Path of Building a Global City in Shanghai Based on the “Space of Flows” Theory

ZHAO Xiaokang()， ZHOU Qingqing()

Glorious Sun School of Business & Management， Donghua University， Shanghai 200051， China

Abstract： The “Shanghai Master Plan(2017—2035)” clearly states that building a global city with excellence has become the direction of its efforts in recent decades which requires Shanghai to become an important “global node” in the global city network structure like New York and London. Based on the “space of flow” theory， this paper uses the interlocking network model of Globalization and World Cities(GaWC) to calculate connective index of 48 cities whose level is “alpha” and above in GaWC’s researches. There are still many gaps between Shanghai and other top global cities such as New York， London and Tokyo. Through the calculation of Theil Entropy， the importance ranking of the factors affecting Shanghai’s status in the global city network is obtained. The results show that the proportion of foreign population， the number of sister cities， the number of headquarters of multinational corporations and the proportion of GDP in the whole country significantly affect Shanghai’s status in the global city network.

Key words： global city； interlocking network model；Theil Entropy

Introduction

In 1915， Geddes first mentioned the concept of the world city， and defined as the place where most of the world’s important business activities take place[1]. The famous British city geographer and academician of the British Academy of Sciences， Peter Hall， defined the world cities： those international first-class cities that have global economic， political and cultural influences on the world or most countries[2]. In 1972， when Hymer ranked the importance of world cities， he thought that the number of headquarters with multinational companies should be ranked[3]. Subsequently， Friedman studied the world city from the macro level and proposed that the world city is the product of the new international division of labor and economic integration， and is the node of the global economy[4]. American city and social scholar Ssasen elaborated on global cities from a micro level， first proposed the concept of global cities， namely developed financial and commercial service centers， and screened global cities according to the producer service industry[5]. Castells innovatively proposed the theory of “space of flow”. He redefined the definition of “world city” from the perspective of global space of flow， arguing that “world city” should not be limited to only top global cities； In the information age， each city is a node and has information exchange and processing capabilities， and “world cities” are some centers with direct influence power in the global information network[6].

Castells’s “space of flow” theory laid the theoretical foundation for the study of GaWC global cities. In the “space of flow” theory， society is composed of various people flow， logistics， capital flow and other resources. He believes that “space of flow” consists of three levels.

(1) Material basis： based on aviation network;

(2) Central node level： based on multinational corporations;

(3) Spatial organization of key management talents： based on transnational flow of talents.

According to the global city network theory， global cities are important nodes in the global economy， while advanced producer services are the basis for global cities to form a network. Advanced producer services have offices and branches in the world as to promote the flow of capital， talents and information between cities， the flow of such factors among cities promotes the formation of a global city network. The advanced producer service is one of the driving forces behind the formation of the network. Through the daily global business activities of the advanced producer services， a global network of cities is created. This is called interlocking network model by Taylor[7].

The “Shanghai Master Plan(2017—2035)” clearly states that building a superior global city has become the direction of its efforts in recent decades. The development goal of global cities requires Shanghai to become an important “global node” city in the global city network structure like New York and London. The change in Shanghai’s city positioning is the choice of Shanghai to adapt to the changes in the global political and economic structure. Building a “global city” is a key period for Shanghai’s high-level development in the critical period of economic transformation and upgrading.

Kearney， the world’s leading management consulting firm， released “Global City of 2017”. In 2008， Shanghai ranked the 20th in the global cities. After 7 years of development， Shanghai ranked the 19th in the global city in 2018. We can see that there is no progress of Shanghai. In China， with the rise of some enterprises in Shenzhen such as Tencent and Huawei in recent years， Shenzhen’s GDP has grown rapidly； Alibaba’s growth has been thunderous， and the G20 Summit is also promoting the international development of Hangzhou. The development of Shanghai in recent years has slowed down. Whether it is from the economy， talents， technological innovation or the various indicators of the internet industry， Shanghai has presented a crisis to varying degrees. Shanghai has a long way to go to become a top global city such as New York and London. And how？ This paper aims to finding out its shortcomings and advantages to make recommendations for Shanghai to build a global city.

