Rethinking international financial centres through the politics of territory: Renminbi internationalisation in London’s financial district

This paper revisits canonical thinking on international financial centres (IFCs) that understands them as being primarily sustained through: market liquidity; economies of competition and cooperation between financial and related professional services; and acting as interpretative nodes within global finance. In contrast, I explore the implications of foregrounding questions of power and politics in the (re)production of IFCs. Drawing on the case of the development of offshore renminbi markets in London’s financial district, I argue the state plays a vital, yet comparatively neglected, role in shaping the development and changing nature of international financial centres. In so doing, the paper calls for work in economic geography and cognate social sciences to understand finance as a political as well as an economic, social and cultural relation.


Introduction
In October 2015, the Financial Times carried the headline 'Chinese financial institutions grow closer to the heart of London' (Financial Times, 2015a). The article documented London's rise as the first and leading western offshore centre (beyond mainland China) for financial products and markets denominated in the Chinese currency -the renminbi (RMB). The article was accompanied by a picture of the Chinese flag flying in the centre of London's historic financial district with the financial offices of Canary Wharf in the background. This image clearly symbolises the marked changes the internationalisation of the RMB is currently bringing about within the international financial system. Prior to 2004, RMB denominated trading was not allowed outside China and the RMB had virtually no international influence.
Subsequently, the Chinese monetary and financial authorities have pursued a carefully managed policy of internationalisation such that the RMB is now the fifth most-used currency globally for international payments and was selected to join the International Monetary Fund's basked of global reserve currencies in November 2015 (IMF 2015). Nevertheless, the process of internationalisation and associated financial services sector reform within China has not been without its difficulties.
Most notably, the uncertainties surrounding the Chinese financial system were demonstrated by the Shanghai stock market crisis in the summer of 2015 in which trading only resumed following state intervention that was estimated to cost more than US$800 billion of public and private funds (Reuters 2015). Unsurprisingly, there are doubts as to whether such large-scale rescue operations will remain sustainable in the future.
In this paper, I use the case of the London's development as an offshore RMB centre to revisit work in economic geography and cognate social sciences on the (re)production and development of international financial centres (IFCs). A vibrant literature has developed in this respect through a range of conceptual approaches and empirical research sites. This includes: intensive analysis of the history of leading financial centres in Europe and North America (Cassis, 2010;Kynaston 2012); relational and networked based accounts of the continued dominance of a small number of financial centres, notably New York and London (Beaverstock et al 2000;Faulconbridge 2004;Sassen 2000); and work on the localisation advantages afforded to financial institutions by co-locating within financial centres (Clark and O'Connor 1997;Porteous 1999;Tickell 2000;Thrift 1994). Collectively, this work has refuted claims that information technology and the associated virtualisation of stock exchanges in particular would lead to the 'end of geography' associated with a decreasing importance of IFCs (on which see O'Brien 1992).
This paper uses the case of RMB internationalisation in London to develop a sympathetic critique of this literature, arguing that research needs to better understand the role of the state, and financial and monetary authorities in particular, in shaping the reproduction and development of international financial centres. This is not to say that the state is entirely absent from extant research. For example, much of the early work on the geographies of money and finance and related fields was concerned with understanding the implications of the collapse of the Bretton Woods agreement of pegged exchange rates from the 1970s onwards for the governance arrangements of global finance, particularly the potential for a decline in state power within financial markets (Strange 1988;Leyshon 1992;Thrift and Leyshon 1994;Leyshon andThrift 1997, Leyshon andTickell 1994).
Furthermore, whilst offshore financial centres are frequently identified in the media as being places beyond state control, research has shown the vital role played by state-led regulation in their creation and reproduction (Hudson, 1998;Roberts 1995;Palan 2006). Despite this work, much of the recent research on IFCs has emphasised the networked properties of the socio-spatial practices of advanced producer service firms (including finance and law firms in particular) that serve to sustain the importance of IFCs as such centres act as interpretative nodes for knowledge creating, reproduction and exchange within such networks (Beaverstock 2002;2004;Beaverstock et al 2000).
