classification of the Financial Capital
There have been some arguments about the definition of the term “financial capital”
(often called “financial hub”). Traditionally, it means a city where a mass of financial
transactions happen. Dufey and Giddy (1994) argued that a financial capital is a city
where a large number of financial institutions that deal with diverse international or
inter-regional financial transactions are located. On the other hand, Kindleberger (1972)
defined the term as a region that plays a role in allocating financial resources efficiently
by connecting demand for financial capital with available sources. The common factors
5

in these arguments indicate that a financial capital can be defined as a city where 1)
financial transactions really exist, 2) quite a number of financial institutions are located,
and 3) consumers and suppliers perform diverse financial activities, taking advantage of
minimized limitations of time and space.
There has been no clear formal classification of financial centers. Dufey and
Giddy (1978) classified financial centers into three categories according to their functions:
the traditional center, the financial entrepot, and the offshore banking center. Choi (1994)
said that financial capitals could be sorted into three types: the traditional center, the
offshore center, and the booking center. When classifying financial centers, he considered
the tax systems or regulations related to capital or foreign transactions, economic scales,
levels of economic development, etc. The Korean government (Ministry of Finance and
Strategy, 2003) categorized such centers into four types by their functions:
comprehensive financial capitals, specialized financial capitals, offshore financial capitals,
and tax havens. Comprehensive financial capitals are where infrastructure is well-
developed, and where overall financial services are provided on the basis of mature
financial markets and a real economy, such as in New York and London. Specialized
financial capitals are regions which concentrate on specialized financial services or
commodities; Luxembourg and Dubai are good examples of this group, which specializes
in asset management. Offshore financial capitals are areas where a financial market is
constructed separate from the domestic one, providing financial services only to non-
residents with tax benefits. Tax havens are places where people do only paperwork on
financial transactions for the purpose of tax avoidance. The Global Financial Centers
6

Index 10 (2011) used three measures to classify each financial center: connectivity (the
degree to which a center is known to the world, and to which non-residents think it is
connected to other centers), diversity (the breadth of industry sectors that a center has),
and specialty (the depth within a center of certain industry sectors).

1.4. Effects of Financial Capital Advancement
Creating a successful financial capital may have varied economic effects on the regional
economy. First of all, it will bring about the development of the financial industry. A
financial center must be properly equipped with an advanced regulatory system and
business environment, and this can attract globally competitive enterprises. During this
process, the financial system of the region is upgraded, while internal financial
companies become more competitive. An advanced financial system can facilitate the
flow of funds between financial institutions and industries, which can play a role in
boosting the economy. In particular, developing a financial sector with a strong
regulatory system is becoming more important throughout the world in the wake of the
recent financial crisis.
Secondly, a strong financial sector can have a significant impact on other high-
value-added industries such as accounting, consulting, and legal services (Choi, 1994).
Also, a global city has the power to attract businesses and people from all over the world,
which will promote related businesses like travel, lodging, real estate, education, health
care, entertainment, etc. Thirdly, as financial companies require high-quality human
resources, a strong financial sector enables job creation (Choi, 1994). It is anticipated that
7

demand for more high-quality people will increase as financial commodities diversify
and advance. Lastly, the creation of a financial capital will raise the status of a city, and
increase the market value of the region. A successful financial capital can be achieved
only when social and cultural environments as well as business and economic conditions
are well-arranged and developed. This superb environment will lead multinational
enterprises to locate regional headquarters or branches there, which will enhance the
status of that city.

1.5. Key Factors for a Successful Financial Capital
Because of the economic benefits of financial capitals, competition between countries to
foster such capitals is getting tougher and tougher. As a result, people have become more
interested in factors that could lead to the creation of successful financial capitals.
Kindleberger (1972) argued that more experts from economics or finance should be
interested in studying financial capitals since such studies had been done mainly by
geographers so far. Regarding crucial factors for financial capitals, he commented on the
number and scale of banks, as well as the expertise and global experience of the local
people. Kindleberger also described ten factors in the success of European financial
capitals: the European currency, central banks, administrative capitals, tradition,
economies of scale, central locations, transportation systems, headquarters of
multinational corporations, culture and policy. He insisted that a city becomes a financial
center as capital and transactions converge on that city, which is a regional center of
transportation and commercial activities. Choi (1994) suggested that necessary conditions
8

could be divided into geographical factors and service level. Geographic factors included
large-scale markets, recognition as a financial capital, proximity to countries which could
create large quantities of supply and demand for financial services, etc. Financial services
are strategic policy tools which many competitive countries use, and this includes
regulation; taxation; professionals; experiences of supervisory authority; experts related
to international law, accounting and taxes; transportation and communication
infrastructures; political stability, etc. Reed (1980) identified crucial factors for financial
capitals by analyzing 17 Asian financial capitals using 9 different variables. Those
variables were headquarters locations of local banks; scales of foreign assets and debts;
methods of international communication; direct investment of foreigners; headquarters
locations for global entrepreneurs; etc., all of which he thought were important factors for
successful financial capitals. Abraham et al. (1993) categorized them into three
environments: productivity, artificial and regulation. Productivity factors included the
accumulation of capital, the quality of professionals, geographical location, facilities for
transportation and communication, and number of global financial institutions or
entrepreneurs. Artificial environmental factors included a system of controlling macro
economy and finance, technology, financial markets, and financial innovation. Regulatory
systems included various rules and financial regulations on foreign exchanges or stock
exchanges. They emphasized artificial environments most among the three factors.
La Porta et al. (1997) insisted that legal systems or the origin of legal systems
must be the key factor in successful financial development, and that countries which
followed Anglo-American common law were better at protecting consumers and
9

investors. Rajan and Zingales (2002) objected to this opinion and argued that legal
systems could not be the absolute condition affecting financial capitals. Rather, they
explained that those who had vested rights had a huge influence on financial capitals.
Kim (1999) categorized the crucial factors into four conditions: political and economic
conditions, financial conditions, infrastructure conditions and regulation conditions. Lee
(2003) emphasized that human capital and language, diversity and scale of market,
diversity of financial commodities, political stability, transportation and communication
systems, and financial prudence were important factors in successful financial capitals. In
summary, a wide range of factors should be taken into account in the creation of an
influential financial capital.

1.6. Composition of the Paper
This paper consists of two parts: (1) a Competitiveness Index analysis and (2) a case
study. Four indices are used to evaluate the comparative competitiveness of each city: the
GFCI (Global Financial Centers Index), the IFCD (International Financial Centers
Development Index), the FPGC (Foreign Policy Global Cities Index) and the WCCI
(Worldwide Centers of Commerce Index). Cities’ competitiveness should be affected by a
large number of factors. Thus, each institution evaluates cities’ competitiveness in diverse
areas by varied methods. On the other hand, Hong Kong and Singapore are often
evaluated as the most successful financial and global cities in Asia. The results of the
indices analysis confirm this evaluation. Thus, studying the progress and characteristics
of these two cities as financial capitals will be helpful in designing Seoul’s strategic plan
10

to become such a financial capital. By studying the key factors that led these two cities to
become top financial capitals, it is anticipated that we may draw useful implications for
designing Seoul’s own strategies. In addition, several emerging cities such as Shanghai
and Dubai are distinguishing themselves thanks to strong governmental support. Thus, it
is also meaningful to study the development processes and notable changes or reforms in
these cities, since they are likely competitors for Seoul.

