Agglomeration and location choice of foreign financial institutions in China

In the midst of global economic and financial integration, there are increasing cross-border capital flows between China and the rest of the world. Foreign financial businesses also start to play more important roles in the nation’s market after waves of financial reforms. Within such a background, this study aims to investigate the agglomeration and location choice of overseas financial institutions in Chinese cities. Data from the 2004 China Economic Census show that foreign financial establishments, including banks, insurance companies, and other financial service businesses, were mainly agglomerated in coastal cities. In particular, three major urban areas, Shanghai, Beijing, and Guangzhou, concentrated a majority of overseas financial institutions. Results from regression models show that foreign businesses’ location choice is greatly influenced by a city’s urban economy, involvement in the global market, and telecommunication infrastructure. However, we do not find a significant link between foreign financial institutions’ market entry and the size of domestic financial centers in China.