Understanding these inter-IFC firm networks is clearly important given the implications of such connections for, for example, regulatory change following the financial crisis (Wojcik 2013). Moreover, measures of connectivity between financial centres, including inter-firm relations, have become important components in the numerous rankings of financial centres produced in both academic and practitioner communities (Tschoegl, 2000;Choi et al., 2003;Z/Yen 2016). However, in this paper, I use the case of RMB internationalisation to demonstrate how state intervention is vital in creating the conditions under which these financial networks can develop and thrive. In particular, I suggest that foregrounding the role of the state in the (re)production of IFCs demands a shift in the geographical imagination used to study financial centres from its current emphasis on networks and relationality to one more sensitive to the territorial qualities of financial centres and the ways in which territories are co-produced through financial networks (see also This argument is important because it shows how work on IFCs can respond to calls for the development of more politically sensitive accounts of the geographies of global finance more generally (Agnew 2009;Hall 2011;Wojcik 2013;Wójcik et al 2016). It also offers the potential to place IFCs more centrally within longstanding debates concerning the relationship between state power, governance and globalisation (Held and McGrew 2002;Thrift and Leyshon 1994;Leyshon and Thrift 1997). In particular, I show how state power remains important, if not increasingly so, within global finance. This has been documented at the level inter-state relations through, for example, work on currency competition within the international monetary system (see Cohen 2015; Eichengreen 2011). This paper offers a complimentary reading of the importance of state power at the less well-understood scale of financial districts that underpin global finance. I develop this argument over four further sections. Next I locate IFCs within broader debates concerning the relationship between networks and territory in economic geography and cognate social sciences. The third section of the paper introduces the process of RMB internationalisation and the role of offshore RMB centres within this. In the fourth section I examine how London's financial district served as a 'territorial fix' (Christophers 2014) for state and private sector interests in China and London concerned with RMB internationalisation and the wider development of London as an IFC. I conclude by reflecting on the significance of this analysis for theoretical understandings of the changing political and economic geographies of IFCs, the role of states and regulators within this and the impacts of RMB internationalisation on the wider geographies of the international financial system.

Placing financial centres within the politics of global finance
Whilst Faulconbridge et al (2007:281) rightly argue that extant work across a range of disciplines fails to provide a 'consistent analytical framework' for explaining the continued importance of a small number of financial centres, common foci have emerged within the interdisciplinary literature on financial centres. As Cassis (2010) notes, the majority of these explanations centre on the identification of external economies of scale available to firms and financial institutions beyond their firm boundaries through being co-located with other, similar actors with whom they can form relations of competition and cooperation. Three such economies of scale and their associated agglomeration benefits are particularly significant. First, successful financial districts are built on highly liquid financial markets (Faulconbridge et al 2007). Second, the clustering of financial firms within financial centres gives rise to 'buzz' between financiers (Storper and Venables 2004). This buzz, built around dense inter-personal and inter-firm relations, is important because it facilitates processes of innovation and the production of new financial products by overcoming the knowledge asymmetries between financiers and their clients that are associated with the bespoke qualities of many financial products and services (see Clark and O'Connor 1997). Third, IFCs typically attract the highly skilled labour force that is needed to work in this information rich environment (Beaverstock and Hall 2012). In However, the relationship between networks and the places and spaces in which they become grounded, interpreted and acted upon is a longstanding concern within economic geography, extending well beyond work on IFCs (Dicken 1994;Scott 1998;Storper 1997). In this paper, I want to suggest that whilst by no means ignoring the territorial basis of IFCs, the relative balance of work on such centres has taken networks and flows of people, knowledge, information and capital as their starting point and hence, understandings of how these networks are grounded and reworked in particular places has been comparatively neglected (see Van Meeteren and Bassens 2016). In particular, I am interested in how this focus has meant that the governance of such networks, and particularly the role of the state in such activities, remain overlooked.
A number of interventions, including but not limited to work in finance, provide a valuable way of beginning to develop a more comprehensive understanding of the role of the state in reproducing and maintaining IFCs. In order to do this, I take as my starting point the renewed interest in territory within geography more generally.
This work understands territory as a way of making and managing space through legal and other regulatory frameworks (Elden 2005;2010). When applied to the case of economic geography, this echoes earlier work that is concerned with 'the sets of institutions, rules, and conventions that form the regulatory context of industrial systems, firms, and territories' Dicken and Malmberg 2001: 347) and more recent concerns to understand 'territorial development' within recent work in the global productions literature (Yeung and Coe 2015). This work is important because it signals the importance of attending to the mulitscalar connections implicated in the making of particular territories (see also Amin 1998).
In terms of work on the geographies of finance, this approach has been developed through the longstanding interest in offshore finance that emphasises the ways in which offshore space is constructed through the variation of state sovereignty across space (Palan 2006;Roberts 1995;Hudson 1998). Meanwhile, Pike and Pollard (2010:38) argue that the vast literature on financialisation needs to remain attentive to the 'tensions between territorial and relational conceptions of space and place'.