2. Comparative Analysis of Asian Financial Capitals

2.1. Analysis Methods
This thesis analyzes the strengths and weaknesses of Seoul as a financial capital in
comparison to influential Asian cities such as Tokyo, Hong Kong, and Singapore or
newly rising cities like Shanghai, Dubai and Mumbai, and draws implications for the
successful financial-capital policy of Korea. Four main indices were used to evaluate the
comparative competitiveness of each city: the GFCI (Global Financial Centers Index), the
IFCD (International Financial Centers Development Index), the FPGC (Foreign Policy
Global Cities Index) and the WCCI (Worldwide Centers of Commerce Index). The GFCI
has been published by the City of London since March 2007 in cooperation with Z/Yen
Group. This index is calculated by both instrumental factors, published by international
research institutions such as OECD and the World Bank, and surveys of financial
professionals. Similarly, Xinhua News Agency linked up with the Chicago Mercantile
Exchange (CME) Group in 2010 to launch the Xinhua-Dow Jones International Financial
Centers Development (IFCD) Index. Its evaluation system consists of both an objective
11

indicator method and a subjective method (questionnaire survey). The FPGC index was
developed in October 2008through collaboration between the journal Foreign Policy, the
management consulting firm A.T. Kearney, and the Chicago Council on Global Affairs.
This index is calculated based on evaluations of competitiveness as well as advice from
urban professionals. Lastly, the WCCI has been published since 2007 and is calculated by
Mastercard’s research team with a view to identifying and ranking the world’s leading
cities and exploring their role in driving global commerce. Each index is calculated by
many different evaluation elements or dimensions (see Table 1), and varied quantitative
data are furnished to support results of evaluations.

Table 1: Evaluation Dimensions of each Index
Index Dimensions or Areas of Evaluation
GFCI
1) People, 2) Business environment, 3) Infrastructure, 4) Market access, 5)
General competitiveness
IFCD
1) Financial market, 2) Growth and development, 3) Supporting industries, 4)
Service levels, 5) General environment
FPGC
1) Business activity, 2) Human capital, 3) Information exchange, 4) Cultural
experience, 5) Political engagement
WCCI
1) Legal and political framework, 2) Economic stability, 3) Ease of doing
business, 4) Financial flow, 5) Business center, 6) Knowledge creation and
information flow, 7) Livability

2.2. Priorities of Competitiveness Factors
In the GFCI and the IFCD survey (2011), people were asked about the key factors for
competitiveness in order to gauge the importance of each instrumental element. This must
reflect what areas experts regard as crucial elements for successful financial capitals. The
IFCD reports explained that the priorities among the five aspects were the general
12

environment, the financial market, service level, growth and development, and supporting
industries, in that order. The factors listed in the GFCI report were the business
environment, people, general economic conditions, taxation, and infrastructure. In other
words, professionals judge that business environment and human resources are more
essential to the competitiveness of cities than infrastructure. Thus, it can be concluded
that it is more crucial for successful financial capitals to improve the core factors of the
financial industry than to create other general conditions supporting the financial sector.
Also, the GFCI asked respondents to identify regulatory changes that would improve a
financial center’s competitiveness. There were diverse responses, but the top four
answers were taxation (personal tax), regulation (fairness and predictability), level
playing field (competitiveness with others), and business freedom/ease (ease of running
business). In addition, respondents were asked about which signals best indicate a long-
term commitment to financial services. The answers were stability in regulation,
infrastructure development, tax rates, rule of law or lack of corruption, and lack of
government interference.

2.3. Comparative Analysis of Competitiveness by Four Indices
2.3.1. Overall Evaluation Analysis
The rankings of some Asian and Middle Eastern cities on each index are listed below.
Seoul placed 11th, 24th, 10th, and 9th in the GFCD, the IFCD, the FPGC, and the WCCE
indices respectively (see Table 2). We can draw meaningful conclusions from the results.

13

Table 2: Ranks of Asian and Middle East Cities by four indices
Evaluation Institution
(year published,
number of cities)
GFCD
(2011, 75)
IFCD
(2011, 45)
FPGC
(2010, 65)
WCCI
(2008, 75)
Rank Value Rank Value Rank Value Rank Value
Tokyo 6 695 3 85.81 3 5.42 3 66.60
Hong Kong 3 770 4 82.18 5 4.14 6 63.94
Singapore 4 735 5 74.53 8 3.45 4 66.16
Seoul 11 679 24 4eff3 10 3.40 9 61.83
Shanghai 5 724 6 71.42 21 2.78 24 52.89
Dubai 36 622 16 51.00 27 2.56 44 47.23
Mumbai 64 578 34 35.68 46 1.69 48 45.71

First of all, Tokyo, Hong Kong, and Singapore are among the most influential and
competitive cities, and show considerably balanced competitiveness throughout all
evaluation areas. These three cities are among the top 10 cities in all four indices (see
Table3), and there is hardly any factor in which Seoul is superior to these cities.

Table 3: Top 10 cities by 4 indices
Rank GFCD (2011) IFCD (2011) FPGC (2010) WCCE (2008)
1 London New York New York London
2 New York London London New York
3 Hong Kong Tokyo Tokyo Tokyo
4 Singapore Hong Kong Paris Singapore
5 Shanghai Singapore Hong Kong Chicago
6 Tokyo Shanghai Chicago Hong Kong
7 Chicago Paris Los Angeles Paris
8 Zurich Frankfurt Singapore Frankfurt
9 San Francisco Sydney Sydney Seoul
10 Toronto Amsterdam Seoul Amsterdam
11 Seoul 24 Seoul

Secondly, many cities in Asia or the Middle East showed remarkable growth and strength,
while traditional international cities were relatively mature, showing steady improvement.
As shown the graph below (see Figure 1), Asian cities demonstrated more dynamic
14

growth than European cities did in the last five years. Also, respondents to the GFCI
questionnaire commented that many Asian or Middle Eastern cities like Seoul, Shanghai,
Singapore, Hong Kong, Beijing, and Mumbai would become more promising and
significant in the near future

Figures 1: The GFCI rating trends of leading cities from 4 different regions

European cities

Asian cities

North American cities

Middle East cities

Lastly, Seoul turned out to be one of the most globally influential cities, becoming
increasingly competitive of late. Nonetheless, Seoul is relatively weak in the financial
industry; the results of the GFCI and IFCD reports, which focus more on financial
industry than the FPGC and the WCCI do, were relatively poor. On the other hand,
Shanghai, which recently showed sharp improvement in every index, demonstrated
relatively strong points as a financial center (5
th
in the GFCI and 6
th
in the IFCD), while
earning a slightly lower ranking in the FPGC (21
st
) and the WCCI (24
th
) indices. Dubai
15

and Mumbai, which showed lower ratings in general compared to Seoul, are also growing
in the financial sector.

