Building a “Headquarters Economy”: The geography of headquarters within Beijing and its implications for urban restructuring

Cities 42 (2015) 1–12

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Building a ‘‘Headquarters Economy’’: The geography of headquarters within Beijing and its implications for urban restructuring Fenghua Pan a,⇑, Jie Guo b, Hua Zhang a, Jinshe Liang a a b

School of Geography, Beijing Normal University, No. 19, XinJieKouWai St., HaiDian District, Beijing 100875, PR China School of Government, Peking University, No. 5 Yiheyuan Road, HaiDian District, Beijing 100871, PR China

a r t i c l e

i n f o

Article history: Received 8 December 2013 Received in revised form 28 July 2014 Accepted 20 August 2014

Keywords: Headquarters Headquarters economy Location Agglomeration Urban structure Beijing

a b s t r a c t As command centers, headquarters (HQ) of large firms are crucial to the economy of cities where they are located. Since HQ of large firms play a key role in shaping the urban structure, it is important to investigate the locational patterns of HQ within a city for both academic and policy considerations. Based on a data set of publicly listed firms with HQ located in Beijing, we found that the spatial distribution of HQ is characterized by both agglomeration and dispersion. On the one hand, HQ are significantly agglomerated at different geographical scales. Several clusters of HQ have been identified in our study. Moreover, a suburbanization of HQ trend has also emerged. The regression analysis shows that firm attributes, including sector, scale, ownership and year of going public, may explain the location pattern of HQ. We conclude by providing a detailed analysis of HQ distributions within Beijing that is being shaped by both market and state forces; it also highlights the role of HQ location in urban restructuring. The agglomeration of HQ is persistent and could be the results of the interplay between market and state forces, among which the agglomeration economy as well as the urban planning are most important. The results could also shed some light on the development of a ‘‘HQ economy’’ and urban planning for other cities. Ó 2014 Elsevier Ltd. All rights reserved.

Introduction Headquarters (HQ) are in charge of some, if not all, of the strategic functions of firms (Godfrey & Zhou, 1999; Rice & Lyons, 2010; Taylor & Csomós, 2012; Taylor et al., 2009; Tonts & Taylor, 2010). As command centers of firms, the HQ of large firms are crucial to the economy of cities where they are located in many ways (Csomós, 2013; Godfrey & Zhou, 1999; Taylor & Csomós, 2012; Taylor et al., 2009; Testa, 2006). Firms tend to relocate their HQ or regional HQ to other cities when they need to adapt to constantly changing economic situations (Holloway & Wheeler, 1991; Klier, 2006). It has become a feasible strategy for cities to attract the HQ of large firms in order to advance their urban and regional economies (Klier & Testa, 2001; Testa, 2006). The overall economic influence of HQ on the urban and regional economy is often termed as ‘‘HQ economy’’,1 which has been widely used and adopted by Chinese local governments in developing urban economies (Chan & Poon, 2011). The entrepreneurial endeavour of ⇑ Corresponding author. Cell: +86 (10)138 1043 8595. E-mail addresses: [email protected] (F. Pan), [email protected] (J. Guo), [email protected] (H. Zhang), [email protected] (J. Liang). 1 http://english.sohu.com/20051229/n227704100.shtml. http://dx.doi.org/10.1016/j.cities.2014.08.004 0264-2751/Ó 2014 Elsevier Ltd. All rights reserved.

China’s governments (Wu, 2002) can also be observed in their efforts to build a ‘‘HQ economy’’ at the local level. Given the significant benefits that could be generated by the so-called ‘‘HQ economy’’, local governments tend to adopt preferential policies to attract HQ (Chan & Poon, 2011). Many cities such as Beijing, Shanghai and Shenzhen have advanced their ‘‘HQ economy’’ strategy by attracting the HQ of large firms or the regional HQ of foreign firms (G. Zhang, 2013; Zhao, 2013). In addition, building a ‘‘HQ economy’’ is considered as ‘‘a path towards industrial upgrading’’2 in China. This phenomenon could also be observed in developed countries. For example, Tokyo launched a special zone for Asian HQ in 2013.3 Moreover, HQ are sometimes seen as playing an important role not only in shaping the overall spatial pattern of office buildings within a city but also in influencing the employment opportunities and resulting traffic flows. Attracting HQ could also be a key concern of urban planning and urban development strategies. Existing studies on the geography of HQ of large firms have paid little attention to their locations and agglomerations within a city.

2 http://www.china-briefing.com/news/2012/03/15/chinas-headquarters-econ omy-a-new-path-to-industrial-upgradation.html. 3 http://www.chijihon.metro.tokyo.jp/ahq_project/english/news-events/press/ 20130726.html.