Christophers (2014:755) has recently taken this analysis a stage further by examining how "modern capitalism is constantly in the process of enacting territorial fixes: constituting, segmenting, differentiating and extracting value from actively territorialized markets at a range of geographical scales. This provides a valuable extension of Harvey's (1982) understanding of spatial fixes by demonstrating how capitalism seeks to overcome its crisis prone tendencies not only through spatial expansion but also through the remaking of space through regulatory and other political interventions. In what follows, I examine the role of the state in using IFCs as 'territorial fixes' within the international financial system through regulatory changes that aim to (re)produce their institutional arrangements of rules, informal customs and practices. in London and Beijing. Interviews were conducted in English and lasted between thirty minutes and two and a half hours. All interviews were recorded and transcribed in full before being coded following grounded theory with key themes being identified to shape the coding process.

Placing London within RMB internationalisation
In order to understand how the place specific socio-spatial practices within London's financial district operated alongside its territorial qualities in its development as an offshore RMB centre, it is important to begin by situating London within the wider geographies of RMB internationalisation. It is not easy to give a precise start date for RMB internationalisation as it has unfolded incrementally through a series of policy changes initiated by the political and financial authorities in Beijing (Chen and As table 1 shows, in addition to holding an RQFII quota, these centres host a designated RMB clearing bank, hold sizable (although varying) RMB deposits and have seen the development of a range of RMB markets. These centres are supported by a number of offshore financial RMB hubs (such as Paris and Frankfurt) that access mainland China through the offshore RMB centres (Subacchi and Huang 2012). Hong Kong remains the largest offshore RMB Centre and has been the most widely studied to date (see Fung and Yau 2012). However, the case of the development of London as an offshore RMB centre raises important questions about how and why it became the first western such centre and the implications of this for the possible future trajectories of RMB internationalisation and understandings of IFCs more generally.

Territorial fixes and the (re)making of regulatory space in London's development as an offshore RMB centre
A central insight of the recent resurgence of interest in territory has been its dynamic qualities such that, in the case of the economy, it is constantly in the process of being refigured to achieve capital accumulation therefore serving as what Christophers (2014:745) terms a 'market making economic technology'. Drawing on this understanding of territory, in what follows I being by examining why London was identified as having the potential to be developed as the first western offshore RMB centre before turning to how this was achieved through state interventions by both China and the UK that served to use London as, in Christophers (2014) terms, a 'territorial fix' within RMB internationalisation.
Legitimising London as the 'western offshore RMB centre of choice' 1 By taking the territorial qualities of London's financial district as my starting point, table 2 specifies three sets of institutions that account for why London was identified by the Chinese monetary authorities as the location for the first western offshore RMB centre and how this was supported by both the state and private sector in London. First, London specific conventions, understood as the socio-cultural norms that structure and shape what counts as desirable and legitimate financial activity in the City were instrumental for both Chinese monetary authorities and policy makers and the private sector financial services community in the UK. In particular, the relationship between the temporal and geographical specificity of these conventions as they operated in the late 2000s in the wake of the 2007-8 financial crisis and the trajectory of RMB internationalisation needs to be understood.
Beginning with the creation of new financial markets and products that are clearly necessary if RMB finance is to be developed in London, following the 2007-8 crisis there was a concern within both practitioner and policy making circles concerning the potential for the crisis to threaten London's position as a, if not, the leading IFC (Hall, 2009). As Table 2  [insert table 2 here] This is related to the second set of conventions that were important in London's development as an offshore RMB centre, which can be summarised as its 'genuine and deep international disposition' as a junior Chinese banker put it to me in April 2015. This reflects the fact that London, in contrast to New York, has always relied on international financial services for its development, given the relatively small size of its potential domestic market (Kynaston 2012). In particular, as Table 2  Finally, the third dimension of London's institutional landscape that was important in facilitating its initial development as an offshore RMB centre was its approach to regulation, and particularly the use of regulatory changes to facilitate the development of offshore markets historically through the development Eurodollar markets in the 1960s and 70s (Subacchi and Huang 2012). Crucial to the development of Euro bond markets in London was the combination of regulatory change and the ways in which financial institutions sought to work within this changing environment whilst also shaping it in ways most advantageous to their own ends (in other words, remaking the territorial qualities of London's financial district at the time (Burn 1999;Schenk 1999). There are clear differences between the Eurodollar markets and offshore RMB centres, not least the far more interventionist role played by the Chinese state in the latter compared with the US government in the former, such that financial authorities in London are responding to regulations made at a distance, rather than shaping the process themselves as was the case in Eurodollar markets (Subacchi 2014). However, the existence of euro-dollar markets in London was taken as evidence of London's ability and willingness to make regulatory changes to develop offshore markets, reflecting its wider expertise in foreign exchange markets as shown in Table 2.