2.3.2. Evaluation Analysis by Sub-indices
Seoul’s rank on each dimension by each index is listed below (see Table 4).
Seoul has weaknesses in people (GFCI), financial markets, service levels, general
environment (IFCD), human capital and political engagement (FPGC), legal and political
framework, economic stability, ease of doing business, and livability (WCCI). Seoul is
less competitive than Tokyo, Hong Kong, and Singapore in almost every area, and more
competitive than Dubai and Mumbai in many dimensions. Also, in comparison with
Shanghai, Seoul showed strengths in the FPGC and WCCI indices, while the GFCI and
the IFCD reports indicated different results for two cities depending on dimensions.

Table 4: Seoul ’s ranks on each dimension
Index Dimensions or Areas of Evaluation Seoul ’s Rank
GFCI
(Seoul: 11
th
)
1) People 8 (weak)
2) Business Environment 6
3) Infrastructure 7
4) Market access 5
5) General competitiveness 5
IFCD
(Seoul: 24
th
)
1) Financial markets 26 (weak)
2) Growth and development 9
3) Supporting industries 16
4) Service levels 36 (weak)
5) General environment 34 (weak)
FPGC
(Seoul: 10
th
)
1) Business activity 7
2) Human capital 35 (weak)
3) Information exchange 5
4) Cultural experience 10
5) Political engagement 19 (weak)
16

Table 4: Continued
Index Dimensions or Areas of Evaluation Seoul ’s Rank
WCCI
(Seoul 9
th
)
1) Legal and political framework 41 (weak)
2) Economic stability 43 (weak)
3) Ease of doing business 44 (weak)
4) Financial flow 4
5) Business center 10
6) Knowledge creation and information flow 5
7) Livability 49 (weak)

2.4. Detailed Analysis of Each Index
2.4.1. GFCI (Global Financial Centers Index)

Figure 2: GFCI ratings of Target Cities

The GFCI report (2011.9) says that there has
been dynamic change in the rating of Asian
centers over the past three years. Some strong
cities are getting much stronger, consolidating
their positions in Asia. These include Hong
Kong’s increase of 11 points, Singapore’s
increase of 13 points, Shanghai’s increase of 13 points, and Seoul’s increase of 28 points.
On the other hand, certain cities like Tokyo, Beijing and Taipei are growing weaker as
financial centers. Among four indices, the GFCI showed the best result of sub-indices for
Seoul. Seoul is incredibly within the top eight in all five of the sub-indices of GFCI, with
the other big four Asian cities (Hong Kong, Singapore, Shanghai, and Tokyo) (see Table
5). Hong Kong and Singapore firmly maintained 3
rd
and 4
th
place, showing their strength
in all five areas. Shanghai and Tokyo are more competitive than Seoul in terms of people
0
200
400
600
800
1000
GFCI index rating
17

and business environment. In the GFCI, Seoul reveals weakness in the people area,
probably because of a relatively strict labor market and a lack of leading universities in
Korea.

Table 5: Top 10 Cities by Sub-indices of GFCI
Rank People
Business
Environment
Market Access Infrastructure
General
Competitiveness
1 London London London London London
2 New York New York New York New York New York
3 Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong
4 Singapore Singapore Singapore Singapore Singapore
5 Shanghai Chicago Shanghai Seoul Seoul
6 Tokyo Seoul Tokyo Tokyo Shanghai
7 Chicago Shanghai Seoul Shanghai Tokyo
8 Seoul Tokyo Zurich Chicago Chicago
9 Toronto Toronto Zurich Chicago Chicago
10 Frankfurt Zurich Chicago Zurich Boston

Table 6: Evaluation indicators of each dimension in GFCI
Dimension Evaluation Indicators
People
Availability of good personnel, Flexibility of labor market
Business education and the development of Human capital
Business
Environment
Regulation, Tax rate, Levels of corruption
Economic freedom/ Ease of doing business
Market Access
Levels of securitization, Volume/Value of trading in equities and bonds
Cluster effect having many firms involved in the Financial services
sector together in one center
Infra Structure
Cost and availability of office and buildings and office space
Other infrastructure (Transport, etc)
General
Competitiveness
Overall competitiveness of centers in terms of more general economic
sentiment and how centers are perceived as places to live

Also, Hong Kong and Singapore are positioned in the top 10 of all GFCI industry
sectors: asset management, banking, government & regulatory environment, insurance,
18

professional services, and wealth management/private banking. Seoul is in the top 10
only in the banking-industry category. Tokyo is also among the top 10 in all areas except
wealth management/ private banking. Shanghai is placed 2
nd
in insurance.

2.4.2. IFCD (International Financial Centers Development)

Figure 3: IFCD ratings of Target Cities

The IFCD index report (2011.7) indicates
that Seoul moved up seven placed in the
rankings from the previous year (2010),
since it displayed a relatively strong recovery
from the financial crisis. Nonetheless, Seoul
showed weaker competitiveness than
other Asian cities. Tokyo and Hong Kong were classified as mature financial centers
(over 80 points) with New York and London, and Singapore and Shanghai included in a
second group.
The first group showed obvious competitiveness in all the areas, and its members
could help one another to cooperate toward further. development Having completed
industrialization and urbanization, these top cities now have absolute advantages in every
sector, especially with the strong financial-services sectors which are leading their
economies. Singapore and Shanghai are in the second group (between 60 and 80 points),
whose members demonstrate strong and stable growth, following the first group. Seoul
and 17 other cities (including Dubai) were classified as part of a third group. However,
0
20
40
60
80
100
IFCD rating
19

this report said that Seoul belongs to the class of emerging cities, which have relatively
strong innovative potential in the near future.

Table 7: Evaluation Indicators of Each Dimension and Ranks of Target Cities in IFCD
Dimension Evaluation Indicators Rank
Financial
Market
Capital market
Forex market
Banking market
Insurance market
Seoul (26)
Tokyo (3), Hong Kong(4)
Singapore(8), Dubai(15)
Mumbai(20), Shanghai (7)
Growth and
Development
Capital market growth
Economic growth
City innovation output
Creation potential
Seoul (9)
Tokyo (3), Hong Kong(2)
Singapore(5), Dubai(8)
Mumbai(11), Shanghai (1)
Industrial
Support
Business environment support
Basic urban conditions and urban
infrastructure
Seoul (16)
Tokyo (2), Hong Kong(4)
Singapore (5), Dubai(11)
Mumbai(40), Shanghai (6)
Services Government services
Intellectual capital
Urban environment
Seoul (36)
Tokyo (3), Hong Kong(4)
Singapore(6), Dubai(18)
Mumbai(38), Shanghai (7)
General
Environment
Economic environment
Political environment
Openness
Seoul (34)
Tokyo (3), Hong Kong(4)
Singapore(6), Dubai(29)
Mumbai(39), Shanghai (19)

Based on the IFCD index (2011), Tokyo, Hong Kong and Singapore show strong
competitiveness in every aspect. In addition, Shanghai shows significant advantages
throughout all dimensions, except the general environment, and Dubai also has stronger
points than Seoul in every area. Although Seoul’s rank has increased by seven places,
Seoul still demonstrates weakness in overall dimensions compared to other big Asian
cities. In particular, Seoul reveals weak points in core areas that could be dynamic
elements in a successful financial capital, such as financial market, services, and general
20

environment. The IFCD report argues that the evaluation results of the financial market
sub-element are similar to those of the overall evaluation of the financial centers. This
implies that the dimension of financial market is one of the most crucial factors in the
development of financial capitals, but Seoul placed 26
th
in this area. Also, the IFCD
report says that emerging cities such as Shanghai, Seoul, and Mumbai generally scored
low in services, urban environment and government actions, while traditional European
and American financial centers showed advantages in these areas. Worse, the service-
level index turns out to be stable with low volatility, indicating it is not easy to improve
this area in the short term. Thus, this report recommends that long term strategic plans are
required to develop service levels.

