Mapping urban networks through inter-firm service relationships: The case of China

Introduction

With the growing external relations of cities in the era of globalisation, the importance of cities is being increasingly determined by how they are connected with other cities in the world instead of by absolute size (Beaverstock et al., 2000). For example, most globally influential cities such as New York and London are best linked through world city networks (Taylor et al., 2014). Thus, the last several decades have witnessed a shift in urban studies reflected by a growing research focus on urban networks (Beaverstock et al., 2000). As a result, a large amount of literature has emerged measuring urban networks based on diverse methods using corporate networks, infrastructure networks, railway and airline flows and so forth (Alderson et al., 2010; Derudder et al., 2010; Liu et al., 2014; Mahutga et al., 2010; Rozenblat, 2010; Taylor et al., 2010).

Networks of advanced producer service (APS) firms, such as banks, law firms, accounting firms and so on, have been widely used to measure urban networks at varied scales. The presence and agglomeration of APS firms are important signs of a city’s competitiveness in the globalised era. New York and London house a large number of APS firms and have been considered as top global cities (Sassen, 2001). More importantly, the agglomeration of well-connected APS firms has placed global cities at the centre of these networks and significantly extended their influence. Since these firms provide intensive cross-city services, they are ideal tools to measure inter-city connections on a global scale (Taylor, 2001a). Following the growing availability of data on APS firms, more research has applied the corporate networks built by these firms to study urban networks (Beaverstock et al., 2000; Derudder et al., 2010; Taylor et al., 2014).

However, the strategy to convert APS firms’ networks into urban networks as applied in existing literature could be problematic. All such studies assume that necessary linkages exist between different offices of the same APS firm located in different cities. Researchers simply convert the linkage between different offices of the same firm into a city–city connection (Taylor, 2001b) although they do not know, nor verify, whether there exist any real flow of information, capital and other goods between the two cities. The relative properties of offices involved are taken as the only factor determining the importance of the linkage. However, the evolution of spatial and organisational structure of modern MNCs has made the linkages between the different offices of a firm much more complex and unreliable (Csomos and Derudder, 2014). Therefore, such a method may be criticised for converting the intra-connection of APS firms into an urban linkage, which has been described as converting ‘apples into oranges’ (Nordlund, 2004). In addition, existing studies have chosen APS firms through arbitrary standards and hence could be biased in some cases (Zhao et al., 2015). Finally, most studies based on such strategies have solely focused on intra-firm linkages while ignoring inter-firm connections among the same or different sectors.

While the present study proposes an alternative strategy to analyse urban networks based on the inter-firm service provision relationships in the process of an initial public offering (IPO), which has been conceived as one of the most sophisticated and high-end economic activities that intensively involves APS firms (Pan and Brooker, 2014; Wójcik and Burger, 2010; Wójcik and Camilleri, 2015). Based on these service provision connections between APS firms and their clients during the IPO process, this study provides additional insights to those from existing studies on urban networks in China. It is found that the urban networks are embedded in China’s unique institutional contexts where market and state power have together shaped the structure of networks. Since the network analysis has been based on real economic activities, the results might have further implications for policy making.

Inter-firm service relationships and urban networks

In a ‘space of flows’, cities are the main nodes and hubs where the most important elements of these flows are produced by social practices (Castells, 1996). While firms are the major actors of the these social practices in cities and are not only spatially embedded in a locale, they are also in the networks of flows produced by those social practices (Hess, 2004). Thus, firm networks present one of the most effective tools to describe urban and regional connections as firm networks are reflected by different organisational structure and spatial patterns (Dicken, 2007). There are three basic types of firm networks: inter-firm, intra-firm and extra-firm (Yeung, 2005). As the latter is too broad to be defined and quantified, the former two may be used to measure urban networks.

Intra-firm networks have been widely applied in previous studies to measure urban networks. There are certain linkages between spatially separated headquarters and branches with different functions but shared representations, purposes, norms and values of firms (Yeung, 1998, 2002, 2005). An obvious strategy is to explore intra-firm networks based on the geography of the headquarters and branches within large multinational corporations (Alderson and Beckfield, 2004; Alderson et al., 2010). Following growing recognition of the importance of APS firms in determining a city’s status in the globalised world (Sassen, 2001), the wide presence of offices of the same APS firms in cities across the world has made it possible to generate structural data to describe inter-urban networks based on top APS firms (Beaverstock et al., 2000; Taylor, 2001a, 2001b). There are three common methods to transform a company network into an urban network: ownership linkage model, interlocking network model and two-mode network model (Liu and Derudder, 2013). Among these, the interlocking network model is the most widely used in existing empirical studies (Liu and Derudder, 2012; Neal, 2012).