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F. Pan et al. / Cities 42 (2015) 1–12

Most of them have focused on the distribution of HQ among different cities (Bel & Fageda, 2008; Klier, 2006; Meyer & Green, 2003; Pan & Xia, 2014; Rice, 2010; Rice & Lyons, 2010; Tonts & Taylor, 2011, 2010). Theoretical and empirical research suggests that HQ are highly agglomerated in metropolitan areas in western countries (Davis & Henderson, 2008; Henderson & Ono, 2008; Lovely, Rosenthal, & Sharma, 2005; Strauss-Kahn & Vives, 2009). Recent studies on the geography of HQ of large firms among Chinese cities found that HQ are mostly concentrated in large cities such as Beijing, Shanghai and Shenzhen (Pan & Xia, 2014; Wu & Ning, 2010). It is pointed out that HQ are highly agglomerated within metropolitan areas as well (Meyer & Green, 2003). However, the spatial patterns and underlying mechanisms of the HQ distributions within a city have been underexplored. So is their interaction within a city’s evolving urban structure. The rapid rise of both large firms and world cities in China has impacts both within and beyond the urban territory. Studying the development of the ‘‘HQ economy’’ is of central importance as the relocation of HQ often results in restructuring of metropolitan areas. Of all the cities involved in building a ‘‘HQ economy’’ in China, Beijing has been the most successful. It has made great strides in presenting itself as a world city (Wei & Yu, 2006). Among all the means applied by the local government, attracting HQ of domestic large firms and regional HQ of multinational corporations (MNCs) turns out to be the most effective, because Beijing has an ‘‘information advantage’’ due to its administrative role (Wang, Zhao, Gu, & Chen, 2011; Zhao, 2003; Zhao, Cai, & Zhang, 2005; Zhao, Zhang, & Wang, 2004). Beijing, as the capital of China, has become the leading city and home of the HQ of large firms in China. In 2013, Beijing surpassed Tokyo to become the No. 1 city housing the most HQ of Global Fortune 500 companies.4 The most centrally directed firms by SASAC (State-owned Assets Supervision and Administration Commission) and the Minister of Finance are located in Beijing. Moreover, Beijing is also home to the largest number of HQ of publicly listed firms (Pan & Xia, 2014). Beijing has also attracted the most HQ of domestically publicly listed firms relocating from other cities in China (Pan, Xia, & Liu, 2013). The latest case is SANY Group, a publicly listed firm that moved its HQ from Changsha to Beijing. More recently, many multinational corporations have setup new regional HQ in Beijing or relocated their regional HQ to Beijing. For instance, the regional HQ of Benz in Great China relocated from Hong Kong to Beijing in 2012.5 Promoting the ‘‘HQ economy’’ has proved to be an important way for Beijing to improve its competitiveness and to build on its reputation as a world city in the global era. However, after firms decide to locate their HQ in certain cities (e.g., Beijing) over others, where to locate their HQ within the city is the question that needs to be addressed. Given the leading position of HQ in shaping the urban structure, it is particularly necessary to analyze the geographical distribution of HQ from the urban planning perspective. As an emerging ‘‘global capital city’’ (Chubarov & Brooker, 2013), the urban structure of Beijing has evolved from a monocentric model to polycentric one (Feng, Wang, & Zhou, 2009; Qin & Han, 2013). At the same time, Beijing is suffering from problems like the expansion of the central built-up area, traffic congestion, air pollution and other urban issues. It is also struggling to achieve a compact development plan (Yang, Shen, Shen, & He, 2012). Since the local government has been so eager to build a ‘‘HQ economy’’ zone, this will definitely influence the city’s urban structure in the near future. In this paper, we will discuss how the geography of HQ within Beijing and the resulting urban structure have been interacting with each other.

4 5

http://news.xinhuanet.com/2012-07/18/c_112471530.htm. http://auto.jrj.com.cn/2012/10/31120014599862.shtml.

Based on a data set of publicly listing firms that have their HQ located in Beijing, we found that the spatial distribution is both agglomerated and dispersed. On the one hand, HQ are significantly agglomerated at different geographical scales. There also emerged a polycentric form as several distinct clusters could be identified. The regression analysis discussed below reveals that specific firm attributes, including sector, scale, ownership and year of going public, are crucial to explaining the location pattern of HQ. The remainder of this paper is organized as follows. The next section proposes a conceptual framework for analyzing the HQ location within a city in a transitional economy, followed by a discussion of the data and the methodology. Section ‘The Geography of HQ within Beijing: an example’ maps the HQ distribution within Beijing, which is then followed by a regression analysis on factors that may influence HQ location. Section ‘Discussion’ discusses the factors that have impacts over the spatial distribution of HQ centers as well as the interaction of the HQ distribution and urban structure. The final section concludes the study.

