Local governments and policy agencies in South Korea have spent about 2 billion won on business with the consultancy that compiles the Global Financial Centres Index (GFCI), a widely cited ranking of the world's financial hubs. Because online survey responses play a substantial role in how the index is calculated, some argue a gap has opened between the rankings and the actual competitiveness of the financial industry.
Data submitted to the office of Rep. Kim Hyun-jung of the Democratic Party of Korea, a member of the National Assembly's National Policy Committee, by the Seoul and Busan metropolitan governments on the 28th shows that Seoul, Busan and the Busan International Finance Promotion Center have spent a combined 2.0023 billion won on projects tied to Z/Yen, the British consultancy, since 2018. Payments made directly to Z/Yen alone came to 1.98949 billion won.
The GFCI is a competitiveness index for the world's financial centers that Z/Yen publishes twice a year, in March and September. In the rankings released on the 16th, Busan placed 22nd among 117 financial centers, its highest position ever. The city stood at 51st in 2020, a sharp climb over six years. Busan has used its rising GFCI rank as evidence of the results of policies to develop the city as a financial hub, including the construction of the Busan International Finance Center (BIFC).
Critics say the index's objectivity is undermined by the fact that the very local governments being assessed have made continuing payments to the body that compiles it. Seoul joined Z/Yen's membership program in 2018 and has paid 1.53169 billion won in annual dues through this year. The Busan International Finance Promotion Center, which handles the city's financial hub development work, spent 463.18 million won on related projects from 2020 through this year. The Busan metropolitan government also paid Z/Yen 7.46 million won in 2020 for print advertising promoting the city as a financial center.
Another concern is the central role that qualitative assessment plays in determining the rankings. The GFCI is built from quantitative indicators published by bodies such as the World Bank and the Organisation for Economic Co-operation and Development, combined with survey ratings from finance professionals. The final ranking is produced by merging the scores that finance professionals assign to each city with scores derived from the quantitative data.
For Busan, the gap between its survey score and its final score is wide. Busan's rating from finance professionals was 832, identical to that of New York, the top-ranked financial center, and 21 points above second-place London at 811. Its final score, however, was 737, below New York's 761 and London's 757. Z/Yen said the divergence between assessment scores and final rankings "may be the effect of strong marketing."
The survey process was also loosely controlled. A reporter who took part in the survey found that respondents could submit answers after entering only a name, affiliation and area of expertise, with no separate verification of employment. Respondents select the financial centers they are familiar with and rate each city's suitability for the financial industry on a 10-point scale. It was possible, for instance, to give Busan a 10 while assigning New York, London and Hong Kong a score of 1 each.
Experts say the GFCI does not adequately capture a city's real competitiveness. Lee You-tae, a professor at Pukyong National University and chairman of the Financial Hub Innovation Forum, said Busan's share of national gross regional domestic product (GRDP) "has stayed in the 4% range ever since the BIFC was built in 2014." Lee added: "The GFCI is structured so that rankings are inevitably influenced by marketing, so local governments clinging to the ranking race ultimately just line the pockets of the consulting firm. The performance of a financial hub is more accurately assessed through indicators such as GRDP and growth in financial firms, specialist personnel and employment."
Similar concerns have been raised abroad. Jochen Biedermann, a director at the World Alliance of International Financial Centers (WAIFC), noted in a report published in March that the GFCI survey may be vulnerable to regional bias. He also cited as a potential conflict of interest the fact that Z/Yen compiles the GFCI while at the same time providing advisory services aimed at strengthening the competitiveness of financial centers.
Kim said: "It is a positive development that Seoul's and Busan's international profiles have risen, but the performance of a financial hub cannot be judged by an outside organization's rankings alone. For Seoul and Busan to grow into genuine financial centers, related companies and specialist personnel must be able to gather around the institutions that have relocated there. We will work out concrete support measures tailored to each region's characteristics so that progress can be confirmed through real change, such as attracting financial firms and adding jobs."