On the contrary, inter-firm networks have not been frequently used to measure urban networks, regardless of whether cooperation and other types of connections between firms within the same industry or different ones have increasingly become profound both locally and globally following the development of global production networks (Coe et al., 2004). In fact, intensified inter-firm connections rather than intra-firm connections have been playing important roles in strengthening the linkages between cities. However, it is extremely difficult to collect data on inter-firm connections and quantify them for at least two reasons. First, every firm is connected with other firms in some way so the data set becomes too large to collect. Second, the way they are connected and the importance of inter-firm connections significantly varies, which makes them difficult to measure and quantify. Thus, the key challenge is to find a feasible way of collecting data which throws light on inter-firm connections that can reflect the urban networks as well.

Given the importance of APS firms in a modern economy, the inter-firm connections between them and their clients are ideal in reflecting inter-urban networks, in particular when their clients are important in the economy, for instance, publicly listed firms. IPOs are extremely high-end business activities in modern economies in which stock exchanges are central to capital markets (Wójcik, 2007, 2009). For example, securities firms, the key player in the IPO process, is an important indicator for financial centres (Wojcik, 2011). The headquarters of publicly listed firms are also the command centres that make strategic business decisions (Pan and Xia, 2014). As such, the number of headquarters of large firms is a key indicator for assessing world cities (Friedmann, 1986).Thus, APS firms involved in the IPO process and their clients are key players in economies. They specialise in securities (investment banks), law and accounting by providing financing, legal and auditing services for future publicly traded firms. These three types of APS firms, together with advertising, insurance and management consultancy firms, were selected to construct urban networks in previous studies (Taylor, 2001b). Fortunately, information on APS firms and their clients involved in IPO processes is available because of the disclosure requirements for publicly listed firms.

It is found that headquarters of publicly listed firms are usually concentrated in certain metropolitan areas (Holloway and Wheeler, 1991; Pan and Xia, 2014; Pan et al., 2015). Despite the fact that the headquarters of publicly listed firms and APS firms commonly co-agglomerate, the latter often provide services for clients from different cities. To fulfill the IPO process, various staff from both APS and potentially publicly listed firms need to frequently travel between cities. In this process, financial capital, information and so forth will move between cities. In addition, various infrastructures connecting cities are used and more will likely be developed if the need arises. All in all, inter-firm connections via APS firms providing services for their clients in the IPO process can reflect significant linkages between cities in which the APS firms and their clients are located.

The application of these inter-firm service connections to measure urban networks based on real business activities that take place in the IPO process is contrary to most existing studies that measure urban networks based on intra-firm linkages. Therefore, results from the present analysis may well provide additional insights and policy implications at varied geographical scales.

Research on Chinese urban networks based on firm linkages

Owing to the rapid rise of China’s cities, the last decade has witnessed a growing literature on China’s urban networks. One important strand of literature has used APS firm data drawn from the GaWC ¹ to explore how these cities have connected to world city networks (Derudder et al., 2010, 2013; Li, 2014; Liu et al., 2014; Ma and Timberlake, 2008, 2013; Taylor et al., 2014). Not surprisingly, it was found that cities such as Shanghai and Beijing, have been significantly improving their positions within world urban networks (Derudder et al., 2010; Taylor et al., 2009, 2012). In general, cities in the Asian Pacific region and China in particular have become more connected during the past decade (Derudder et al., 2013). Moreover, it was found that Shanghai and Beijing grew from a cluster of cities primarily in the Asia-Pacific region in 2000 to a cluster of global cities just behind New York and London in 2010 (Liu et al., 2014). Shanghai appears to be better connected than Beijing with the important world cities such as London and New York, while Beijing is found to be better connected than Shanghai with political world cities such as Washington DC and Brussels (Taylor et al., 2014). One recent study applying the city-dyad analysis method has shown that Chinese cities are more prominent compared with the results from simply measuring global network connectivity, which suggests that Hong Kong, Shanghai and Beijing are strategically playing more important roles in the world city networks than previously thought (Taylor et al., 2014).

