Dan at the China Law Blog agrees with Richard Florida’s argument that cities such as Shanghai and Hong Kong will not soon become centers of world finance, in spite of Asia’s fast-growing economic clout. The following is excerpted from Florida’s article, How the Crash Will Reshape America:
The transition from one financial center to another typically lags behind broader shifts in the economic balance of power, Cassis suggests. Although the U.S. displaced England as the world’s largest economy well before 1900, it was not until after World War II that New York eclipsed London as the world’s preeminent financial center (and even then, the eclipse was not complete; in recent years, London has, by some measures, edged out New York). As Asia has risen, Tokyo, Hong Kong, and Singapore have become major financial centers—yet in size and scope, they still trail New York and London by large margins.
[…]“A crucial contributory factor in the financial centres’ development over the last two centuries, and even longer,” writes Cassis, “is the arrival of new talent to replenish their energy and their capacity to innovate.” All in all, most places in Asia and the Middle East are still not as inviting to foreign professionals as New York or London. Tokyo is a wonderful city, but Japan remains among the least open of the advanced economies, and admits fewer immigrants than any other member of the Organization for Economic Cooperation and Development, a group of 30 market-oriented democracies. Singapore remains for the time being a top-down, socially engineered society. Dubai placed 44th in a recent ranking of global financial centers, near Edinburgh, Bangkok, Lisbon, and Prague. New York’s openness to talent and its critical mass of it—in and outside of finance and banking—will ensure that it remains a global financial center.
Update #1: Michael Pettis also explains for Newsweek why New York and London will not likely be overtaken by major Asian cities in the current credit crunch:
Financial crises tend to trigger overwrought predictions of major economic shifts—and then debunk them. Today’s global economic meltdown is no different. In recent months, it has become popular to predict that New York and London (or NyLon, as they’re together known) will soon lose market share as cities in the emerging world use the crisis to wrest away dominance. But history suggests that the opposite is more likely: that New York and London will actually increase in importance over the decade to come.
[…]Big centers have two huge advantages over smaller rivals: greater liquidity and larger networks. Big investors tend to flock to big financial capitals because they offer higher volume and lower trading costs, and issuers of stocks, bonds and other financial products follow the flock of investors.
[…]When a liquidity boom ends, however, it tends to accentuate the advantages of big markets while diminishing those of smaller ones. The volume of financial transactions declines as does investors’ appetite for risk, and the costs of buying or selling, especially for large trades, rise sharply. These changes all make smaller, less-liquid secondary financial centers seem less attractive to most parties. Traders and issuers begin to migrate back to the deeper primary financial centers, which increases the liquidity of the big players while further reducing that of the smaller centers. Liquidity draws liquidity, as the old trader’s saw has it.