1 Methods

1.1 Research design

Based on Castells’s “space of flow” theory， this paper studies the world city network from the network of producer service enterprise headquarters and branches， and uses Taylor’s interlocking network model in empirical research to measure Shanghai’s connectivity.

Firstly， this paper combs the concept of global city， the related theory of evaluation index and the practical experience of predecessors on global city. Then， through the interlocking network model of GaWC， it calculates Shanghai’s connectivity in the global city network， so as to clarify Shanghai’s position in the global city network. Finally， by calculating the Theil Entropy Index of 12 indicators that affect the gap between Shanghai and global cities， the paper clarifies the shortcomings and advantages of its development， so as to provide suggestions for Shanghai to build a global city.

1.1.1Interlockingnetworkmodel

The connection between cities is mainly described by the enterprise connection between cities. In the interlocking network model， the advanced producer service is the real network manufacturer， and the connection among cities is locked by the connection with the advanced producer services. The basic steps are as follows. Firstly， letVijdenote the service value ofjcompany’s office inicitiy with the assumption that there aremadvanced producer services inncities， so the service-oriented value matrix of “n×m” will be obtained， in which the value ofVijisshown， the constituent element of the matrix is shown in Table 1[8].

Table 1 Criteria for determining the value of producer services

The basic link between two cities through a company can be obtained from the service value matrix.

γabj=VajVbj，

(1)

whereγabjis a unit connection between cityaand cityb，VajandVbjare the service values of companyjin cityaandb. By suming up the links between the two cities and the company， the links between the two cities and the whole company can be obtained， as shown in Formula (2)

(2)

Each city in the network forms “n-1” links with the remaining cities， so we can obtain

(3)

This is defined as the sum of the number of links between a city and other cities in the network， also known as the “connectivity index” of a city[10].

1.1.2Researchdata

The 48 city samples in this paper are from the research of GaWC in 2016(Table 2) and they are all cities of level Alpha and above. Shanghai is located in the Alpha+level， in order to highlight the gap between Shanghai and cities of the same or similar level. This paper only selected 48 cities of the Alpha level to study.

Table 2 Alpha city in global cities

1.2 Calculation of global city network connectivity index

The key calculate the “connectivity” of sample cities lies in the statistics of the distribution data of global producer services enterprises in sample cities， which can be obtained by manually consulting the official websites of these enterprises one by one. For example， KPMG’s administrative headquarters is in Amsterdam， filling in “3” at the intersection of Amsterdam and KPMG. KPMG has established its Chinese headquarters in Shanghai and KPMG’s China business development center in Beijing， which gives “2” to both cities. The data matrix of 30×48 can be obtained by the same method， and then the connectivity of each city in the global city network can be calculated by the interlocking network model.

1.3 Calculation of Theil Entropy

International methods for measuring relative gaps include the Keynesian number， the Lawrence curve， and Theil Entropy. For each measurement method， they have their own advantages and disadvantages. The main difference lies in the definition of reference value and relative difference[10]. The general formula for the generalized entropy index is

In order to find out the shortcomings in Shanghai’s development process， this paper calculates the Theil Entropy Index of 12 indicators which greatly affect Shanghai’s ranking in global cities. These indicators come from the global city index， with reference to previous studies. From the calculation results， we can find out the shortcomings in Shanghai’s development. According to the shortcomings， suggestions of Shanghai to develop an excellent global city are given.

2 Results

2.1 Results of interlocking network model

Based on the interlocking network model of GaWC， this paper calculates the connectivity of Shanghai in the global city network. The results are shown in Table 3.

Table 3 Connectivity index of cities

The result is basically consistent with the ranking of global cities by the GaWC. Shanghai’s connectivity level in the global city network is constantly rising. As an important carrier of global economic resource allocation， there is still a gap between Shanghai and the top global cities.

