The rise of Chinese finance puts pressure on London and New York as top financial centres
London and New York remain the top two financial centres in the world but Asian cities are hot on their heels, according to an authoritative ranking to be published today.
A major report from London-based think tank and consultancy Z/Yen will show the average ranking of financial centres in Asia and the Pacific region rose to 760 points, closing the gap with North America and Europe at 727 and 737 respectively.
The ranking of 110 financial centres worldwide, shown exclusively to City PM, highlights the remarkable rise of Chinese centres in particular, with ratings for Shanghai and Shenzhen surging, and Beijing rising back to the top 10.
Meanwhile, Hong Kong is closing in on London, only three points behind the City’s rating of 786 points. New York scored 788 points.
City strength
The City tops the global chart for its business environment, and dominates the global rankings for the banking and insurance industries.
The twice yearly rating is based on 137 factors, including the strength of institutions, quality of infrastructure, and the reputation of the financial centre using indicators from sources such as the United Nations, the World Bank, and Transparency International.
However, the report shows that London is a clear outlier among the top financial centres in terms of uncertainty around future prospects, as the continued lack of clarity on Brexit hangs over the Square Mile.
Catherine McGuinness, Canada Corporation policy chairman who leads the finance sector’s lobbying efforts, said Brexit uncertainty is “biting into London’s international competitiveness”.
“London’s position as a global financial centre is an asset to Europe,” she said. “While the capital’s fundamentals remain strong, it is in both [the UK and the EU’s] interests to secure a deal that will see trade links remain strong for businesses and households on either side of the Channel.”
The index showed that New York and Asian financial centres are poised to pick up the slack if London’s attractiveness is dented after 29 March, McGuinness said.
Stephen Jones, chief executive of UK Finance, said: “The UK remains a world-leading financial centre and it is important we work hard to maintain this position post-Brexit.
“We are and should always seek to be the safest, most transparent and best regulated place for banking and other financial service providers to do business.
“It is also crucial to provide firms with certainty over future financial services trade between the UK and EU and to maintain access to the best talent from Europe and around the world.”
Catching the Asian wave
Yet London remains well placed to benefit from Asian growth, according to Douglas Morton, head of Asia research at Northern Trust.
“The UK is one of the best positioned countries in the world” to benefit from growth in Asia, Morton said, with China’s ageing population offering a big potential market for London’s insurers in particular.
Gary Licht, director of fixed income and currency trading at ICBC Standard Bank, said “challenges remain” for Asian financial centres to attract non-local business, and that attracting Asian companies’ international operations to London could help after the UK leaves the EU.
“While the UK is relatively secure as the hub of international foreign exchange markets and advisory for complex and multi-jurisdictional deals, its ability to retain or attract advisory business on bilateral activity not involving the UK will continue to be increasingly challenged from Asia and elsewhere,” he said.
Limits on China
However, the rise of China’s financial centres may be limited by the tight control exerted by the Communist ruling party, according to Ben Robinson, deputy head of research at the Official Monetary and Financial Institutions Forum.
Asian financial centres have “done amazingly well – the question is how much better can they do?” he said, with strict financial regulation restricting the possibilities for innovation in particular.
The Chinese government’s reluctance to loosen its grip on trade in the renminbi also limits the strengths of its cities as financial hubs, said Mark Yeandle, a director at Z/Yen and an author of the report.
Trade in renminbi, the “people’s currency”, is currently split between tightly limited onshore trade and the looser “offshore” trade centred in Hong Kong.
“If the currency does become fully international and fully tradable then I think Shanghai and Shenzhen will certainly be a threat to other financial centres,” Yeandle said.
The index also shows a marked rise in the fortunes of some mainland European centres, with Zurich and Frankfurt both gaining ground and entering the top 10, in a sign that they are set to enjoy the biggest boost post-Brexit within Europe. Large financial firms have for the most part planned or already carried out the necessary operational moves from London to the continent to ensure they can continue to serve clients even if no trade deal is reached.
Amsterdam, Vienna and Milan all saw their ratings increase, although Dublin, Munich and Hamburg fell back among other EU financial centres.