21

2.4.3. FPGC (Foreign Policy Global Cities) Index

Figure 4: FPGC ratings of Target Cities

The FPGC (2010) report describes Asian
cities as rising stars. Four such cities
(Tokyo, Hong Kong, Singapore, and Seoul)
are included in the top 10 global cities, and
many other cities, especially in China or
India, also keep developing. This report also
points out that these cities would have performed better if censorship criteria had been
excluded from evaluation. Most Asian cities, as well as cities in BRICs, are not
particularly open to immigrants, while other global cities have many foreign-born
students or innovators.

Table 8: Evaluation Indicators of Each Dimension and Ranks of Target Cities in FPGC
Dimension Evaluation Indicators Rank
Business
activity
The value of a city ’s capital market
The number of Fortune Global 500 firms
headquarters
The number of international conferences held
The flow of goods (via airports and ports)
The volume of the goods that pass through
the city
Seoul (7)
Tokyo (2), Hong Kong(5)
Singapore (6), Dubai (21)
Mumbai (39), Shanghai (8)
Human
capital
How well the city acts as a magnet for diverse
groups of people and talent
The size of a city ’s foreign-born population
The quality of its universities
The number of international schools
The international student population
The percentage of residents with university
degrees

Seoul (35)
Tokyo (6), Hong Kong(5)
Singapore (7), Dubai (19)
Mumbai (37), Shanghai (25)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
FPGC index rating
22

Table 8: Continued
Dimension Evaluation Indicators Rank
Information
exchange
How well news and information is dispersed
within the city and to the rest of the world
The number of international news bureaus
The level of censorship
The amount of international news in the
leading local papers and the broadband
subscriber rate
Seoul (5)
Tokyo (7), Hong Kong(6)
Singapore (15), Dubai (14)
Mumbai (53), Shanghai (42)
Cultural
experience
The level of diverse attractions a city has for
international residents and travelers
The number of major sporting events a city
hosts
The number of museums, performing arts
venues and diverse culinary establishments it
boasts, as well as the number of sister city
relationships it maintains
Seoul (10)
Tokyo (7), Hong Kong (26)
Singapore (37), Dubai (44)
Mumbai (52), Shanghai (35)
Political
Engagement
The degree to which a city influences global
policy-making and dialogue
The number of embassies and consulates,
major think tanks, international organizations
and local institutions with international reach
that reside in the city
The number of political conferences a city
hosts
Seoul (19)
Tokyo (6), Hong Kong (40)
Singapore (16), Dubai (44)
Mumbai (52), Shanghai (18)

Throughout the whole area of sub-indices of the FPGC index, Seoul shows better
competitiveness in information exchange and cultural experience, which are among a few
areas where Seoul shows better competitiveness than Hong Kong and Singapore. We may
presume that Seoul is a comparatively complex city, mixing business and culture, while
Hong Kong and Singapore are more business- or financial service-focused cities. This
can be a strong point for Seoul to induce more foreign businessmen or financial experts,
as the high quality of these two elements should be helpful for providing them with better
living conditions and improving their quality of life. On the other hand, however, Seoul
demonstrates weakness in the area of human capital, which is one of the core factors in
the success of financial capitals. The quality of universities, the number of international
23

schools, the international student population, and the size of a city’s foreign-born
population are included in the evaluation for the human-capital area. Tokyo, Hong Kong,
and Singapore show very strong competitiveness, especially in the business-activity and
human-capital areas, and in comparison with Shanghai, Dubai, and Mumbai, Seoul is
highly appraised in every dimension except human capital.

2.4.4. WCCI (Worldwide Centers of Commerce Index)

Figure 5: WCCI ratings of Target Cities

The WCCI report (2008) also highly
appraised the remarkable growth of cities in
the Asia/Pacific and Middle East regions.
Eight Asian cities are among the top 25
commercial centers, and five Chinese cities
are included in the top 75 centers, showing off China’s spectacular rise. Three traditional
global cities in Asia, Tokyo, Hong Kong, and Singapore are taking the lead based on the
WCCI. Seoul, placing 9
th
in the ranking, is among the top 10 commercial centers, ahead
of Shanghai (24
th
), Dubai (44
th
), and Mumbai (48
th
).
Although many Asian cities display noteworthy results, their strengths are shown
in limited areas: general financial flow and business centers. Seoul also reveals pretty
poor results in many dimensions such as legal and political framework, economic
stability, ease of doing business, and livability, while showing strong points in financial
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
WCCI rating
24

flow, business center, and knowledge creation and information flow. In particular, most of
those weak areas are crucial factors that should be driving forces for financial capitals.
Hong Kong and Singapore demonstrate outstanding competitiveness in ease of doing
business and business centers. This shows how eagerly these two cities worked to attract
diverse businesses from all over the world by executing strategic policies. Shanghai,
Dubai, and Mumbai don’t yet have advantages over Seoul in most areas.
Table 9: Evaluation Indicators of Each Dimension and Ranks of Target Cities in WCCI
Dimension Evaluation Indicators Rank
Legal and
political
framework
Moody ’s Ratings
Ex-im Bank Ratings
Ease of Dealing with Licenses
Ease of Registering Property
Ease of Trading Across Borders
Seoul (41)
Tokyo (30), Hong Kong(33)
Singapore(3), Dubai(36)
Mumbai(61), Shanghai (50)
Economic
stability
GDP Growth Volatility
Exchange Rate Volatility
Inflation Volatility
Seoul (43)
Tokyo (36), Hong Kong(47)
Singapore(19), Dubai(65)
Mumbai(52), Shanghai (57)
Ease of doing
business
Starting/Closing a Business
Employing Workers
Getting Credit
Conventions/ Exhibitions/ Meetings
Banking Services
Ease of Entry/Exit
Inventor Protection
Corporate Tax Bundles
Enforcing Contracts
Seoul (44)
Tokyo (18), Hong Kong(2)
Singapore(1), Dubai(58)
Mumbai(69), Shanghai (53)
Financial flow Financial Services Network: Banking,
Securities, Insurance
Equity Transactions
Earned Transactions
Derivatives Contracts Traded
Commodities Contracts Traded
Seoul (4)
Tokyo (6), Hong Kong(13)
Singapore(11), Dubai(28)
Mumbai(7), Shanghai (9)
Business
center
Air Passenger/ Airphone Traffic
Air Cargo Traffic
International Air Passenger Traffic
Number of Five-Star Hotels
Commercial Real Estate Development
Seoul (10)
Tokyo (6), Hong Kong(1)
Singapore(3), Dubai(5)
Mumbai(31), Shanghai (4)