HQ location within a city of a transitional economy Most empirical and theoretical studies on location of HQ in developed economies have paid much attention on the role of market forces such as benefits and costs of a specific locational choice of HQ (Bel & Fageda, 2008; Davis & Henderson, 2008; Henderson & Ono, 2008; Lovely et al., 2005), while the importance of the state factors in determining HQ location have been largely overlooked. Institutional contexts have been considered critical in the distribution of HQ of large firms within China’s urban system (Pan & Xia, 2014). Specifically, the location of HQ of large firms within a city in China could also be influenced by policy interventions and the unique institutional background. Urban transformation in China has been shaped by the interplay between the state and market (Han, 2000; Zhang, 2003). In other words, the HQ locations of large firms within a city can be seen as the result of the coexistence of the state bureaucracy and market forces in a transitional economy. As economic liberalization deepened in China, the market became increasingly important in China’s economic development (Naughton, 2011). One of the critical characteristics of China’s urban transformation has been the land-centered urban development (Lin, 2007). With land use reform, one significant change in Beijing from late 1980s onwards was the emergence of the Central Business District (Gaubatz, 1995), as well as the rapid increase in land prices in Chinese cities. Firms need to take into account land price when choosing a HQ location, even state-owned firms. Land price is particularly crucial in small and new firms’ decisionmaking process. Agglomeration economies take place in the CBDs of the larger metropolitan areas (Drennan & Kelly, 2011), and are critical in explaining HQ location and overall agglomeration within a city. On the one hand HQ may locate in the specific area to enjoy specific regional advantages such as the high quality of infrastructure, diversified community, convenient living environment, presence of high-end producer service, excellent university and research institutes. On the other hand HQ tend to locate close to each other. Firms can obtain agglomeration economies not only by sharing common inputs and the same labor market but also by enjoying information spillover (Duranton & Puga, 2004; Rosenthal & Strange, 2004; Davis & Henderson, 2008; Lovely et al., 2005). Admittedly, due to the growing cost of being in the CBDs and development of information and communication technology (ICT) some firms may move their HQ out of urban centers (Boiteux-Orain & Guillain, 2004).

F. Pan et al. / Cities 42 (2015) 1–12

In a transitional economy such as China, the state still plays a heavy-handed, if not dominant, role in economic development. China’s central government has substantial influence on the spatial configuration of urban development, while local governments are shown to be dominant in the formation of the world city (L.-Y. Zhang, 2013). Attracting the HQ of large firms is considered to be a feasible way to advancing economic growth and improving the image of the city and even the country. Therefore, both the national and local governments are key actors shaping the spatial pattern of HQ within Beijing. First, the majority of large firms in China is state-owned (Pan & Xia, 2014). Large state-owned firms have preferential access to cheap land and also benefit from strong ties with both local and national governments. Thus, the locational choice of HQ of stateowned firms could be influenced by factors simply beside market forces. Second, urban planning plays a leading role in some areas. For instance, the Financial Street and CBD were first proposed in Beijing’s Master Plan as early as 1993, in which the two areas were designated to be national financial management center and the Central Business District respectively. The HQ of large firms have been encouraged to locate within these two areas. Finally, the entrepreneurial nature of local government activities has also greatly influenced the urban transformation in China, due largely to the power of local governments in disposing of urban rights for land use (Shin, 2009). In short, urban planning and other policy tools are being used to build a ‘‘HQ economy’’. Government incentives are crucial in the location choice of large firms ‘HQ (Chan & Poon, 2011; Pan & Xia, 2014). Data and methodology Data Our data are drawn from Wind6 which includes all firms listed on the Shanghai and Shenzhen Stock Exchanges. There were 227 publicly listed firms whose headquarters were in Beijing at the end of 2011.7 Publicly listed firms are used for two reasons: (1) they are often large and include almost all large firms in Beijing and (2) detailed information of these firms is available. The location of the HQ is identified by the firm’s office address in the dataset, which is similar with the previous study (Pan & Xia, 2014). Due to the lack of full information of HQ of other types of large firms, such as firms listed on overseas stock exchanges and multinational corporations, this paper only focuses on firms listed on domestic stock exchanges. Measurement of agglomeration at varied geographical scales We use the Kernel Density Function (KDF) to calculate the agglomeration of HQ in Beijing, which is a widely used method to calculate the density of point features (Silverman, 1986). The Kernel Density Estimate (KDE) is a widely used non-parametric way to estimate the probability density function in spatial analysis; it has been incorporated into ArcGIS 10.0, which is used below. The L function is used to calculate the agglomeration of points at any geographical scales, based on the KDF. The equation is as follows:

LðrÞ ¼

pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi KðrÞ=p  r;

where K is the KDF and r is the search radius. When L(r) > 0, it means items, in this case firms, are agglomerated. When L(r) < 0, it means items are scattered (Besag, 1977; Ripley, 1977). Because 6 Wind (Wan De) is a financial service company based in China. The website of the company is as follows: http://www.wind.com.cn/. 7 The data is the latest one that the authors can have at hand.

