Edinburgh Napier University

  The development of an international financial centre has long been an interesting topic to economists, researchers and policy makers. Understanding the development process and the critical success factors helps much in formulating the suitable strategic development plan for the city and more efficient allocation of resources. Among the various international cities or financial centres, the development dynamics of Hong Kong and Shanghai are of high interest to many researchers not only due to the fast emerging growth of the Chinese economy and its influence on the world economy, but also due to the different economic development path of these two places. Using Hong Kong and Shanghai as examples, this paper reviewed and assessed how closely the link between academic literatures, such as Supply and Demand Theory (Smith 1776) , Location Theories (Thunen 1826, Weber 1969, Losch 1954) and Central Place Theory (Christaller 1966, Crocco, Calvante and Castro 2006), Urban Economic Growth Theory (Jacob 1975), Economies of scale (Rosenthal and Strange 2001), Self-reinforcing (or Cumulative Causation Theory) (Pagano et al 2002), Regulations and Prudential Supervision, and Resources based view (Barney 1991), etc., on this topic against the actual historical development of these two places. A survey was constructed to identify from perception of finance industry practitioners the most important key success factors that contribute to the development of these two places as international finance centres. The six most important factors identified are (1) Political Stability; (2) Infrastructure; (3) Regulation and Prudential Supervision; (4) Legal / accounting / governance systems; (5) Market Openness; and (6) Labour supply & quality. Comparing the two places, the survey also revealed that Hong Kong, in general, was perceived to have better infrastructure, financial market regulations, quality of human resources, economic environment and political environment & government support than the Shanghai counterpart. Compared with Hong Kong, Shanghai was still lacking behind in the development stage of becoming an international finance centre, though it was catching up fast. Looking forward, for either or both Hong Kong and/or Shanghai to further strengthen their status as international financial centres, it will to a large extent hinge on how well the policy makers of these two places can further enhance these key success factors. The paper covered a discussion of the future prospects of Hong Kong and Shanghai and at the end of it, various directions of future research were recommended.