25

Table 9: Continued
Dimension Evaluation Indicators Rank
Knowledge
creation and
information
flow
Number of Universities
Number of Medical Schools
Number of MBA Programs
Researchers Per Million People
Scientific and Technical Journal Articles
Per Million People
Broadband Access Per Thousand People
Seoul (5)
Tokyo (3), Hong Kong(21)
Singapore(14), Dubai(69)
Mumbai(58), Shanghai (53)
Livability Quality of Life
Basic Services
Health and Safety
Personal Freedom
Seoul (49)
Tokyo (8), Hong Kong(41)
Singapore(40), Dubai(53)
Mumbai(65), Shanghai (60)

3. Case Studies of Comparable Cities

3.1. Historical Trends in Financial Capital Development
Before the 1870s, numerous financial capitals developed near rivers or harbors where
commercial transactions were concentrated, providing only regional financial services.
These included Amsterdam, Berlin, Florence, Frankfurt, Genoa, Hamburg, London,
Milan, New York, Paris, Philadelphia, Rome, Torino, Venice, and Zurich, and but no city
noticeably stood out (Ahn, 2003). From 1870, London and Paris became prominent as
financial centers, but London became the most influential financial city after the war
between France and England, maintaining its position until World War I. After WWI,
New York challenged the status of London, finally becoming the leader among financial
cities when the Great Depression ended. But, as the market for Euro Dollars and Euro
Currency developed in European cities, the center for international financial transactions
moved to London again. New York and London are still the leading financial cities in the
world. Frankfurt, where the European Central Bank is located, also grew as an
26

international financial city, and solidified its position after the launch of the Euro
(Kaufman, 2001). Since the 1980s, several new financial cities have emerged, as each
country or city began to notice that the financial industry could be a driving force in a
national economy. Hong Kong, Singapore, Shanghai, and Dubai are examples of such
cities. This thesis analyzes the main factors which led these last four cities to become
global financial centers with an eye toward drawing useful implications for designing
Seoul’s strategies.

3.2. Hong Kong
4

3.2.1. Historical Process of Development
In the 19
th
century, England made use of Hong Kong as a bridgehead city to enter China.
As financial institutions and capitals flew into Hong Kong from Shanghai beginning in
the 1940s, and Hong Kong’s economy gradually grew after World War II, the financial
industry in Hong Kong also made great progress (Jao, 2003). At first, Hong Kong’s
financial market was limited to providing services only to countries which had trading
relationships with Hong Kong, and functioning as a regional financial capital to adjacent
countries (Jones, 1992). Hong Kong finally became an international financial capital
which provided financial services to large groups of countries in the 1960s. Hong Kong
successfully revised its policy about licensing banks when confronted with pressure of
banks and Singapore’s competition in the mid-1970s, and they subsequently executed
policies for economic liberalization. Also, Hong Kong reformed its financial tax and

4
This section and the next (Singapore) are mostly based on Jao (2003, 2007).
27

regulation system after the banking crisis in 1982~86 and the collapse of the world stock
market in 1987. Based on the GFCI report (2011), Hong Kong was the 15
th
largest
banking center in the world as of 2008. A total of 143 licensed banks are located, and 88
foreign banks from 37 different countries opened representative offices with 1,300
branches, in Hong Kong. Among 88 foreign banks, 71 are on the list of the world’s top
100 banks by assets.

3.2.2. Geographical Advantage
As Hong Kong is located in the center of the Asia-Pacific region, it’s easy to reach Hong
Kong from other countries in this region, and Hong Kong functions as the transport
center in this area. Also, Hong Kong is often regarded as the outpost for Chinese market
invasion for both financial and non-financial institutions. In addition, Hong Kong’s
foreign exchange market is well known for its thriving conditions; this is because it is
efficiently connected to other foreign-exchange markets that made it possible to operate a
24-hour trading system by filling the gaps between the American and European time
zones.

3.2.3. Competitive Labor Force
A successful financial capital needs developed professional services throughout industries
like taxation, law, and accounting services, as well as improved financial services. At the
same time, it is necessary to retain a high quality of financial industry-related
infrastructure such as payment and settlement systems, safeguarded deposits, and
28

information and communication systems. This advanced industry structure again requires
high quality and large quantities of labor for diverse fields. In the early development level
of financial capital, Hong Kong depended upon foreign experts. Even now, immigration
policy in Hong Kong is remarkably elaborate and flexible. The city welcomes
entrepreneurs who have capital and skills as well as professionals, technicians,
businessmen and administrators who meet the minimum qualifications. Also, Hong Kong
has desirable labor-management relations. In the IMD report (2010), Hong Kong took 3
rd

place in flexibility of labor market, following Singapore in 2
nd
place. In addition, English
played a significant role in developing a global financial capital in Hong Kong. English
was necessary for implementing a legal system that followed the law of the United
Kingdom; it remained the official language of Hong Kong even after Hong Kong was
returned to Chinese control in 1997. Although this was possible because Hong Kong was
once a colony of the United Kingdom, now it is proudly accepted as a practical tool for
economic development as well as a crucial factor that helped Hong Kong to survive in
the face of fierce global competition.

3.2.4. Economic Liberalization Policy
Although Hong Kong benefited from historical and geographical advantages, it could not
have developed as one of the most successful global cities without governmental
endeavor. Hong Kong follows the principles of a market economy and free competition,
and accepts or revises policies that support these principles. Hong Kong doesn’t have a
customs declaration system, and does not require any kind of license for commercial
29

trade except for a transaction license assigned by international treaty. There is no
restriction on foreign capital flow or on the amount and duration of foreign capital
position. More importantly, Hong Kong made its exchange rate stable, accepting as
policy that Hong Kong Monetary Authority deposits the same amount of U.S. dollars in
an exchange fund when it issues Hong Kong dollars. In addition, according to Jao’s study
(2003), Hong Kong was the best country observed in national treatment in the Asia-
Pacific area, and the U.S. Department of the Treasury also published the same results
twice (1990, 1994). This implies that foreign financial institutions had high regard for the
fairness and transparency of government policies in Hong Kong, and they believed they
were provided with equal opportunities for competition without discrimination. Also,
Hong Kong tried to minimize the cost burdens of financial companies. There are three
types of deposit-taking financial institutions in Hong Kong, and none of them are
required to maintain legal reserves, whether in Hong Kong dollars or not. Also, while
legal reserves or deposit insurance fees are exempted only for offshore financing in other
financial capitals, those restrictions are exempted for all kinds of financing in Hong Kong.