In contrary to the GaWC line of research inquiry in regard to China, Zhao et al. (2015) point out that there are limitations of using GaWC data when conducting empirical research on APS firms and urban networks as many of the APS firms in the sample do not have offices in a wide range of China’s cities, hence some cities might get overestimated and others underestimated within city networks. This problem could eventually mitigate itself as these cities become more globalised in the future, however, it is still necessary to draw on a suitable data set covering the leading domestic APS firms which can better reflect urban connections. Their recent study explored the connectivity of China’s cities based on the location strategies of 323 domestic APS firms in 287 domestic cities and found that Beijing, Shanghai, Guangzhou and Shenzhen have emerged as the primary nodes. The dominance of the state-owned economy has partly contributed to this situation. In terms of recognising the importance of inter-firm connectivity, Yeh et al. (2015) conducted a quantitative study based on a questionnaire survey on APS firms in three Pearl River Delta cities: Guangzhou, Shenzhen and Donghuan and investigated urban networks using both intra-firm and inter-firm networks. They found that the linkages of producer services between different firms and economic sectors could be used to measure urban networks at a regional level. While the APS firms in their sample were not chosen based on a standard criteria and the nature of the services that APS firms provided for their clients vary significantly, it could be problematic to simply convert the service provision relationships into urban linkages without taking into account these differences.

Despite the fact that urban networks research based on firm networks has significantly increased both in China and globally, inter-firm linkages have rarely been used to explore urban networks at the national or global level. Drawing on a unique data set consisting of China’s leading APS firms involved in providing services for their clients in IPO related activities, this study provides a new strategy to build urban networks and could shed some theoretical as well as empirical light on this research area.

Data and methodology

This study builds an urban network matrix based on business connections between APS firms and their clients during the IPO processes. All the data used in this study have been drawn from the Zdatabase ² and the prospectuses of the IPO firms that are publicly available. Information on all IPO firms listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2004 to the end of September 2014 was collected. The locational information of which APS firm or their branch that was involved in the IPO process can be found in the prospectuses. The final data set contained 1318 listed companies, 113 securities firms, ³ 99 accounting firms and 165 law firms. These firms are widely distributed across 179 prefecture and higher-level cities. Based on the data set, a 179 city × 179 city matrix is constructed.

Given the sophistication of the IPO process, firms aiming to go public will have to outsource the work to professional service companies. The APS firms involved and their clients can be expected to have made concerted efforts to go through the IPO process successfully (Wójcik and Camilleri, 2015). The securities company plays a central role in preparing the major documents for IPO applications. While law firms are in charge of legal issues that the issuer may encounter in the process of IPO, accounting firms need to prepare the audited financial statements and related documents on behalf of the issuer. All in all, these three different types of APS firms need to work together closely to assist their common clients in completing the respective IPO process. In China’s unique institutional context, IPO applications need to get approval from the China Securities Regulatory Commission (CSRC) and other regulators (Pan and Xia, 2014), which render the service of APS firms even more important.

In reality, APS firms and their clients might be located in the same city or in different cities, which leads to four different scenarios. One extreme case is that the listed firms and APS firms are located in four different cities, while another extreme case is that all firms are located in a single city. The other two scenarios fall in between.

Therefore, when the APS firms and the listed firms are located in different cities, it is possible to translate the service provision relationship into city connections. If the headquarters of the listed firm is located in city A and the APS firm, either a headquarters or a branch ⁴ of any sort of sector, which has provided direct services during the IPO according to the prospectus, is located in another city B, then we assume the two cities are connected. In this case, city A is termed the ‘destination of service city’, while city B is termed the ‘source city’. The linkage between city A and city B is assigned a value of one, in a single service provision relationship no matter whether the service is provided by the securities firm, law firm or accounting firm. One city could be both the destination of service city and source city. The total frequency of a city being the destination of service city and source city is defined as the ‘connection value’ of the city.