3

it is not possible to estimate the significance of the results of L function directly, a Monte Carlo Simulation is preferred. The geography of HQ within Beijing: an example Location of HQ within Beijing HQ are strongly concentrated at a district level. Table 1 shows the distribution of HQ of publicly listed firms among different districts in Beijing. Haidian, Chaoyang and Xicheng are the top three districts in terms of number of HQ, together accounting for 70.48% of the total. The HQ of firms in the same sector tend to concentrate in a particular district. For example, manufacturing firms are concentrated in Chaoyang and Haidian while information technology HQ are concentrated in Haidian district. Nearly half of HQ of all firms in real estate are located in Chaoyang district while those in finance and insurance are mostly in Xicheng and Dongcheng districts. Fig. 1 shows the overall distribution of HQ of publicly listed firms in Beijing. Three features stand out. First, there is a significant spatial bias for the location and agglomeration of HQ in Beijing. Along the South–North axis, there are more HQ in the northern part of Beijing divided by Chang’an Street and its extension. The most agglomerated areas are in the northern part, except for Fengtai HQ Base. On an East–West axis, the agglomeration patterns of HQ in the eastern and western parts are similar. Second, most HQ are located along the major urban transit lines. Almost 80% of the HQ are located within a 1 km buffer zone of urban expressways. The clustering is more apparent in the agglomerated area of HQ. For example, HQ are highly agglomerated in the area along the north-second, third and fourth ring roads. In addition, the HQ located outside of fifth ring road area are mostly along radial highways. HQ are mostly close to urban expressways because they could benefit from access to information and communication linkages, improve their efficiency, and take advantage of other economic benefits (Daniels, 1975). Third and finally, the distribution of HQ of large firms is characterized by both agglomeration and dispersion. The HQ are evenly distributed among regions divided by the 2nd, 3rd, 4th and 5th ring roads (see Fig. 2). Although the density of HQ along the 3rd ring road area is the highest, the number of HQ outside of the 5th ring road is the largest. This finding illustrates that there are several HQ clusters within the city. Major HQ centers in the city As noted, there are distinct clusters of HQ within Beijing, suggesting a polycentric spatial distribution of HQ. Fig. 1 depicts the agglomeration pattern of HQ in Beijing based on KDF analysis within the search radius of 2000 m. In general, the HQ are more agglomerated in the inner city than in suburban areas. The major HQ clusters are located in the Finance Street of Xicheng district, Dongzhimen area of Dongcheng district, Central Business District (CBD), Yayuncun and Jiuxianqiao areas in the Chaoyang district, Zhongguancun, Madian, Shangdi and Weigongcun areas in the Haidian district, HQ Base of the Fengtai district and the area near the international airport in Shunyi district. Although there are fewer HQ located in Shijingshan and Fengtai districts, the HQ are highly agglomerated within these two districts. For example, most of the HQ in Fengtai district are located in the HQ Base. The spatial patterns of HQ in different industries are varied, and HQ of firms in the same industry tend to locate close to each other. Based on the results of KDF analysis, the agglomeration patterns of four sectors, including information technology, real estate, mining industry and the finance and insurance industry, are shown in

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F. Pan et al. / Cities 42 (2015) 1–12

Table 1 Distribution of HQ in different sectors in districts of Beijing. Sector

Changping

Chaoyang

Daxing

Dongcheng

Fengtai

Haidian

Mentougou

Shijingshan

Shunyi

Tongzhou

Xicheng

Manufacturing Information technology Real estate Social service Wholesale and retail Mining Construction Finance and insurance Electricity, gas and water production Culture and media Transport and warehousing Agriculture Comprehensive In sum Proportion (%)

4 1

22 8

6 1

2

9

19 33

1 1

2

1

4

1

70 45

2

4 3 2

21 14 13

2

1 1

10 4 1 5 2

2

1 3

2

2 1

5 2.2

1 1 59 26.0

2 3 3

1

4 1

3 3 4 2 5

1

1

1

6

1

1

2

2

1

1

11 4.8

1 12 5.3

Fig. 3. Most of the HQ of firms in these sectors are located in the northern part of the city. The HQ of firms in financial and insurance industry category are highly agglomerated along the Finance Street and in the CBD, whereas the HQ of firms in information technology industry are agglomerated in Zhongguancun and Shangdi areas. Table 2 shows the major 11 HQ clusters in Beijing and the details of each HQ cluster including the number of HQ, sectors, ownership and size of the firms. The Finance Street, the CBD, and the East Second Ring Road Transport Business District are the most influential HQ clusters in terms of both HQ number and firm size. Moreover, The HQ of firms of similar size or ownership usually agglomerate with each other. For example, the Finance Street and the East Second Ring Road Transport Business District have a larger proportion of HQ of firms that are centrally directed stateowned firms and local state-owned firms. Eleven of 16 HQ of firms located in the Finance Street, 8 out of 11 in Fengtai HQ Base and 7 out of 9 in the East Second Ring Road Transport Business District are state-owned. On the other hand, all HQ of firms located in Shangdi Information Industry Base are privately owned. Firms with HQ located in the Finance Street and the East Second Ring Road Transport Business District are usually larger whereas firms with HQ located in Shangdi area, International Electronic Headquarter Base in Chaoyang district and Fengtai district are much smaller. Agglomeration of HQ at varied geographical scales Geographical scales matter when discussing the locational choice of firms, as agglomeration factors are working in different ways at varied geographical scales. For example, the knowledge spillover effects may lead to industrial agglomeration only at small geographical scales such as zip code areas (Rosenthal & Strange, 2001). Thus, it is of importance to take into account the geographical scales of agglomeration in understanding the characteristics of both location and agglomeration of HQ. Applying the L function to calculate scale as related to distance, we learned that HQ in Beijing are significantly agglomerated when the search radius is between 0 and 15 km (see Fig. 4). There are two peaks when the search radii are 1 km and 9–10 km, respectively. This finding shows that some HQ are heavily agglomerated within 1 km. The typical HQ clusters are located in the Financial Street, CBD and Zhongguancun, particularly HQ that are in related sectors and may need frequent face-to-face interactions in order to benefit

