Hong Kong and Shanghai are rising 21st century international financial hubs with a high degree of connectivity to the world economy. A new study led by UC Irvine sociologist David Smith explores factors that have positioned these world-cities as such, alongside conditions that have also destabilized growth. Findings, published in the Journal of Urban Affairs, underscore the importance of the services sector in fostering economic momentum while highlighting how political conditions can act as both catalyst and constraint.

“For many years there’s been much writing about how these two cities are growing and becoming dominant, with Hong Kong in the lead and Shanghai – which historically was called ‘the Paris of the East’ – a bit behind,” says Smith. “They are both great cities, with the former one in the top ten of all global cities worldwide for decades – of course, they get a lot of attention both in China and around the entire world.”

Co-authors include Benjamin Leffel, UCI sociology Ph.D. ’20 and current assistant professor of public policy and leadership at the University of Nevada, Las Vegas, and Helge Marahrens, a newly appointed assistant professor of sociology at the University of Notre Dame.

To better understand development trajectories of the two international gateway cities to the China market, researchers reviewed both external dynamics – analysis of networks formed by the location decisions of multinational corporations – as well as internal indicators – specifically, the composition and value of industries within cities.

“This approach illuminated global urban connectivity, pinpointing Hong Kong and Shanghai’s positions in the ‘world city hierarchy’ while also providing a comparison of value in terms of employment and GDP for the sectors powering growth or decline,” says Smith.

Their analysis showed that from 2004-19, Hong Kong outperformed Shanghai in both measures. The former hosted more headquarters while the latter became a largely corresponding branch location. Similarly, Hong Kong produced greater value in per capita GDP and employment opportunities, an outcome researchers tied to sharp growth in the services sector, primarily in financial services.

However, beginning in 2019, the services sector powering Hong Kong’s global connectivity began to destabilize. The share of employees remained stagnant and in 2022, the value of the city’s services industry dropped. Meanwhile, Shanghai maintained steady growth across external and internal metrics. What had been Hong Kong’s historical rise, explains lead author Leffel, was measurably disrupted by mainland China’s authoritarian encroachment.

“Authoritarianism kills economies, including the biggest global cities,” says Leffel. “Our study shows how Hong Kong is suffering unprecedented corporate withdrawal as mainland China's autocratic grip has choked Hong Kong's democracy, legal system and financial freedoms – all the things that allowed for Hong Kong's original meteoric rise as one of the world's biggest corporate finance hubs.”

“This kind of destabilization takes extraordinary force to occur, particularly for a major finance hub like Hong Kong, and can precede a broader derailment of its growth--a testament to the strength of mainland China's assault on Hong Kong's democracy,” he adds.

“The general question of how authoritarianism and geographic shifts in multinational headquarters presents intriguing directions for further research; we find both the increasing slowing of some urban dynamism but also some city growth that creates opportunities for others to ascend,” says Marahrens, who brought a wealth of new urban network data to this project.

“Our paper combines complementary data on intra-city dynamics—such as industrial composition—with inter-city linkages derived from LexisNexis Corporate Affiliations, which tracks headquarter-subsidiary ties over time to reveal the evolving, worldwide network of cities. While most global cities hold their status for decades, Hong Kong stands out, either as a unique case or as a possible harbinger of a new era of dynamism in the world-city system,” Marahrens adds.

As future studies explore world-city hierarchy, the researchers note the need to take a comparative approach, as in the case of Hong Kong and Shanghai. They are currently considering a new study that will examine how very recent changes in Chinese city policies may impact future patterns in the twenty-first century.

-pictured: Shanghai skyline at night, courtesy of liufuyu/Envato