3.2.5. Political and Social Stability
A global financial capital, where a large quantity of investment occurs and large-scale
industries and financial funds converge, requires long-lasting political and social stability.
No successful financial capital is threatened by political or social insecurity; consider that
Lebanon collapsed due to a long period of civil war, although this city was once a
promising financial center in its region. Hong Kong demonstrated that stability was one
30

of necessary conditions for a successful financial capital. Hong Kong has been pretty
stable politically as well as socially, except for leftist turmoil stimulated by China’s
Cultural Revolution in 1967. Even when some emigration and capital exit occurred after
China announced that it would retake the reins of Hong Kong, very little social
disturbance occurred. People in Hong Kong showed strong social integration, sharing the
recognition that conflict could ruin them. Also, institutional systems for protecting
citizen’s freedom and rights were well established by British rule. Under these stable
circumstances, people could devote themselves to economic or cultural activities and to
professional affairs, and as a result, they could construct a stable society that played a role
in developing Hong Kong as a global financial city.

3.3. Singapore
3.3.1. Process of Development
The largest seaport in Southeast Asia as well as an important commercial and re-
exporting city, Singapore is also one of the most influential financial capitals in the world.
The financial industry of Singapore played a merely subordinate role in supporting other
industries, such as manufacturing and international trade, until the early 1960s. However,
the government of Singapore began to recognize the potential of financial industry
development, and implemented policies to foster this industry beginning in the late 1960s.
Singapore’s government separates offshore financial transactions from other transactions,
allowing offshore financial services only among non-residents. And the government
provides the benefits of tax exemptions and deregulation on these transactions in order to
31

promote the Asian Dollar Market. The government tried to develop the city as a strong
point of the offshore monetary market, attracting international commercial financial
institutions by virtue of its strategic location. Singapore’s offshore financial center is
generally mentioned as a typical example of a separate international financial center.
Singapore founded the Monetary Authority of Singapore (MAS) in 1971, and empowered
it to direct overall monetary and foreign-currency policies as well as financial regulation
and supervision. MAS first implemented a policy to develop the Asian Dollar Market.
For example, the Asian Dollar Market received an exemption from 20% of deposit
reserves, and Singapore introduced the specialized offshore market for the Asian Dollar
Market in 1979. Beginning in the 1970s, Singapore also expanded a variety of
infrastructures which were the basis for the development of the financial industry. The
Stock Exchange of Singapore (SES) was founded in 1973, and the Singapore
International Monetary Exchange (SIMEX) was opened in 1984. SIMEX was the first
Asian international stock exchange where futures transactions occurred, and began
transactions for four currencies: gold, Deutsche marks, Euro dollars, and Japanese yen. In
particular, SIMEX conducted “mutual offset arrangement” with the Chicago Mercantile
Exchange (CME), which made it possible to provide investors with varied benefits such
as extended transaction time, increased liquidity and reduced costs.
Also, SIMEX acquired developed technology and knowhow from CME, and
paved the way for Singapore’s success as a financial capital. In the 1980s, Singapore’s
government focused on diversifying, upgrading, and automatizing its financial industry.
More specifically, the government tried to foster new financial markets such as futures
32

markets—the first financial futures market in Asia—and asset management, while it also
tried to facilitate traditional financial industries like capital markets and foreign-exchange
markets. The foreign-exchange market of Singapore became the world’s fourth-largest
one in the 1990s, following London, New York, and Tokyo, and it plays a significant role
in promoting Singapore’s international risk-management activities.

3.3.2. Geographical Advantage
Singapore also had an advantage in location, since it was located at the center of
Southeast Asia, where demand for financial services grew rapidly with sudden
industrialization. Also, since its time zone lies between the European and American ones,
financial transactions are possible even when the New York and London markets close.
This was the main reason why a lot of multinational industries located their headquarters
in Singapore or Hong Kong, and why these two countries could develop as influential
Asian financial hubs.

3.3.3. Open Culture and Competitive Labor Force
Many kinds of people flew into Singapore at the early stages of development, and thus
westernized culture was soon settled in the process of developing the city as a harbor for
intermediary merchant trade. Since the level of educational attainment in Singapore was
pretty poor when Singapore became independent of Malaysia, Singapore focused on
improving its education system, investing one third of the government budget in
education. Until 1970s, Singapore achieved industrialization owing to its low-income but
33

skilled labor force, but after 1980, Singapore tried to advance its industrial structure,
focusing on the financial sector and strengthening the higher levels of education. In terms
of human resources, one factor that cannot be dismissed was the English proficiency of
people in Singapore. Because of the city’s long tenure as a British colony, Singapore’s
population was accustomed to speaking English already when Singapore became
independent of England. Singapore retained English as an official language as well as
other languages such as Chinese and Malaysian, with a view to mitigating conflicts
between people and attracting foreign enterprises. Also, Singapore facilitated its people’s
English proficiency by encouraging people to use this language in school.

3.3.4. Governmental Endeavors and Policies
Like Hong Kong, Singapore had the obvious advantage of location, and was equipped
with open culture and westernized legislation systems that were affected by its experience
as a British colony. However, historical or geographical benefits alone cannot explain the
success of Singapore as a financial capital. A more important factor was the strong intent
of the Singapore government on this issue, supported by Singapore’s people. It was in the
1960s that Singapore recognized that the financial industry did not function solely as a
support for real economic sectors such as manufacturing, and that it too could be
promoted as an independent sector. Singapore’s government kept trying to implement
monetary policies targeted at guaranteeing an efficient and free financial market on the
basis of political stability and a sharply growing local economy. The three policies that
Singapore executed to become a financial capital can be summarized in the following
34

ways: first, Singapore pursued foreign enterprises and institutions by providing economic
incentives through deregulation and exemption or reduction in taxes, expanding
infrastructure relative to the financial industry, and improving human resources by
innovating in its educational system. Second, Singapore constructed a wall of separation
between international financial businesses and domestic ones, and implemented
discriminatory policies. Lastly, the government concentrated on strengthening and
advancing the regulatory and supervising system in order to secure the soundness and
competitiveness of financial institutions within the city. This policy was directed by the
MAS (Monetary Authority in Singapore), and sometimes was criticized as rather delicate
and strict in comparison with that of Hong Kong. Yet Singapore’s regulatory system rose
in public regard after Hong Kong’s bankruptcies in the early 1980s. As a result, alongside
Hong Kong, Singapore is often evaluated as one of the most favorable cities where
businessmen and entrepreneurs like to do business among Asian regions, and Singapore
succeeded in attracting quite a number of local headquarters of multinational corporations
and international commercial financial institutions.