While it is necessary to distinguish the connections resulting from the provision and receipt of services, the former is more crucial in determining a city’s position in the urban network. The frequency of service provision of the city is defined as the ‘service value’ of the city. Further, we distinguish between the ‘local service value’ which refers to the frequency of service provision for within-city clients, and the ‘non-local service value’, which refers to the frequency of service provision for cross-city clients. A larger service value indicates that the city has a higher status in the urban system, and a larger non-local service value shows the capacity of the city in providing high-end services to others.

Urban networks in China

Overall network pattern

Figure 1 presents the overall spatial pattern of urban networks based on connection and service values during IPO processes. Several cities stand out as major nodes within the urban networks and in particular, Beijing, Shenzhen and Shanghai are the three key node cities since they have the largest connection and service values.

OPEN IN VIEWER

Figure 1.

Spatial pattern of the urban network of mainland China cities.

Beijing holds a dominant position with the largest connection value of 1714, a figure that is larger than the sum for both Shenzhen and Shanghai. Shenzhen placed second with a connection value equalling 890, and that for Shanghai (690) is smaller than the former two. In addition, Beijing has the broadest geographical connection coverage (179 cities). In addition, Beijing-Shenzhen is the most influential city dyad in the network.

Other cities that are influential in the networks are usually high in terms of political level. For example, Hefei (109), Changsha (86), Nanchang (82), Wuhan (78) and Kunming (41) have relatively high connection values. Notably, these cities are all provincial capitals situated in the middle and western regions. Overall, cities in the northeast are holding peripheral positions within the networks. Only a few cities, such as Dalian, Changchun, Harbin and Shenyang are well connected. Cities in the northwest provinces such as Xinjiang, Tibet, Qinghai and others are rarely important within the networks.

Figure 1 also illustrates that some regional city clusters with relatively higher connection values along with intensive internal linkages have emerged. Overall, the urban networks in the Yangtze River Delta area seem to be more intensive. Shanghai, Hangzhou, Nanjing, Wuxi, Suzhou, Changzhou and Ningbo are the major seven nodes cities within the network. In particular, Shanghai is at the centre of the network and is surrounded by other cities, forming a fan-shaped network. In addition, several cities in the Pearl River Delta seem to be well connected. Shenzhen, Guangzhou and Zhuhai are the most important nodes in this region, with Shenzhen being the most dominant. Interestingly, despite the overwhelming position of Beijing in the national network, other cities in the Jing-Jin-Ji (Beijing, Tianjin and Hebei) area do not seem to be quite well connected. Tianjin is much less influential than Beijing in the area and no other cities stand out as important nodes.

Urban networks driven by different APS sectors

Since the location patterns of APS companies based on sectors are different, the urban networks driven by these firms in the three study area sectors vary in nature (Figure 2). The urban network driven by securities companies is similar to the overall network pattern. Shenzhen, Beijing and Shanghai hold key positions in the network. In particular, the connection value of Shenzhen is 515 – more than double that of Beijing (231) and nearly triple in the case of Shanghai (179). Beijing-Shenzhen is the most important city dyad in this network.

OPEN IN VIEWER

Figure 2.

Spatial patterns of urban networks driven by different APS sectors. (a) Securities firms; (b) law firms; (c) accounting firms.

While the urban networks driven by accounting and law firms show lower network density, Beijing is in a more dominant position in these two networks. The connection value of Beijing based on accounting companies is 570, a figure larger than the sum of the rest of the cities. Shanghai and Shenzhen rank second and third, respectively, with connection values of 204 and 111. Similarly, the connection value based on law firms for Beijing is 748, which is also larger than the sum of the figures for the rest of the cities. Shanghai and Shenzhen rank second and third with connection values of 195 and 88, respectively.

Service value and urban hierarchy

Service value of Chinese cities

As shown in Figure 1, cities with larger service values are notably concentrated in the coastal region of China. This spatial pattern parallels the overall pattern of China’s regional economies. The service value of Beijing is 1549, a figure far higher than that of Shenzhen and Shanghai, with the latter two being well ahead of the remaining cities. Together, these three account for about 72% of the service value of all cities, which indicates that they are the most influential in China’s urban system. Other cities with relatively high service values are either located in the coastal regions, in particular in the Yangtze Delta Area and Pearl Delta Area, or the capital cities in the middle or western provinces of the country, such as Chengdu, Wuhan and Changsha.

