As the top two cities in terms of composite strength in China, Beijing and Shanghai, with different functions designated in the national strategy, are both striving to grow their clout as financial hubs.

Beijing, the political and cultural center, recently issued a plan to promote financial technology (fintech) development by developing world-class fintech enterprises and innovation clusters and improving its industrial ecosystem by 2022.

"Beijing is home to the country's top financial regulatory agencies. It can be regarded as a national financial management center and is expected to further consolidate its advantages," Zhao Weijiu, an official with the Beijing Municipal Bureau of Finance, said. According to Zhao, developing Beijing into a financial center that is a benchmark for financial services and risk control will help boost the economy of the Beijing-Tianjin-Hebei region.

Shanghai has taken a lead in developing the financial market system including stocks, bonds, currencies, foreign exchanges, gold, futures, bills and insurance.

Its financial market saw a turnover of 1.64 quadrillion yuan ($245.1 trillion) in 2018, up 15.2 percent year on year. Earlier this year, Shanghai unveiled a plan to develop a financial market with a strong financial resources allocation capacity by 2020 that will drive neighboring regions' growth.

The launch of a science and technology innovation board at the Shanghai Stock Exchange has entered a "sprint" stage, and the technical system is expected to be ready by the end of May, the bourse said on March 5. The board will provide a new financing channel for promising companies in hi-tech and strategically emerging sectors.

Cooperation, not competition

Although the two cities are racing on the same track, they are resorting to differentiated development approaches to avoid competition emerging from homogeneity with the ultimate goal of making China an international financial power.

"The problem of possible competition for resources between major financial cities needs to be avoided as it is bad for their economic growth," Zhao said. "The two cities will develop different functions so as to be mutually complementary."

Shanghai is an acknowledged international financial center today. According to the Global Financial Centres Index recently released by the London-based commercial think tank Z/Yen and the China Development Institute in Guangdong Province, Shanghai ranks fifth on the index, moving closer to the top hubs like New York and London.

Among the first batch of cities benefiting from China's reform and opening up, Shanghai is a frontrunner in developing the financial sector, which ensures its huge economic aggregate. "Shanghai's advantage lies in its complete financial market system," Yan Hong, a professor at Shanghai Jiao Tong University, said.

The number of licensed financial institutions in Shanghai reached 1,605 at the end of 2018, increasing by 469 from 2011. In 2018, 85 percent of China's direct financing came from Shanghai. The city also boasts financial zones like Lujiazui, which is commonly known as China's answer to Wall Street due to its cluster of multinational banks.

Beijing also has a financial street with similar modern high-rise buildings. A plan released in 2017 on the overall planning of Beijing defines the Beijing Financial Street as a national watchdog center chock-a-block with financial regulatory agencies.

According to Sun Shuo, an official of Xicheng District where the Beijing Financial Street is located, the street has over 1,800 financial institutions, of which 143 are foreign-invested.

"Beijing has the highest total market value of listed traditional financial institutions, securities firms and insurance companies in the world," Ben Shenglin, Dean of the Academy of Internet Finance and International Business School, Zhejiang University, said.

But in the neck-and-neck progress of the cities, quality and innovative financial services to emerging industries have become a key factor. The Global Tech Hubs Report 2018 by CB Insights, a New York-based market intelligence company, said Beijing and Shanghai are the only two Chinese cities among the top 25 global technology centers.

According to CB Insights, 29 unicorn companies including Xiaomi, Didi Chuxing and Meituan Dianping have emerged in Beijing since 2012, compared to 11 in Shanghai. A unicorn is a private startup with a value of over $1 billion.

Beijing saw a boom in technology startups in 2017, with their number the second highest in the world. In terms of incubation of technology unicorns, the city ranks first in China, accounting for 36 percent of all Chinese tech unicorns.

Over the past six years, Beijing's startup companies alone have received $72 billion in funding, ranking the second highest in the world. The figure is about three times the funding reeled in by Shanghai's startups, putting Shanghai in fourth place.

Different paths

For a long time, Shanghai has been a benchmark for China's financial market development. The recent rise of Beijing as another financial center makes it necessary for Shanghai to diversify its financial products, improve its international influence and attract more talent with favorable policies.

Shanghai also needs to ease market access and provide better financial services, notably by streamlining taxation policies, Xu Zhong, head of the Research Bureau of the People's Bank of China, said.

Meanwhile, Beijing is stepping up efforts to boost fintech innovation and give full play to its role as the national financial management center.

According to Zhao, Beijing enjoys unique advantages as a national center of science and technology innovation that is strong in financial resources and a rich talent pool created by local universities.

"Beijing's fintech industries have aggregated considerable strength. The city will have a prosperous future once it makes more efforts in financial innovation," Xiang Songzuo, Deputy Director of Renmin University of China's International Monetary Research Center, said.

He also stressed that Beijing should reduce administrative restrictions on the development of financial innovation, unleash the vitality of the market, and release further measures for a more open financial sector.

To avoid competition with Shanghai, Beijing will improve its financial regulation capacity as China opens up its domestic financial sector wider.

According to a plan to develop financial industries in Beijing during the 13th Five-Year Plan (2016-20) period, the city will consolidate and enhance its status as the national center of financial management with the functions of financial decision-making and regulation, managing assets, payment and settlement, information sharing and setting industrial standards.

Li Yang, a researcher with the Chinese Academy of Social Sciences, recently suggested that Beijing should focus on the new third board for trading shares of small and medium-sized enterprises. Fintech, financial services for cultural development and environmental protection, and inclusive finance should be the other growth drivers.

Copyedited by Sudeshna Sarkar

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