3.3.5. Political and Social Stability
Since gaining independence from Malaysia in 1965, Singapore has maintained political
stability through the absolute support of its people, which its People’s Action Party
acquired through reforming corruption and achieving economic development. Also,
Singapore raised its global status by eagerly participating in varied international
organizations such as UN (United Nations), APEC (Asia Pacific Economic Cooperation),
35

and ASEM (Asia-Europe Meeting), and firmed up economic and political stability among
a few hostile Islamic countries like Malaysia and Indonesia. On the other hand, Singapore
accepted diverse social customs and declared equality between countries in order to
minimize the conflicts between different ethnic groups, although the region is home to
various peoples, languages and religions. Moreover, Singapore constructed a social safety
net by promoting its own social welfare and healthcare system in which individuals, firms
and government jointly invested.

3.4. Shanghai
5

Shanghai has been the foothold for Western powers to enter China since China opened
her ports to foreign trade after the Opium Wars. As British, American and French
concessions were located there, this city was not under the control of the Chinese
government, and it played a role as a trade port as well as a gateway to China for Western
countries (Lee, 2002). Shanghai became the center of international trade and
transportation in China. Over 200 foreign banks had branches there in the 1930s.
Although the financial industry in Shanghai declined after China adopted a centrally
planned economic policy in 1949, it regained its status as the financial center of China
thanks to economic reform in 1970s. China earnestly started to promote Shanghai as a
financial capital as the development plan of Pudong was implemented in 1992. The
Shanghai Stock Exchange was founded in 1990, forming the second-biggest stock market

5
Most data taken from the Encyclopedia of Shanghai (Retrieved from
http://zhuanti.shanghai.gov.cn/encyclopedia/en/Default2.aspx)
36

in Asia following Japan’s. Also, sequential open-door policies such as joining the WTO
accelerated the development of financial markets in Shanghai.
Because of China’s sharp economic growth, demand for funds within China
increased tremendously. Also, with its more than 1.3 billion people as well as a fast-
growing economy, the Chinese market was very attractive to foreign investors. A large
number of financial companies and investors attempted to enter the Chinese market, and
the Chinese government, pursuing the development of its financial sector, began to
improve the related infrastructure and environment in order to provide them with a better
place for business. As a part of the strategy, China constructed a financial hub in the
Shanghai Pudung area, seeking sustainable development of the financial industry. In the
first stage, the plan concentrated on real-estate development in its urban-planning aspect,
with the purpose of increasing land value. In the case of Canary Wharf (London) and
Dubai International Finance Center, which were created as financial centers by intended
development plans, the governments took advantage of real-estate development strategies
in order to attract foreign investment. When executed, this kind of project attracts a great
amount of capital and financial business like project financing and feasibility tests. Thus,
seeking to meet these demands, these projects encourage foreign direct investment and
inflow of foreign financial institutions at the start of the projects.
China successfully connected its capitals and financial institutions to the real
Chinese economy, which intensified the financial networks and infrastructure of the
country, and then again utilized the advanced infrastructure to attract more foreign
investment and global financial companies. The strategic region of Pudong was divided
37

into four areas: the Lujiazui Finance and Trade Zone, the Jinquiao Export Processing
Zone, the Waigaoqiao Free Trade Zone, and the Zhangjiang Hi-Tech Park. In other words,
the development plan of Pudong focused not just on the financial industry but on
promoting the competitive financial city by constructing strong networks between the
real economy and the financial markets, locating the base of the real sectors near the
financial center. The Chinese government directed the growth strategy of Lujiazui
Finance & Trade Zone, improving financial infrastructure under the comprehensive plan
and forming a cluster of seven different financial markets. Also, the Chinese government
executed a series of policies to upgrade the regulatory system and liberalize the economy.
Most of all, they took measures to reduce the tariff burden. The average rate of import
tariffs declined from 35% to 23% in 1996, and the tariffs rate for 4,784 items decreased
from 23% to 17% in 1997, and dropped again to 15.3% in 2001. After joining the WTO,
the Chinese government continuously decreased its tariffs, reaching below the average
rate of emerging countries now. In addition, the City of Shanghai established six different
regulations to guarantee freedom of enterprise in economic activities and protect
intellectual property rights. Moreover, Shanghai founded the Shanghai Foreign
Investment Development Board, which was the first organization for assisting foreign
investments in China.
Today, Shanghai resolutely maintains its status as the representative of the
financial center of China. The amount of direct finance in Shanghai accounts for almost a
quarter of that in China, and about two-thirds of the regional headquarters of foreign
banks are situated in Shanghai. Also, Shanghai holds more than 80 percent of foreign
38

banks’ assets in China. Not surprisingly, numerous top financial groups and consulting
firms such as Citigroup, HSBC, Morgan Stanley, Bank of America, Blackstone Group,
Deloitte, GE, McKinsey, RBS, BNP Paribas, PricewaterhouseCoopers, and Ernst &
Young have all located their Chinese headquarters in Shanghai (the IFCD report, 2011).

3.5. Dubai
6

Dubai is one of the newly rising cities focusing on the financial industry. Dubai was only
a harbor city for merchant trade at first, but since the arrival of oil production in 1976,
Dubai has emerged as the largest trade port in the Middle East, constructing distribution
industry-related infrastructure by making use of oil money. Since being designated as
Free Economic Zone in 1985, Dubai has attracted around 3,000 branches of international
enterprises to its Jebel Ali Free Zone. As the policy change that de-emphasized the oil
industry and constructed the central trade port in the Middle East was successful, the
UAE determined to design the second step of its policy in an effort to promote Dubai as a
hub city that connected the Middle East with Asian and European markets. The core
strategy of this plan was developing Dubai as an international financial center, and
International Finance Center in Dubai has grown at a rapid pace with governmental
support. There are the headquarters of the Dubai International Finance Center, a Dubai
financial service agency, and plenty of financial institutions in the area.
Islamic banking played an important role in the convergence of financial capitals
and institutions on Dubai. Since the inception of Islamic banking about three decades ago,

6
This section is mostly based on Kim (2007).

39

the number and reach of Islamic financial institutions worldwide has increased from one
institution in one country in 1975 to over 300 institutions operating in more than 75
countries (El Qorchi, 2005). According to OECD working paper (2008), Islamic Banking
is growing at a rate of 10-15% per year with signs of consistent future growth. Many
countries became interested in Islamic banking with the purpose of strengthening the
relationship with Islamic countries and gaining a foothold to invest oil money. Also, they
are trying to lessen the risks by dispersing their investment after suffering a couple of
financial crisis. More importantly, Islamic banking recently got more attention owing to
the trend of a weak dollar, high oil prices, and the decline of foreign investments in
Middle Eastern countries after 9/11. Accordingly, the Islamic banking system grew in
status in the international financial market as the window for raising funds and for the
newly promising business area in the Middle East. The crucial policy of the UAE to
attract oil money was real-estate development, which offered incentives for financial
capitals and institutions. The high-profile real-estate development in Dubai came from
the high quality of its living environment. Residential spaces are abundant where people
can enjoy the exotic environment. Also, there are diverse facilities like hotels, resorts and
department stores with high levels of service where residents can enjoy their leisure time.
In addition, institutional support by the government played an important role in elevating
real-estate value. When foreigners purchased the land, they were allowed to maintain
their ownership for up to 99 years. Dubai operates the freehold system, which gives
landowners a permanent residence visa, while other foreigners must renew their visa
every 3 years. If foreigners owned one housing unit in Palm Jumeirah, they were
40

provided with a permanent visa. On the other hand, Dubai Development and Investment
Authority (DDIA) prepared and implemented a cluster-formation policy whose main
strategy was diversifying old oil-reliant industry structures and promoting Dubai as the
leading city of the Middle East in the future. To attract foreign direct investment for
cluster development, the Dubai government provided several institutional incentives such
as no taxation or unlimited remittances abroad within the cluster, as well as working to
improve physical infrastructure.
However, skepticism arose about the future of Dubai as some side effects of the
development emerged. Symptoms of unstable property values appeared, owing to rapid
land or rent appreciation caused by the real-estate bubble. Also, the elasticity of the labor
market worsened because of the inflation of wages due to the construction boom. Many
experts argues that the future success of Dubai depends on whether Dubai can keep the
model of its real-estate development and asset management profitable and whether they
can create a new development model linked with real sectors.

