Hong Kong's International Financial Centre: Retrospect and Prospect

finance. 3 Not by coincidence is it often said that banking is an industry dependent on trust and
confidence. But the informational asymmetries that drive the phenomenon of agglomeration
appear to reach certain natural limits. Information has a cost, and local financiers with specific
informational advantages—the knowledge of local markets and time differences—exploit them.
So, of course, do others in different localities. Thus far, therefore, the centralization process has
been incomplete. We remain in a world characterized by increasingly centralized but
geographically bounded financial markets, with those boundaries defined by “the tendency of
governments and private persons to favor their compatriots over foreigners, even at the expense
of higher cost or lower profit—an implicit or explicit mercantilist attitude.” 4 Such a tendency,
Kindleberger nevertheless hypothesized, might be expected to recede over time. “The continuous
reduction in the costs and difficulties of transportation and communication over the last two
hundred years,” he concluded, “has favored the formation of a single world financial market.” 5
In his own magisterial study of financial geography, Youssef Cassis more recently backed
away from Kindleberger’s bold conclusion and simply began with the empirical observation that
not one but several capitals of capital have emerged since the end of the nineteenth century.
They include London and various smaller regional centres in various European capital cities,
New York and several smaller and specialized US cities, Tokyo, Hong Kong, and Singapore. 6
To
this confined list, we might today add Shanghai, but at this moment in history such an addition
would still reflect more an aspiration than an observation. As to the reasons for the emergence of
these centres, Cassis emphasized the irreducible national roots of banking, debt, and equity laws,
the mandates and activities of central banks, the monetary conditions conducive to the
agglomeration of financial services, and finally the ebb and flow of local economic and social
conditions.
In the end, it is men . . .who are the driving force behind international financial
centres…[and] all these factors, both institutional and human, create an
atmosphere that is unique to each financial centre and that is vital to its success,
even if it is neither quantifiable nor always easy to detect. This expresses itself in
the way that a centre’s premises are laid out, its traditions, its unwritten rules, its
interpersonal relationships, its attitude towards the outside world and its unique
culture. The development of these various factors, themselves [uniquely]
influenced by changes occurring in the world political and economic order,
explain the ups and downs in fortune of the world’s main financial centres. 7
3 Charles Kindleberger, The Formation of Financial Centers: A Study in Comparative Economic History, Princeton
Studies in International Finance, No. 36, Princeton University, Department of Economics, 1974, p. 10.
4 Ibid., p. 11.
5 Ibid.
6 Youssef Cassis, Capitals of Capital, Cambridge: Cambridge University Press, 2006, p. 3.
7 Ibid., p. 5.
11