11 9

1

7 5

2

72 31.7

3 1.3

4 1.8

9 4.0

In sum

12 12

5

1 21 9.3

Yanqing

1 0.4

3 1 29 12.8

1 0.4

5 3 227 100

from information spillover effects. Furthermore, it also shows that the HQ centers in Beijing result from urban economies. This generalization applies to most of the HQ within the fourth ring road area (especially in the northern part of Beijing) where the infrastructure is highly developed and related economic activities are concentrated. Firm attributes and the geography of HQ: a regression analysis Geography of HQ of firms of different types The previous analysis shows that there are multiple centers of HQ in Beijing. Unexpectedly, many are located in suburban areas, rather than the center of the city (Meyer, 1996). In this section, we explore how firms’ attributes influence the location of a HQ. More specifically, we divide Beijing into the inner and the outer city, separated by the third ring road.8 Firms with HQ located within the third ring road, are considered to be center-oriented. As depicted in Fig. 5, the HQ of firms of larger size are more likely to locate in the inner city of Beijing. Most have a registered capital above 1.6 billion USD (about 10 billion RMB) and are located inside the third ring road and, in some cases, inside the second ring road. The HQ of firms of smaller size (with registered capital less than 0.16 billion USD) are much more scattered. Firm scale is essential in explaining the location pattern of HQ. The land price in the inner city is extremely high, so those larger firms are more likely to be able to afford the higher rents. Fig. 6 presents the spatial pattern of HQ of firms with different ownerships. Compared to privately-owned firms, a larger proportion of HQ of state-owned firms are located inside the third ring road. In the context of China, state-owned HQ firms may have preferential access to land at an abnormally lower price in the inner city. Also some state-owned firms have had the allocated land in the inner city since they were established. Beijing has more national state-owned firms than local ones, but the spatial patterns of HQ of the two are quite similar. 8 This distinction is based on below reasons: (1) the boundary of Dongcheng district and Xicheng district is relatively close to the third ring road, so dividing Beijing into the inner and the outer city by the third ring road makes the structure clearer and (2) the most important clusters of HQ of Beijing are within the 3rd ring road.

F. Pan et al. / Cities 42 (2015) 1–12

5

Fig. 1. Overall distribution and agglomeration of HQ in Beijing.

Number of Headquarters

60 50 40 30 20

46

45

48

54

34

10

Ring Road Posion Fig. 2. Distribution of HQ in varied ring areas.

outside the 5th Ring Road

5rd ring

between the 4th and the

4rd ring

between the 3rd and the

2rd ring

within the 2rd ring road

between the 2rd and the

0

As shown in Fig. 7, firms that became publicly listed in recent years are more likely to have their HQ located in the outer city. This change illustrates the suburbanization of HQ in Beijing recently. During the past decade Beijing has experienced rapid growth in its land prices. The earlier the firms became publicly listed, the more likely they locate their HQ in the inner city when the land price was still affordable. The HQ of firms in different sectors have different spatial patterns (see Fig. 8). The HQ of firms in the finance and insurance sector are densely concentrated in the inner city. About 70% of the HQ of firms in this sector are located inside the second ring road and over 90% inside the third ring road. By contrast, over 50% of the HQ of firms in the manufacturing sector are located outside the fourth ring road. Manufacturing firms often locate their HQ in the suburbs in order to be close to their production facilities (Henderson & Ono, 2008). Beijing Shougang is a typical case. The HQ as well as the major manufacturing facilities of the firm are located outside the fifth ring road. Admittedly, most manufacturing firms with HQ in Beijing have their production facilities located in other cities. The HQ of firms in the tertiary industry, such as

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F. Pan et al. / Cities 42 (2015) 1–12

(a) Information technology

(c) Mining

(b) Real Estate

(d) Finance and Insurance

Fig. 3. Degrees of agglomeration of HQ in selected sectors.

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F. Pan et al. / Cities 42 (2015) 1–12 Table 2 Major HQ clusters in Beijing.

1

HQ clusters

Amount of HQ

Sector

Ownership

Size

Finance Street

16

Finance and Insurance 6, Manufacturing 3, Electricity, gas and water production 2

State-owned 7, local state-owned 4, private 5

Real estate 3, Social service 2, Manufacturing 2, Transport and warehousing 1, Comprehensive 1, Information technology 1 Information technology 6, Manufacturing 5, Real estate 3

State-owned 4, private 6

Small 6, medium large 8 Small 5, medium Small 6, medium large 2 Small 6, medium large 1 Medium large 6 Small 9, medium Small 7, medium large 2 Small 5, medium large 1 Small 6, medium

2

CBD

10

3

Zhongguancun area

16

4

5 6 7

8

9

10

11

Yizhuang Economic and Technology Development Zone East Second Ring Road Transport Business District Shangdi Information Technology area Fengtai Headquarters Base

10

9 11 11

State-owned 8, local state-owned 1, private 7

Manufacturing 7, Information technology 1, Wholesale and Retail 1, Transport and warehousing 1

State-owned 2, local state-owned 2, private 6

Mining 3, Social service 3, Finance and Insurance 1, Construction 1, Culture and media 1 Information technology 7, Manufacturing 3, Mining 1

State-owned 7, private 2

Manufacturing 8, Transport and warehousing 1, Wholesale and Retail 1, Comprehensive 1