41

4. Conclusions

The recently published GFCI report displayed several signs of Seoul’s potential to stand
out as a financial capital. Both the rank and the rating of Seoul have continuously and
remarkably grown for last few years, and as of 2011, Seoul was in 11
th
place among 75
financial cities (see Table 10).
Table 10: Trend of Seoul ’s rank and rating in the GFCI
2008.9 2009.3 2009.9 2010.3 2010.9 2011.3 2011.9
Rank 58 55 28 28 24 16 11
Rating 502 462 576 615 626 651 679

Also, in the GFCI questionnaire, Seoul was mentioned most in answers to the question
that asked which centers are likely to become more significant in the next few years, and
2
nd
most in the question that asked where new offices are likely to be opened (see Table
11).

Table 11: The Ten Centers 1) Promising / 2) New Offices are likely to be opened

Centers likely to become
more significant
Centers where new
offices will be opened
1
2
3
4
5
6
7
8
9
10
Seoul
Shanghai
Singapore
Hong Kong
Toronto
Tel Aviv
Beijing
Mumbai
Moscow
Liechtenstein
Singapore
Seoul
Hong Kong
Shanghai
New York
London
Mumbai
Beijing
Tel Aviv
Abu Dhabi
42

This could be the fruits of all the endeavors of the Korean people and their government.
The Korean government expressed its intent to promote Seoul through legislation that
included designating this city as a financial capital. Also, Seoul is constructing a financial
complex, the Seoul International Financial Center (SIFS), which will provide multi-
purpose spaces such as offices, commercial areas, hotels, restaurants, and theaters in
order to attract global financial or commercial companies. In addition, Seoul’s
comparatively quick recovery from the financial crisis, and its successful hosting of the
G20 summit for the first time among non-G7 countries, could affect its reputation.
However, a large number of indicators still demonstrate Seoul’s weakness as a global
financial center. The research and case study expose some notable features about Asian
cities and Seoul’s conditions. First of all, Tokyo, Hong Kong, and Singapore are superior
to Seoul in almost every aspect, and their positions are unlikely to change in the near
future. The GFCI report quoted a financial services consultant who noted that each time
zone has its well-developed leader, and London, New York, and Hong Kong won’t be
usurped in the coming years. Besides, both the GFCI and the IFCD index evaluated
Seoul’s status as dynamic or volatile, while Hong Kong, Singapore, Tokyo, and even
Shanghai were categorized as stable. In other words, the recent rise in Seoul’s status may
not persist. Therefore, in order to become more competitive and strengthen its status as a
financial center, Seoul needs to exert every effort toward its long-term plan. Also, the
government should clearly declare its policy, and be consistent in carrying out that policy.
Secondly, competition for financial-capital status is getting tougher, and
43

governmental efforts are becoming increasingly important. While Kindleberger (1974)
emphasized naturally occurring factors for the development of financial capitals, artificial
endeavors have been pointed out more often of late (Abraham, 1993). Since many
multinational companies try to leverage location advantages created by a broader global
network (WCCI, 2008), many countries make every effort to promote their cities as
global cities. Numerous top financial companies have already located their regional
headquarters in Hong Kong and Singapore, creating footholds in the Asian market.
Shanghai is also eagerly pushing policies to attract global corporations. Under such
conditions, Seoul’s specialized plan must be designed to help the city survive as a
competitive financial capital. Many emerging or developed financial capitals also focus
on certain sectors of financial services; Zurich concentrates on private banking,
Edinburgh is specialized in asset management, and Chicago is famous for its futures
market.
Lastly, Seoul revealed weaknesses in many evaluation areas of each index,
especially in the core indicators that identify a financial capital. These include financial
market maturity, business environment, governmental regulation and systems, human
capital, etc. A great deal of effort should be put into developing the financial industry
through both upgrading regulation systems and attracting global players. Also, Seoul
should keep enhancing its general environment to improve the quality of foreigners’ lives
by providing sufficient health care, education and cultural or entertainment services.
More importantly, as the financial sector requires highly educated specialists, the Korean
government must determine how to cultivate its own professionals and attract foreign
44

experts from developed countries. In conclusion, a wide range of efforts should be made
in order to promote Seoul as a successful financial capital, as a financial center comprised
of diverse economic, political, social and cultural components.

45

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Abstract (if available)

Abstract Most globally influential cities such as New York, London and Tokyo are also appraised as financial centers. In addition, many emerging countries try to promote their capital cities as regional or global financial centers, and the competition to become a successful financial capital is getting tougher. This is because the financial services industry not only is a high-value-added industry itself but also can have huge effects on other service industries like accounting, consulting and legal services. Besides, powerful financial capitals can lead the economic growth of their countries by attracting foreign investment or entrances by global enterprises. Recognizing that its level of financial-sector development paled in comparison to those of other developed countries in spite of its status as the world’s 12th largest economy, South Korea also initiated and implemented a development plan to promote financial industries as a new driving force for national economic growth. This thesis analyzes the strengths and weaknesses of the City of Seoul as a financial center compared to other comparable Asian cities, using four indices which global institutions or presses publish periodically. This study concludes that Seoul must improve several elements in order to become a successful financial capital. Although Seoul is one of the cities most frequently cited as a promising financial center and recently showed great improvement in diverse aspects, still efforts should be made to make the city more competitive as a financial capital. Seoul must design its own strategic approach if it wishes to be more competitive in financial industry among Asian cities.

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Asset Metadata

Creator Park, Jae Hoon (author)

Core Title Comparative study on Asian financial capitals' competitiveness: focused on strengths and weaknesss of the city of Seoul

School College of Letters, Arts and Sciences

Degree Master of Arts

Degree Program Economics

Publication Date 06/07/2012

Defense Date 05/02/2012

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag competitiveness of city,financial capital,financial hub,global city,OAI-PMH Harvest

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Richardson, Harry W. (committee chair), Banerjee, Tridib K. (committee member), Nugent, Jeffrey B. (committee member)

Creator Email jaehoonp@usc.edu,jhoonpark@hotmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-45209

Unique identifier UC11288251

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Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

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