In order to find out the specific factors that affect the gap between Shanghai and the global cities， this paper adopts the Theil Entropy Index. In other words， by calculating the Theil Entropy Index of 12 indicators that affect the gap between Shanghai and the global cities， the shortcomings and advantages of its development are shown as the ranking of the indicators， so as to provide suggestions for Shanghai to build an excellent global city.

2.2 Results of Theil Entropy

Theil Entropy can well show the relative gap between objects， and the gap among Shanghai and New York， London and Tokyo are shown in Table 4.

Table 4 Theil Entropy calculation results

(Table 4 continued)

This section calculates the Theil Entropy Index for the 12 global city evaluation indicators that affect Shanghai’s ranking in global cities. The result shows that the proportion of foreign population， the number of sister cities， the number of headquarters of multinational corporations and the proportion of GDP in the whole country significantly affect Shanghai’s status in the global city network.

3 Discussion

From the results of the interlocking network model， we can find that there are still many gaps between Shanghai and the top global cities such as New York and London. Especially in the financial， information technology， consulting and advertising media， there is a big gap. The 12 factors affecting Shanghai’s status in global cities are estimated by Theil Entropy， and the importance of each factor is ranked. The top four indicators are the proportion of foreign resident population， the number of friendly cities， the number of headquarters of multinational corporations and the proportion of GDP in the whole country. Therefore， the following recommendations are made in this paper.

3.1 Attracting international talent

The development of globalization has enabled people from different cultures and different regional backgrounds to influence and depend on each other and to promote exchanges and cooperation among countries， nations and groups. The foreign population has become a key element of economic globalization. Through the process of migration， participation and influence of the process of economic globalization， the formation and development of any international metropolis is a factor that can not be ignored. It is embedded in the globalization process of cities through different forms of economy， politics， society and culture. The transnational flow of foreign population is closely related to the global flow of capital. The talent realizes their personal value from the transnational migration， they seek the maximum benefit from the transnational operation and ordinary workers change their destiny from transnational flow of labor. These transnational flows are the cumulative effects of social capital in the global city network. Therefore， the proportion of foreign population in a city shows how much it can attract multinational corporations， international talents and foreign students. It not only reflects the degree of internationalization of the city and the attractiveness of the city， but also reflects the international competitiveness of the city. As shown in Fig. 1， New York’s foreign population accounted for 35.0% in 2015， London was about 33.0%， and Tokyo was about 7.0%. In the same period， the number of Shanghai’s foreign residents was 178 335， accounting for only 0.7% of Shanghai’s permanent population. Shanghai’s foreign population is too low compared to other global cities[11].

Fig. 1 Proportion of resident foreigners in cities

Through the calculation of the Theil Entropy Index， it can be concluded that the proportion of foreign resident population is the most important indicator affecting the gap between Shanghai and the global city. Therefore， some suggestions are given to Shanghai.

(1) Improve the construction of Shanghai free trade zone.

The establishment of the Shanghai free trade zone has effectively promoted the development of Shanghai’s economy and also introduced a large number of foreign populations into Shanghai. Therefore， improving the construction of the free trade zone is conducive to the introduction of foreign talents. We will improve the construction of the free trade zone by giving foreign companies more preferential policies in the free trade zone and improving the basic service facilities of the free trade zone.

(2) Building and improving international public services.

In order to create an environment suitable for the life and development of international talents， Shanghai can actively develop a training system that is compatible with the needs of international talents； adhere to the construction of Shanghai international talent highland； help international talents’ family solve education， medical and other issues.

(3) Strengthen cultural propaganda to enhance the understanding of Chinese culture by foreign populations.

In order for international talents to live and work well in Shanghai， Shanghai should take some measures to better integrate international talents into Shanghai culture. For example， we can take them to tourist attractions with Chinese characteristics；encourage them to appreciate Yue opera， Kun opera that can reflect Shanghai culture； establish international public welfare interest class to make them enjoy learning Chinese culture courses.