State-owned 8, private 3

Manufacturing 5, Wholesale and retail 1, Real estate 1, Electricity, gas and water production 1

State-owned 3, local state-owned 1, private 4

Information technology 3, Manufacturing 3, Real estate 1, Culture and media 1

State-owned 1, local state-owned 3, private 4

Private 11

Yayuncun Area (including the Central Olympic Zone)

8

International Electronic Headquarter Base in Chaoyang district Wangjing International Technological Business District

8

5

Manufacturing 2, Construction 2, Information technology 1

State-owned 3, private 2

Airport Economic Zone

4

Transport and warehousing 2, Real estate 1, Manufacturing 1

State-owned 2, local state-owned 1, private 1

2,

5 8,

3, 3,

2 2,

2,

2

Small 2, medium 1, large 2 Small 2, medium 1, large 1

Fig. 4. Degree of agglomeration of HQ at different geographical scales.

media and cultural industry and social services, are mainly located in the inner city. Exceptions are firms in the transport and warehousing and information technology industry. Over 80% of HQ in these two sectors are located outside the third ring road. The HQ of firms in the information technology industry are inclined to be close to top research institutes and universities, which are mostly located outside the fourth ring road in Beijing. While the HQ of firms in the transport and warehousing industry are more likely to be located in the outer city, because they need larger space and to be close to transport nodes. Regression and results A logistic regression model is used to test the importance of firms’ attributes in determining their HQ’s location. The dependent variable is a dummy which is assigned to be 1 if the HQ is located

in the inner city, otherwise it is 0. The definitions of all variables are presented in Table 3. Due to the high correlation between Scale, Ownership and Year, model 1, model 2 and model 3 include only one of these three variables and model 4 includes all of them. The results of the regressions are shown in Table 4; they are consistent with previous analysis. The results indicate that the HQ of firms in most sectors are inclined to locate in the inner city compared to those of the manufacturing sector. The HQ of firms in the service sectors, such as the culture and media industry, finance and insurance and social service, are especially center-oriented (the coefficients of Ind are all positive and statistically significant). In addition, agriculture and gas and water production firms are also significantly center-oriented. After controlling the sector of the firms, the scale and public listing year of firms have a significant impact over the HQ location. The results show that firms of larger size and being publicly listing

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F. Pan et al. / Cities 42 (2015) 1–12

(a) Below 0.16 billion USD (1 billion RMB)

(b) Between0.16 and 1.6 billion USD (1 and 10 billion RMB)

(C) Above 1.6 billion USD (10 billion RMB)

Fig. 5. Distribution of HQ of firms with different size (measured by registered capital). (The exchange rate in the end of 2011 was 6.3009 Yuan RMB per US Dollar, which is applied in the calculation.)

(a) Local State-owned

(b) National State-owned

(C) Others

Fig. 6. Distribution of HQ of firms of different ownership.

earlier are more likely to locate their HQ within the inner city. When all three variables are included in the regression (see model 4), the coefficients of Scale and Year remain statistically significant. The sign of Ownership is not as expected after controlling other factors. Discussion The interplay between the market and state forces in determining HQ location Our findings confirm that the HQ locations within Beijing have resulted from an interplay between the market and state forces. Market forces play critical roles in determining these locations.

The regression results show that smaller firms and newer firms are more likely to locate farther from the urban centers, indicating that land price influences HQ location. HQ are also attracted by specific regional resources. Partly due to its atmosphere of innovation and high level concentration of talents, Zhongguancun has become one of the major HQ clusters of firms in the information technology sector. Another example is in Beijing’s CBD. Being adjacent to the embassy district of Beijing, it attracted many multinational corporations and high-end producer service companies. The business atmosphere in this area, shaped by global actors (Melchert Saguas Presas, 2004), is crucial for attracting the HQ of domestic firms. In addition, the agglomeration of HQ of financial firms on the Financial Street and of HQ of information technology

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F. Pan et al. / Cities 42 (2015) 1–12

(a) Listing before 2000

(b) Listing during 2000-2005

(C) Listing after 2005

Fig. 7. Distribution of HQ of firms listed in different years.

Fig. 8. Distribution of HQ in different sectors among varied ring areas.

firms in Zhongguancun indicate the importance of agglomeration economies. The application of ICT by firms could also be one market force that might drive firm HQ out of urban centers (BoiteuxOrain & Guillain, 2004). The state should also been taken into account while studying the HQ location within Beijing. Our study shows that the HQ of state-owned firms are more likely to locate in the city center. Moreover, the HQ of state-owned firms account for a large proportion in some emerging HQ centers, such as Fengtai HQ Base. Urban planning has also played a significant role in shaping the spatial pattern of the HQ distribution. Beijing started to build dual Central Business Districts (CBD) from the early 1990s according to the master plan (Zhou, 1998). It can be observed that HQ clusters are mostly located in areas that have been considered to be the key development regions in some recent plans for the city. For example, the six Beijing high-end industry function areas9 proposed in Beijing 12th Five Year Plan are all HQ clusters. 9

The Zhongguancun Science and Technology Park, the Financial District, the Economic and Technology Development Zone, the Central Business District, the Airport Economic Zone, and the Central Olympic Zone are proposed in Beijing 12th Five Year Plan as the six Beijing High-end Industry Function Areas.