Figure 2 presents the spatial patterns of urban service values across different sectors. Table 1 lists the top ten cities with the largest service values and categorically separates them based on sector contribution. Overall, Shenzhen leads in providing services by securities firms with a service value of 515, followed by Beijing (231) and Shanghai (179). Other important cities in terms of this attribute are Zhuhai, Nanjing, Hefei and Fuzhou. In terms of law, Beijing is overwhelmingly dominant having a law service value of 748, a figure larger than all nine remaining cities combined. The spatial pattern of accounting service values is similar to that of law firms. Beijing is the top city without any rival. Shanghai ranks second and Hangzhou replaces Shenzhen as the third. Hangzhou has an influential accounting firm, Tianjian Accounting, which has provided services 137 times for listed firms, accounting for over 90% of all the accounting services provided by this city.

OPEN IN VIEWER

Table 1.

Top ten cities with the largest service value.

City	Service value	Service value of securities	Service value of law	Service value of accounting
Beijing	1549	231	748	570
Shenzhen	714	515	88	111
Shanghai	578	179	195	204
Hangzhou	222	4	68	150
Nanjing	128	35	41	52
Guangzhou	113	10	49	54
Zhuhai	81	77	1	3
Hefei	73	29	31	13
Fuzhou	59	28	16	15
Chengdu	58	33	3	22

Local and non-local service value

Given that a service value is composed of local and non-local service values, it is necessary to distinguish them. Comprehensively, all the cities have a larger non-local service value than local service value. Table 2 lists the top ten cities with the largest non-local service value and its proportion. The table reads that all the proportions are well over 50% with most of them being over 70%, which indicates that APS firms located in large cities usually rely more on non-local clients and thus the urban networks are shaped by the external linkages of APS firms.

OPEN IN VIEWER

Table 2.

Top ten cities with the largest non-local service value.

Cities	Non-local service value	The proportion of non-local service value to the service value of the city	Non-local service value of securities	Non-local service value of law	Non-local service value of accounting
Beijing	1249	81%	180	609	460
Shenzhen	538	75%	443	38	57
Shanghai	472	82%	162	149	161
Hangzhou	167	75%	4	49	114
Nanjing	98	77%	29	29	40
Zhuhai	78	96%	76	0	2
Guangzhou	70	62%	6	29	35
Fuzhou	50	85%	27	13	10
Chengdu	43	74%	29	3	11
Hefei	43	59%	18	17	8

Beijing has the largest non-local service value providing services to 164 cities. Generally speaking, APS firms in Beijing have mainly provided services for publicly listed firms for cities in the Yangtze River Delta and the Pearl River Delta regions, which indicates that most clients are from the developed coastal areas. In particular, APS firms in Beijing have provided services for listed firms in Shenzhen for up to 122 times, which is the highest number for any single city. In addition, APS firms from Beijing provided services of 190 times for clients from the Yangtze River Delta.

Shenzhen is the second-ranked city, though its non-local service value is less than half of Beijing’s. Among all the 120 cities that have received services from Shenzhen, Beijing is the most important destination of service city with a count of 60. Other clients are mostly from cities located in the Pearl River Delta, the Yangtze River Delta and the middle parts of the country.

Shanghai’s non-local service value is quite close to that of Shenzhen. APS firms from Shanghai have provided services for listed firms from 96 cities, and this number is smaller than that of either Beijing or Shenzhen. Again, Beijing is the most important destination of service city for APS firms from Shanghai with 39 times of services. Other cities frequently served by APS firms from Shanghai are located in the Yangtze River Delta and the Pearl River delta.

In addition to Beijing, Shenzhen and Shanghai, other cities with large non-local service values are mostly developed coastal cities and provincial capitals. Some cities may benefit from being close to centre cities. For instance, Zhuhai, as a Special Economic Zone, has done quite well in providing non-local securities services, which might be related to its geographical proximity to Shenzhen. APS firms that are headquartered in Shenzhen might tend to set up branches in Zhuhai.