3.2 Establishing friendly relationships with more cities

In a globalized economic system， cities have become the epitome of competition and cooperation among countries， and serve as a window for the country’s opening up and economic and trade exchanges.There are three modes of operation in city diplomacy： international sister cities， city cooperation platforms， and contacts with international organizations[12]. The sister city refers to the city of a country corresponding to another country， in order to maintain world peace， enhance mutual friendship， and promote common development， establishing a formal partnership after the city agreement， the two cities actively carried out exchanges and cooperation in the fields of politics， economy， science and technology， education， culture， health， sports， environmental protection and youth exchanges. We call this formal， comprehensive and long-term friendly relationship or institutional arrangement as sister city relations. In order to promote social prosperity and progress， Shanghai should do an excellent job in the work of sister cities between Chinese cities and foreign cities， cooperate with the needs of the whole country’s diplomacy and the development of bilateral relations， and carry out bilateral exchanges and cooperation in economic， scientific， technological and cultural fields.

As of the end of June 2018， Shanghai has established friendly city relations or friendly exchanges with 86 cities(provinces， states， regions， provinces， prefectures， counties or districts) in 58 countries.There are 65 city-level friendship cities， 5 city-level friendly exchange cities， and 16 district-level international friendship cities. Since the launch of the sister city work， Shanghai and its sister cities have made full use of their resources in culture， economy， trade， city construction， tourism and other aspects to carry out colorful exchanges and cooperation. Besides， sister cities have played an important role in coordinating with China’s overall diplomacy， promoting the development of the city’s economic， social and culture， promoting regional and county exchanges， and establishing the image of the city. Most of Shanghai’s international sister cities are important port cities， industrial and commercial cities or economic， financial and cultural centers in the host country. There are many similarities with the characteristics of Shanghai. However， there are still insufficient and more room for development in the current sister city work. For example， the development of friendly exchanges is uneven， mostly for port cities similar to their own； the promotion of city planning and city construction through sister city relations is not significant； Shanghai is very rich in financial resources， but the diplomatic resources for foreign exchange are obviously insufficient. The sister city still needs the approval of the State Council. Many activities are also designated by the central government. Without professional personnel and financial support for city diplomacy， the construction of friendly cities requires considerable professionalism， knowledge accumulation and experience inheritance in order to cope with the differences in different languages， customs and religions of each sister city. Especially when it is holding large-scale events or organizing exchanges with people from different friendly cities， it is more difficult because it requires not only considerable financial support， but also experienced diplomats to guide and participate.

Shanghai’s sustainable development strategy must have a global vision， accelerate the effective resolution and governance of city development issues， effectively use city diplomacy， and use its own resource advantages in a targeted manner to attract more production factors needed for the development of international metropolises. Suggestions are as follows.

(1) Using the platforms such as expositions， trade fairs and forums as carriers to enhance Shanghai’s international influence， actively diplomacy， and make more sister cities；

(2) Communicating with sister cities is not only diversified in form， but also rich in content； Tokyo’s exchanges with the capitals of the developed countries in Europe and the United States focus on learning and introducing advanced technology as the leading factor and have a strong intention to strengthen cooperation in the economic and political fields. Shanghai should properly study the international metropolitan diplomatic experience and make full use of its resources in culture， economy， trade，city construction and tourism with the sister cities to carry out colorful exchanges and cooperation；

(3) In order to build better relationship with sister cities of Shanghai， it should communicate with sister cities at various levels， strengthen the connection between cities around Shanghai such as Suzhou， Hangzhou， Nanjing and other cities in the Yangtze river delta and foreign cities， and combine their own characteristics to conclude sister cities and conduct extensive exchanges and cooperation.

