Does Asia's financial intermediation of China's solar industry during the 2020s exhibit a "California effect"?

Abstract

What explains the rise of certain cities as international financial centers-and not others? Increasingly, authors have pointed to a supposed "California effect"-where financiers must geographically locate neither too close nor too far from the companies they serve. However, the successes and failures of Hong Kong's financial firms to provide finance to China's solar (photovoltaic) "sunrise industry" paint a far more nuanced picture than the simplistic California effect portrays. We find using new research-financial services firms intermediate or disintermediate the value chains of the client companies they provide finance for. Financial centers can exist thousands of miles-or literally half a world way-from their clients if they develop competencies that let them opportunistically seize market opportunities in sunrise industries, such as the Chinese solar industry. As financial firms actively seek to penetrate new markets, their collective action can make their urban centers hotbeds of novel finance. Such a competencies-based approach to understanding the geography of which we develop helps us understand why certain places emerge as (international) financial centers, and others do not.