Command and financial centres in China’s urban networks

The results show that Beijing, Shenzhen and Shanghai hold dominant positions within Chinese urban networks. Given the nature of IPO activities, these cities are the command centres as well as the financial centres in China, which rely on the co-agglomeration of the headquarters of publicly listed firms and APS firms. Existing studies have found that headquarters of publicly listed firms are extremely agglomerated in several cities in China, which has been shaped by both market power and institutional factors (Pan and Xia, 2014). With regards to market power, headquarters can enjoy the benefits of agglomeration economies when they are located in large cities. For institutional factors, headquarters of large firms are inclined to locate in cities of higher administrative level to win the support from policy makers.

Given that the APS firms in this study have been playing key roles in China’s financial markets, the results indicate that Beijing, Shenzhen and Shanghai are at the centre of China’s financial networks. Our study has shown that securities, law and accounting firms are disproportionately concentrated in the above mentioned cities. During the study period, 58 securities firms, 99 law firms and 58 accounting firms that were involved in the IPO process are located in these three cities, accounting for 51.3%, 60.0% and 58.6% of the national total, respectively, which indicates that APS firms are much more agglomerated than headquarters of listing firms. Moreover, APS firms in these three cities not only provide services for listing firms within them, but also cross regional services for many more firms in other cities. Beijing, Shenzhen and Shanghai have the largest non-local service values (see Table 2), which gives them a large advantage over other cities.

Why are the APS firms so highly concentrated in these three cities? Certainly, market factors do matter. As headquarters of publicly listed firms are outsourcing to APS firms, APS firms might be attracted to locate near their clients. These firms may follow the location patterns of headquarters of large firms, as being close to clients is crucial for business opportunities. Therefore, APS firms and large company headquarters will co-locate in some metropolitan areas such as Beijing, Shenzhen and Shanghai. In addition, the former can enjoy the benefits of being located in large cities to enjoy the high quality infrastructure, labour pool and information spillovers and so forth.

While the disproportionate concentration of APS firms in Beijing, Shenzhen and Shanghai could also be related to unique institutional contexts in China, as some key resources related to IPO activities are extremely concentrated in these three cities (Pan et al., 2016). Previous studies have pointed out that the state plays a key role in the formation of global cities in China (Wei and Yu, 2006; Zhang, 2013). In fact, within China’s financial markets, Beijing, Shenzhen and Shanghai have held strategic positions. Beijing is the financial regulation centre, while Shanghai and Shenzhen house the national stock exchanges.

As the national capital of China, Beijing has a huge advantage in attracting APS firms. All the national financial regulation bodies, in particular, the CSRC, are all located in Beijing. In China, the IPO process is highly regulated and the CSRC plays a central role supervising the issuance and listings of securities in China (Pan and Xia, 2014). Given the difficulties in the IPO application process in China (Pan and Xia, 2014; Pan et al., 2016), APS firms could play a pivotal role in helping their clients get through the application process. Thus, it is reasonable that APS firms are more likely to locate in Beijing to have better access to information, other resources and maintain their relationships with policy makers. In fact, Beijing is in the lead for providing services for either state-owned companies or privately owned companies which seek public listings. Our analysis shows that Beijing holds a more important position than Shanghai within China’s urban networks, which is different from some previous studies based on the GaWC data set (Derudder et al., 2013; Taylor et al., 2013). In addition, APS firms from Beijing have provided many more services than those from Shenzhen and Shanghai for listing firms, suggesting that Beijing is more influential than Shanghai and Shenzhen as a financial centre, despite the fact that the latter two are ahead of Beijing as an international financial centre in many global rankings, for instance the GFCI. ⁵ Admittedly, despite the dominant position of Beijing, cities in the Jing-Jin-Ji area are not well connected with each other as those in the Yangtze River Delta and Pearl River Delta regions.

The Shanghai Stock Exchange and Shenzhen Stock Exchange have equipped their respective cities with unique advantages in attracting APS firms. These firms can have better access to information and key resources for IPO activities, when they are in the cities where the stock exchanges are located (Pan et al., 2016). After all, the stock exchanges are also key players in IPO business, regardless the more important role of CSRC in China. In fact, the first securities firms in China were established in Shenzhen and Shanghai, and Beijing is a late-comer but has caught up very quickly in developing its securities industry. Since the establishment of the Small and Medium Enterprise Board (SMEB) and Chinext on the Shenzhen Stock Exchange in 2004 and 2009, 1090 firms have been listed on these two exchanges in comparison with only 228 firms on the Shanghai Stock Exchange during the study period. Partly because of this reason, Shenzhen has held a better connected position than Shanghai. In addition, our analysis shows that Shenzhen has the highest connection values in the urban network driven by securities firms, which indicate the location of IPO does matter in determining the location of APS firms, in particular, the securities firms.