3.3 Attracting the headquarters of multinational corporations

Multinational corporations are the most dynamic and influential players on the international economic arena. Some scholars believe that under the influence of economic globalization， the functions of multinational corporations are continuously strengthened. The number of multinational companies in global cities has become the standard for measuring global city levels. After the 2008 financial crisis， the world economic structure has undergone profound changes. The world map in the eyes of these multinational companies has also undergone a new adjustment. After the crisis， many multinational corporations paid more attention to the intensive nature of production and management， and changed the product management strategy in a timely manner.Previous production and management of products shifted from developed countries to sub-developed countries， to the so-called “gradient shift” of developing countries， then transformed into global simultaneous development， manufacturing and sales. Many multinational companies have refined the product design， component manufacturing， and integrated assembly， and selected the regions with the world’s most cost-effective advantages to achieve optimal allocation in the global scope. At this time， the dominance and control of the headquarters of multinational corporations is particularly important. When multinational corporations make strategic choices， most of them will set their headquarters in the big global cities where the headquarters are concentrated， while the regional headquarters will be located in some regional central cities， and the branches will be scattered in the general resources of some aspects. Among multinational corporations， the headquarters that control and manage the company’s economy and the branches that influence the company’s economic development continue to gather in global cities through location choices. Global cities can use multinational corporations to master the global economy. Therefore， the concentration of multinational corporation headquarters and important branches in global cities is one of the important factors in the global cities.

With the rapid development of China’s citilization in recent years， the recovery and development speed of the Chinese market is even far beyond the stage of some developed economies， and the weak demand in the traditional developed countries has made multinational companies rely on the growing Asian market. The market strategy of some multinational companies has shifted from the European and American markets to the Asia-Pacific region with China as the core. In order to strengthen the coordinated management of production and markets in the Asia-Pacific region with China as the core， multinational companies need to establish regional headquarters and even Asia-Pacific headquarters in China’s central cities， which bring significant opportunities for Shanghai to attract regional headquarters of multinational companies. Well-known companies such as ExxonMobil， BP Amoco， Ford and Bosch have set up regional headquarters in Shanghai. The advantage of Shanghai’s headquarters of multinational corporations lies in the strong economic foundation. The development of the headquarters economy requires a considerable economic development foundation， and an excellent infrastructure environment compatible with the regional headquarters of multinational enterprises， a sound business support service foundation， and requires resource-intensive cities such as talents， technology， knowledge， information， and capital. But more importantly， according to 2016 statistics， Singapore has a total of 4 200 multinational corporations， with 1 389 in Hong Kong and 470 in Shanghai. Shanghai and Sinapore do not add up to more than half of Singapore.

Fig. 2 Number of headquarters of multinational corporations

As shown in Fig. 2， there is a significant gap among the number of headquarters of multinational companies in Shanghai and the three top global cities of New York， London and Tokyo. Therefore， the headquarters of multinational corporations as high-end resources also significantly affect the gap between Shanghai and global cities. According to the China Business Network， Shanghai added 28 regional headquarters， 9 Asia-Pacific headquarters， 13 new investment companies， and 12 research and design centers from January 2018 to September 2018. By the end of September 2018， there are 653 regional headquarters of multinational corporations had been introduced， including 79 Asia-Pacific headquarters， 358 investment companies and 438 R&D centers. But compared with the global cities outside Hong Kong， Singapore and Asia Pacific， the headquarters advantage of Shanghai is not obvious. It seems that Shanghai has some shortcomings in attracting headquarters. For example， at present， China implements strict capital project control， and the Renminbi (RMB) is not freely convertible. Therefore， it is difficult for multinational companies to regard Shanghai as the true financial headquarters of the Asia-Pacific region. Hong Kong and Singapore have a first-mover advantage and pose a strong challenge to Shanghai’s agglomeration headquarters. For multinational companies， the biggest attraction of Hong Kong and Singapore in China is the simple tax system and high trade facilitation. Therefore， in the site selection， some multinational companies have set up two regional headquarters in the Asia-Pacific region， and set up their headquarters in trade， sales， R&D， and human resources in Shanghai close to the market， and set up their financial headquarters in Singapore.