Beijing has made great strides in advancing its ‘‘HQ economy’’ by setting up some special zones, suggesting the importance of urban entrepreneurism in determining HQ location. One significant achievement in building a ‘‘HQ economy’’ in recent years has been the success of the Fengtai HQ Base, which was launched in 2003; it encouraged many firms to relocate their HQ. Currently, there are 11 HQ of publicly listed firms located in the Base. Of the 11 HQ, 3 relocated from outside Beijing, 4 from other districts and counties in Beijing, and 2 from other regions within the Fengtai district.10 However, the prospect of such a ‘‘HQ economy’’ zone is still not certain. Policy makers may learn from Singapore’s recent market experience where good institutional structures and efficient business environment have played a critical role in attracting HQ of large firms (Sim, Ong, Agarwal, Parsa, & Keivani, 2003).

The HQ location and urban structure of Beijing Some firms are reluctant to relocate HQ as such a relocation decision may cost a large amount of financial resources (Jakobsen 10

http://www.cninfo.com.cn/.

10

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Table 3 Definition of variables. Definition Dependent variable Location Independent variable Scale Ownership Year Ind

Expected sign

The firms with HQ located in the inner city which is within the third ring road are assigned to 1, the others are assigned to 0 Firm scale is measured by its registered capital of logarithm The state-owned firms and local state-owned firms are assigned to 1, the others are assigned to 0 The number of years the firms have gone public Year = 2012-the year listed firms went public Manufacturing is a benchmark for industries firms are in, the other 12 industries as dummy variables are mining (Ind1), culture and media (Ind2), electricity, gas and water production (Ind3), real estate (Ind4), construction (Ind5), transport and warehousing (Ind6), finance and Insurance (Ind7), agriculture (Ind8), wholesale and retail (Ind9), social service (Ind10), information technology (Ind11)and comprehensive (Ind12)

& Onsager, 2005). In addition, firms can enjoy economies of agglomeration when having their HQ located close to each other in a specific area. Therefore, once a cluster of HQ emerges, it will likely develop and last for a long while. Since HQ clusters are always job generators and traffic nodes, they will have significant impacts on the larger urban structure in the long term. Previous analyses show that there are multiple centers of HQ in Beijing, which is consistent with recent studies on Beijing’s urban structure. Feng et al. (2009), for example, found that Beijing’s spatial pattern, measured by population density, evolved from a monocentric model in 1982 to a seven-centered model in 2000. On the other hand, Qin and Han (2013) identified several urban centers that were crucial in explaining the housing price variations. The urban centers include Tiananmen, CBD, Zhongguancun and the Olympic Center. The processes of urban planning, urban renewal and reforms in the land market have transformed the structure of China’s cities (Gaubatz, 1999). Thus, in some circumstances, planning tools could be helpful for establishment of HQ centers. It is possible to restructure the urban form by setting up new HQ centers. In the latest Master Planning of Beijing, it was proposed to build the new urban structure of ‘‘two-axis, two-belt, and multiple centers11’’, aiming to solve the ‘‘over agglomeration’’ problem in the inner city. It is obvious that some of the HQ clusters identified in this study are overlapping with the ‘‘multiple centers’’, such as those in the CBD and on the Financial Street. However, some new HQ centers outside the inner city have emerged as well. The abovementioned Fengtai HQ Base is a case in point. Our study also indicates that there is a suburbanization trend at work in Beijing. A large proportion and an increasing number of HQ are located outside the fifth ring road in the city. Beijing has also experienced suburbanization in terms of its population since the 1990s, due in part to economic reforms (Wang & Zhou, 1999). The interplay of market and state forces could be the driving forces influencing the suburbanization of HQ as well. However, it appears that the rise of the sub-centers of HQ is not at the expense of the traditional centers, such as the Financial Street and CBD. Therefore,

11 Two-axis are the east–west axis along Changan Avenue and the south–north axis along traditional central axis. Two-belt are eastern development belt including Huairou District, Miyun District, Shunyi District, Tongzhou District, Yizhuang District and Pinggu District, western development belt including Yanqing District, Changping District, Mentougou District, Fangshan District and Daxing District. Multiple centers include the Zhongguancun Science and Technology Park, the Central Olympic Zone, the Central Business District, Science and Technology Innovation Center in Haidian mountain areas, Shunyi Modern Manufacturing Base, Tongzhou Comprehensive Service Center, Yizhuang High and New Tech Development Center and Shijingshan Comprehensive Service Center.

+ + + +

Table 4 Regression results of determinants on HQ location.

