There is an obvious gap for a "3rd centre" near the PRC.As you say, there are a lot of Chinese people in the west, who could help staff it, possessing both financial and language skills.And also no-one is actually forecating China to stop growing, but perhaps slowing down to 6-7% a figure that most developed countries haven't had for a long time. Of course to China, India et al slow growth will feel like a recession compared to the high growth they have had for quite a while.Will China rebound first ?Could be, I could go either way on that. Without a derivatives market, I see Shanghai evolving to something like Frankfurt in the long term. Corporate finance, a local equity market, government debt trading, and an entry point to the global markets homed elsewhere.That "long term" currently looks far away.The PRC does not have a legal system, for a financial centre that is at least as critical as electricity, more so since modern markets evolved before electricity.Although Frankfurt became a significant financial centre in a country that was a complete shambles after WWII, Germany had long been a nation of law.OK, they were often bad laws, but even at the worst of times, mostly obeyed both by citizen and state.As Russia showed, you can electrify in a decade, a legal system takes far longer, and requires cultural change. To grow a an ucorrupt, competent judiciary who see the law as more important that the convenience of the government takes at least a generation. The fight between HK and Sg for 3rd place leans towards HK presently. So far, the PRC government has not interefered much in commercial law in HK, but it is a risk of course, but balanced by it's semi-detached status with the PRC which means the government probably won't try as hard to promote Shanghai at its expense.Both Sg and HK are high cost places to do business, but Sg has strange issues with its labour market.As an example Singaporeans often send me CVs with their religion prominently at the top. That's very rare elsewhere, and invariably in the "hobbies and interests section".Apparently it matters there, indeed having worked for a Singaporean firm, I saw stuff that in London would have given every single person in the firm (but me) good cause to sue for a lot of money.Sg has a pretty good legal system inherited from Britain, but unfortunately forked at the point where British companies and law still regarded employees as something close to "owned".Sg has good schools and is relatively uncorrupt.For a financial market to graduate from one that merely serves a strong local economy to a global player it must be independant of political interference. London's "Big Bang" was seen by many as just plain mad, and there were earnest fears of violent civil disorder. Frankfurt and Paris did not free their markets partly because of a mix anti-anglosaxonism and attachment to 19th century economics. Thus the market based in what was earlier in this thread described as Europe's basket case economy, won and went on to overtake Wall Street. When The Economist did the numbers and had a front page predicting that London would become "The Capital of Capital", a good number of people laughed.But no one in Singapore laughed.They weren't allowed to read it.Sg has gone through several phases of banning The Economist, of itself it's not much just the sort of petty shit that 3rd world countries do.The key term is "3rd world". Grown up countries don't ban newspapers, especially one like the Economist that doesn't exactly advocate armed revolution against capitalism.HK has a very market oriented culture and a working legal system, even though on paper someone in HK has fewer rights than someone in the PRC.It's horribly polluted, and the PRC might change its mind about it at any time. Some senior PRC officials would make serious money out of a move from HK to Shanghai by finance outfits, and history shows they would not care if much value were destroyed in the process.When I talk to HK and Sg people and read their CVs, the HK is much more likely to be "front office" or being closer to the money. More front office quants, traders, etc.Sg has a nice niche in good quality back office work. This may in the short term serve it well since this is less volatile, but in the longer term, my sample indicates that the sexy stuff is already far more common in HK than Sg.Of course my sample is of people looking for jobs which creates a skew and is thus not authorative.I know of no formal study that explores this issue, and would welcome a link to one.In this post, I've focused on structual and political issues, rather than important factors like relative size,technology, tax regime and the detail of regulation.That's because job hunters like poeple here care more about growth, and the other factors can change surprisingly quickly. London went from a market that was heavily regulated and a slowly dying backwater in 18 months.By 18 months, I don't mean 18 months of preparation and restructuring, I mean 18 months from a corrupt minister having a drink with a crony, doing him a "favour" by getting more cronies to look at financial markets, doing the report, and crashing the changes through to the going live of a wholly new trading infrastructure.You can now buy a full functional trading system for any class of instrument and have it working in a few months, and regulations can be sorted out in a year. Tax changes are harder because of government IT (blame EDS and Accenture), but one can do it in two years flat, if so minded. That is a bit like what I understand Dubai is trying to do.The structual limitations are worse in Sg than HK, and Shanghai is simply not a runner.Of course being "the Frankfurt of China" is still a very big thing, but without PRC government making serious and clever changes in policy it will always be 2nd division.
Last edited by DominicConnor
on December 1st, 2008, 11:00 pm, edited 1 time in total.