Is the proliferation of Asian financial centres a boon or a bane?

Travel through most Asian airports these days and you are invariably greeted by advertising extolling the prowess of that city as a cutting-edge financial centre. Cities from Mumbai in the west to Sydney in the east - and all points between - project plans to become a “hub” or a “gateway”. The rivalry intensifies every year as financial centres across the region seek to attract investment dollars.

Driving the rivalry among the cities is a recognition that while Asia's advanced economies rely heavily on manufacturing, they will steadily lose their competitiveness in this area as living standards and wages increase. To compensate, economists say the countries must transform themselves into western-style service-based economies, in which financial services play a large role.

Hence the attempt to adjust tax and regulatory policy to attract international investment banks, private equity firms, hedge funds and scores of professionals such as accountants and lawyers needed to service financial activity. So which centres are leading the race to be Asia's premier financial centres and can they sustain their competitive positions?

Hong Kong and Singapore are regularly cited by academic studies as Asia's leading cities for finance. Far from being eclipsed by mainland cities, Hong Kong has thrived in the decade since the end of British rule and served as an essential centre for Chinese companies to raise international capital. This was graphically illustrated last October when Industrial and Commercial Bank of China, the nation's largest lender, listed in Hong Kong in an offering that raised a world record $21.9bn.

But analysts still fret over Hong Kong's future. Some officials in Shanghai are intent on restoring the city's pre-1949 position as Asia's premier financial centre. China's largest companies are now encouraged to list in Shanghai and not overseas, a call heeded recently by the likes of PetroChina that raised $9bn when it joined the bourse this month.

However, even on the mainland there is rivalry. Authorities are building up Tianjin, a city near Beijing, as an alternative centre of commerce and finance. Beijing itself is emerging as a financial centre. Financial Street, a district that houses the headquarters of the biggest commercial banks and bureaucratic decision-makers, has recently been developed.

Investment decisions made by the country's fledgling sovereign wealth funds are approved in the Chinese capital. Bankers remain confident that Hong Kong will retain a leading role. Rodney Ward, honorary president of UBS Investment Bank Asia, says: “Hong Kong will continue to play an important role for China and capital raising.”

Mr. Ward believes that the programme that allows for mainland institutions to invest in overseas jurisdictions will benefit Hong Kong's markets significantly as China's capital account restrictions are lifted in the coming years.

Singapore, too, has established itself as a home to growing numbers of hedge funds and as the region's leading centre for private banking, not to mention a niche for shipping and listed real estate companies. Mr Ward adds: “Singapore can benefit from Hong Kong's focus on China and it has successfully forged business links with India and south-east Asia.”

Seoul, too, this summer introduced a “big bang” restructuring to encourage competition, consolidation and creativity in an effort to become a world-class centre. Tokyo, meanwhile, is trying to shed its image as primarily a domestic market. Various working parties are studying how to alter regulations to attract foreign listings back to Japan: only four overseas companies have listed on the Tokyo exchange since 2004. Singapore bagged more than 40.

Australia is also plotting how best to grab a slice of the pie, in particular in the area of asset management. Thanks to a compulsory pension system, the country is on course over the next decade to be home to a pensions pool of $2,000bn. Paul Calello, outgoing CEO of Credit Suisse Asia Pacific, is one of many who believe that several centres in the region can prosper. He says: “Asia is an enormous region and there are huge opportunities for capital formation in several financial hubs.”

He adds: “Each financial centre can offer a niche reason for attracting business such as listings. HK remains important for Chinese companies, and is a gateway in to China. Singapore has developed a niche in property listings and could develop in to a bourse for Vietnamese companies.” Mr. Calello says that Asian companies will not just look to local markets to list. He says: “Nasdaq will still offer strong advantages for Asia's technology companies, while a listing on the NYSE offers a valuable currency for acquisitions.”

Will the development of the financial centres affect the ties between the Asian countries?