* ** ***

Variable

Model 1

Model 2

Model 3

Model 4

Ind1 Ind2 Ind3 Ind4 Ind5 Ind6 Ind7 Ind8 Ind9 Ind10 Ind11 Ind12 Year Scale Ownership Constant No. of observations Log likelihood Pseudo R2

1.58** 2.72*** 2.72*** 1.25** 0.81 0.1 3.59*** 1.84* 1.07* 2.58*** 0.09 2.23*

0.99 2.75*** 2.03** 1.08** 0.29 0.24 2.23* 2.26** 1.1* 2.57*** 0.07 1.85

1.97*** 2.91*** 2.66*** 0.65 1.4* 0.12 4.43*** 1.93* 0.81 2.77*** 0.1 2.23* 0.12***

1.31* 3.24*** 1.8** 0.42 0.83 0.45 2.77** 2.26** 0.81 2.86*** 0.36 1.74 0.13*** 0.43*** 0.08 11.52*** 227 105.34 0.2849

0.41*** 0.7** 1.29*** 227 115.15 0.2183

9.77*** 227 111.86 0.2406

2.72*** 227 110.47 0.2501

Significance at p < 0.10. Significance at p < 0.05. Significance at p < 0.01.

it remains to be seen how the suburbanization of HQ of large firms will influence the urban structure of Beijing in the future. Conclusion HQ of large firms are the commanding centers in an economy, and their locations within a city may influence the urban structure. For that reason, it is important to investigate the location pattern of HQ within a city. Drawing on the data of publicly listed firms, this study unpacks the location and agglomeration of HQ of large firms in Beijing and seeks to explore how the market and state forces have co-shaped HQ location and had impacts on the city’s evolving urban structure. We find that HQ of large firms in Beijing are both agglomerated and dispersed. The HQ are disproportionately located in the northern part of Beijing, and tend to locate along major traffic lines, or the city’s ring roads. There are multiple HQ centers in Beijing and HQ of large firms has started to locate and relocate to the suburban areas. The HQ of firms with similar characteristics tend to locate close to one another. The KDF and L function analyses show that the agglomeration patterns of HQ are consistent with the geographical scale of some important economic zones and the core built-up area of Beijing.

F. Pan et al. / Cities 42 (2015) 1–12

Specific attributes of firms may also influence the location pattern of HQ. Based on mapping and logistic regression analysis, we find that firms that are larger, state-owned and listed in earlier years are more likely to be city-center-oriented. Also the HQ of firms in the finance, insurance and other services are more likely to locate in the inner city, while those in the manufacturing and information technology sectors would locate in the outer city. This paper has provided a preliminary research in understanding the geography of HQ of large firms within an emerging world city in a transitional economy. The agglomeration of HQ is persistent and take place due partly to the interplay between the market and state forces, among which agglomeration economies and urban planning are the most important. Given the importance of HQ of large firms in shaping urban structure, it is possible to apply planning tools to direct the future location choices of HQ and also to help solve the challenges facing the city’s future. This study also sheds some light on how to advance the ‘‘HQ economy’’ for other cities in which market power might play a more important role in HQ location decision. Funding This research was funded by the National Science Foundation of China [No. 41201107], the Fundamental Research Funds for the Central Universities [No. 2012LYB36] and the Key Laboratory of Regional Sustainable Development Modeling, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences. Acknowledgments We thank the editor and three anonymous reviewers for their constructive comments and suggestions on earlier versions of this manuscript. We also thank Prof. Stan Brunn and Dr. Shengjun Zhu for their helpful suggestions. References Bel, G., & Fageda, X. (2008). Getting there fast: Globalization, intercontinental flights and location of headquarters. Journal of Economic Geography, 8, 471–495. Besag, J. (1977). Comments on Ripley’s paper. Journal of the Royal Statistical Society Series B – Statistics in Society, 39, 193–195. Boiteux-Orain, C., & Guillain, R. (2004). Changes in the intrametropolitan location of producer services in Île-De-France (1978–1997): Do information technologies promote a more dispersed spatial pattern? Urban Geography, 25, 550–578. Chan, C.-P., & Poon, W.-K. (2011). The Chinese local administrative measures for building up the ‘Headquarter Economy’: A comparison between Pudong and Shenzhen. Journal of Contemporary China, 21, 149–167. Chubarov, I., & Brooker, D. (2013). Multiple pathways to global city formation: A functional approach and review of recent evidence in China. Cities, 35, 181–189. Csomós, G. (2013). The command and control centers of the United States (2006/ 2012): An analysis of industry sectors influencing the position of cities. Geoforum, 50, 241–251. Daniels, P. W. (1975). Office location: An urban and regional study. London: Bell. Davis, J. C., & Henderson, J. V. (2008). The agglomeration of headquarters. Regional Science and Urban Economics, 38, 445–460. Drennan, M. P., & Kelly, H. F. (2011). Measuring urban agglomeration economies with office rents. Journal of Economic Geography, 11, 481–507. Duranton, G., & Puga, D. (2004). Micro-foundations of urban agglomeration economies. Handbook of regional and urban economics (pp. 2063–2117). Feng, J., Wang, F., & Zhou, Y. (2009). The spatial restructuring of population in metropolitan Beijing: Toward polycentricity in the post-reform era. Urban Geography, 30, 779–802. Gaubatz, P. (1995). Changing Beijing. Geographical Review, 85, 79–96. Gaubatz, P. (1999). China’s urban transformation: Patterns and processes of morphological change in Beijing, Shanghai and Guangzhou. Urban Studies, 36, 1495–1521. Godfrey, B. J., & Zhou, Y. (1999). Ranking world cities: Multinational corporations and the global urban hierarchy. Urban Geography, 20, 268–281. Han, S. S. (2000). Shanghai between state and market in urban transformation. Urban Studies, 37, 2091–2112.

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