The focus of Shanghai’s development headquarters economy should shift from the pursuit of the number of headquarters to the strengthening of the headquarters function， which will attract the regional headquarters of multinational companies and the industrial upgrading and transformation of Shanghai. To further attract the strategy of regional headquarters of multinational corporations， we must learn from each other’s strengths and form differentiated competition with Singapore and Hong Kong. First of all， it should form a close industrial cooperation basis with the Yangtze river delta cities， refine the division of labor and complement each other’s advantages， and avoid duplication of industry and vicious homogenous competition. At the same time， Shanghai should also upgrade its professional service support capacity and environmental protection system. The headquarters of multinational corporations needs a comprehensive and efficient professional service support system， which should cover finance， accounting， logistics， law， consulting， advertising media， information technology and many other fields. Shanghai should improve itself in these all-round areas， gather various professional service organizations with high quality， and develop more targeted regional headquarters support plans， and set up targeted support policies for various regional headquarters.

3.4 Optimizing the industrial structure

According to Castells， the globalization process is essentially the process of linking the production and consumption centers of advanced producer services and the local areas as to link to the global network. Therefore， Taylor and GaWC define the global city as “the center of global service delivery”. In this theory， the higher the connectivity of a city’s global city network， the greater its level of service to the world.

The contradiction between China’s domestic institutional framework(such as accounting standards， financial supervision， market access) and international standards constrains the rapid development of Shanghai’s advanced producer services， making Shanghai unable to produce world-famous companies like KPMG， Boston Consulting， Star， Goldman Sachs and so on. This is an important reason for the relative lack of Shanghai’s ability to provide services to the world[13].

According to the structural characteristics of Shanghai’s industry， the service sector accounts for a relatively high proportion. At present， the service sector accounts for more than 70%， and the contribution of the tertiary industry to the economy has occupied an absolutely dominant position. However， from the perspective of the internal structure of the service industry， the problems of R&D， professional service， small scale and low proportion of cultural industry still exist. In 2015， the proportion of science and technology services， business services and information services in Shanghai’s GDP was 4.19%， 8.67% and 8.09%， respectively， while the proportion of science and technology services in Greater London was as high as 20.7%[14]. Shanghai should continue to vigorously develop the tertiary industry， as while as ensuring the development of advanced manufacturing industries， and appropriately transferring certain secondary industries to the suburbs or the hinterland of surrounding cities. Besides， Shanghai should increase its science and technology services， business services and information services. Furthermore， it should effectively relieve the non-core functions of the city and release it to the suburbs or surrounding city hinterland. We should strengthen the integration of infrastructure in the Yangtze river delta and promote complementary advantages.

4 Conclusions

This paper finds the factors which most affect Shanghai’s status in the global city through the calculation of Theil Entropy， and derives the importance ranking of each influential factor. The top four indicators are the proportion of foreign resident population， the number of friendly cities， the number of multinational corporations and proportion of national GDP.

Recommendations of Shanghai development are given based on the results of the analysis.

(1) Attract foreign populations into Shanghai by improving the construction of free trade zones and international public services， and use the propaganda of Chinese culture；

(2) Establish friendly relations with more cities by enhancing Shanghai’s international influence， enrich the content of exchanges with sister cities， and communicat with sister cities on multiple levels；

(3) Strengthen the headquarters function， it will attract the regional headquarters of multinational companies and Shanghai’s industrial upgrading， transformation and development. It should form a good industrial cooperation basis with the Yangtze river delta cities， refine the division of labor and complement each other’s advantages， and avoid duplication of industry and vicious homogenous competition. At the same time， Shanghai should also upgrade its professional service support capacity and environmental protection system；

(4) Shanghai should continue to vigorously develop the tertiary industry， while ensuring the development of advanced manufacturing industries， and appropriately transferring certain secondary industries to the suburbs or the hinterland of surrounding cities. Besides， it should effectively relieve the non-core functions of the city and release it to the suburbs or surrounding city hinterland. We should strengthen the integration of infrastructure in the Yangtze river delta and promote complementary advantages.