Taken together, these institutional dimensions of London's financial district explain why it was selected as the first offshore RMB centre. They also show how these territorial qualities of London as an IFC are tied into relations with both the Chinese and British states, particularly through financial and monetary authorities. However, in order to understand how London subsequently developed as an offshore RMB centre, it is necessary to examine how the territorial qualities of London's financial district were (re)produced through regulatory change initiated by both China and the UK.

Territorial fixes in the making of offshore RMB markets in London
Three sets of relations, that combine multi scalar relations beyond the boundaries of to place RMB internationalisation more centrally within scholarship on the geographies of money and finance, and work on IFCs in particular. However, rather than examining RMB internationalisation through its heartlands, notably Hong Kong, or the debates within mainstream economics concerning the RMB's potential to become the global reserve currency, the paper has taken inspiration from Burawoy's (1998) work on the extended case method to examine RMB internationalisation through the less well studied case of London's development as an offshore RMB centre. In so doing, the analysis has shown that by examining a relatively new process (RMB internationalisation) within a more familiar geographical setting (London's financial district) important theoretical and empirical insights can be developed into RMB internationalisation and the role and nature of financial centres within this.
Theoretically, I have argued that London's development as the first western offshore RMB centre offers a sympathetic critique of the recent tendency to understand IFCs through networked geographical imaginations. This work has done much to helps us understand the relations between IFCs, emphasising how these are mediated through finance and related professional service firms. However, the case of RMB internationalisation calls for a shift in these geographical imaginations to examine the territorial qualities and reproduction of IFCs. In particular, I have emphasised the role of the state, and monetary and financial authorities in particular, as they seek to use regulatory changes as a way of using IFCs as a 'territorial fix' to meet their political and economic objectives within the international financial system. However, rather than dismissing the importance of financial networks between IFCs, this approach adopts a multi scalar reading of territory and is concerned with a longstanding set of debates in economic geography and the wider social sciences concerning the co-constitutive relationship between territories and networks and the ways in which territory itself is remade in this process (see nurture close relationships with China in the hope that they would foster economic growth more generally. In some ways, the emphasis on the state that emerges in the case of RMB internationalisation may seem rather unsurprising given the nature of the Chinese political economy. However, I would suggest that this is analytically useful since the case of RMB internationalisation can serve as an accentuated case to demonstrate the importance of attending to the role of state actors, both within and beyond IFCs in facilitating and shaping their (re)production more generally. In particular, the different institutions and conventions shaped by state intervention within London's RMB markets identified within this paper (ranging from taken for granted cultural norms to more formal regulatory changes) provide a valuable framework for specifying how state actors shape the territoriality of IFCs. In this sense, finance in this paper can be conceived of as a political relation, alongside the economic, cultural and social relations that have dominated work on IFCs of late. This is important because it demands that questions are asked about in whose interests the state is acting when it shapes IFCs in this way. Indeed, these questions are particularly pertinent in the case of the UK where there is a growing recognition that In a more empirical vein, the approach taken in the paper offers a nuanced reading of RMB internationalisation. Here I argue that it is not a straightforward, linear and predictable process that has one predetermined end point, notably the possible development of the RMB as a global reserve currency that has been the focus of much of the academic debate on RMB internationalisation to date. Rather, offshore RMB space is being (re)produced in London through the interplay of relations with other IFCs, notably Hong Kong, the place of London's financial district including its accepted socio-economic norms and the territorial qualities of London's financial district as it is (re)produced through regulatory changed initiated by financial authorities in both Beijing and London. How these elements are combined in particular offshore RMB centres and hubs and how they interact with the institutional, political and cultural make up of these places is likely to be important in explaining the future trajectories of RMB internationalisation and its broader role in shaping the continued variegation within the geographies of money and finance.
This analysis is also valuable in terms of demonstrating the changing and increasingly important role of offshore spaces and places within the international financial system. There has been a renewed interest in offshore finance within economic geography and cognate social sciences recently (see for example Clark et al 2015;Wójcik 2013;Haberly and Wójcik 2015). This work has gone beyond earlier research that focused on small, island economies (Roberts 1995). Rather it draws attention to the growing range of offshore activity and a concomitant diversity in the places in which it takes place. Indeed, it is well documented that China's financial system is tied into a series of offshore financial networks (Sharman 2012). The analysis in this paper makes important interventions in this work by complicating the separation between on and offshore finance, revealing the ways in which through relational, place and territorial practices, significant new forms of offshore finance are being (re)produced in established IFCs with important implications for the future trajectory of the international financial system. Such insights are important not only in terms of understanding offshore finance in and of itself but also in terms of contributing to a renewed interest in the politics of global finance and the role of financial centres within this.