Interestingly, as Table 1 shows, the overall service value of Beijing is much larger than that of Shenzhen and Shanghai, while Beijing’s strength lies in accounting and law services and has a smaller service value than Shenzhen with regards to securities services. Apparently, the two national stock exchanges are not located in Beijing, which has reduced the influence of Beijing in the securities industry. In fact, many securities firms are locally state-owned enterprises, and they are more evenly distributed than law firms and accounting firms in Shenzhen, Beijing and Shanghai and other cities partly because of government intervention. While law firms and accounting firms are much more concentrated in Beijing, indicating that being close to the regulators and policy makers in relates sectors seems to be very important for privately owned APS firms. With this information advantage, Beijing has been considered to have more opportunities than other cities in mainland China in developing the services industry and becoming a leading financial centre (Zhao et al., 2005). The results of this research have shown Beijing’s extreme attractiveness to APS firms, and thus Jing-Jin-Ji area is far more influential than the Yangtze Delta and Pearl Delta areas.

Our findings also suggest that there exists a sophisticated mix of competition and cooperation between Beijing, Shenzhen and Shanghai. The three cities have unique advantages in attracting large company headquarters and APS firms, and they compete with each other. In addition, the three cities have strong linkages with one another: Beijing-Shenzhen, Beijing-Shanghai and Shenzhen-Shanghai are the top city-dyads. It is true that Shanghai and Beijing perform distinctive and complementary roles in China’s financial centre networks (Lai, 2012), while the present study has found that Beijing’s role in China’s financial centre networks might have been underestimated in previous studies. In the last decade, Beijing, as the political centre, has significantly improved its influence in China’s capital market.

Conclusion and discussion

There has been a growing interest in investigating how cities are connected through firm networks. Applying an alternative strategy, this study has mapped Chinese urban networks through inter-firm networks identified based on the IPO process, in which APS firms provide professional services for those future publicly listed firms. It overcomes the limitation in existing studies where the APS firms are chosen arbitrarily manner. This study has found that Beijing, Shenzhen and Shanghai are at the centre of China’s urban networks and they are intensively connected with each other, indicating strong collaboration and competition between them. Moreover, Beijing is much more influential than any other city and has played a dominant role among mainland China’s urban networks as the leading command and financial centre, followed by Shenzhen and Shanghai. The network analysis also indicates that cities in the Yangtze River Delta and Pearl River Delta areas are more integrated than those in Jing-Jin-Ji.

The urban networks created by China’s producer service firms not only represent an extension of urban networks at a global scale (Zhao et al., 2015). Rather, just as the geography of large companies’ headquarters has been embedded in China’s unique institutional contexts (Pan and Xia, 2014), the urban networks driven by APS service relationships have also been shaped by market forces as well as state power. The high regulation associated with public listing, and the important roles of the state in the economy might have influenced the network and the key node cities within it. As the national political capital and financial regulation centre of the country, Beijing has significantly improved its position within the urban networks over the past decade. Shenzhen and Shanghai have their respective stock exchanges, which has brought advantages for them to attract APS firms. Given the increasing importance of financial flows in shaping regional economies (Coe et al., 2014), those cities that have held key positions in financial networks will be more influential in urban networks. Thus, the findings from this study could shed some light on future debates regarding financial centres in China.

It has been emphasised that urban networks should be viewed as social networks, a form of organisation where nodes are actors and links are social relations (Taylor, 2001b). While in the interlocked model used in existing studies, cities are more like nodes rather than actors, which might have led to ignorance concerning the actual economic ties between cities. The strategy adopted in this study has allowed us to discuss the real economic relationships between cities. The research has shown that it is applicable to building urban networks based on inter-firm connections via actual economic and social activities. In addition to the IPO process used in this study, other economic connections between firms, such as investment relationships, can be an effective way to construct urban network in future research.