The emergence of the fintech industry in China : An evolutionary economic geography perspective

Over the last decade, the global economy has rapidly becoming digited. Digital technologies have transformed the economy and society, affecting all sectors of activity around the world. Among them, the financial sector is one of the most digitalized sectors, and the term ‘fintech’ is coined to describe the digitalization of the financial sector. Although the global fintech landscape is currently geographically concentrated in the United States and Europe, the pace of China’s fintech development has been dramatically accelerated. However, it is quite surprising that there is hardly any study that investigates fintech in China from a subnational scale. To fill this gap, this dissertation conducts a city-level analysis of the emergence of the fintech industry in China. Theoretically, I position this dissertation within the broad literature on evolutionary economic geography (EEG), which has emerged as one of the main paradigms in economic geography. This dissertation aims to provide a comprehensive understanding of the emergence of the new industry in regions. Conventional wisdom in EEG posits that new industry in regions tends to grow out of technologically related pre-existing industries. However, this conventional understanding is somewhat technology-centric. In response, this dissertation extends the scholarly work from technology-centric to embrace the role of the demand-side market and institutional logic in the emergence of the new industry in regions. It proposes that not only supply-side technology but also demand-side market and institutional logics matter for the emergence of the new industry in regions. Moreover, this dissertation ascribes the underlying logic of how technology, market, and institutional logics matter to the agentic processes of asset modification, particularly redeploying pre-existing assets and creating new assets. In other words, the emergence of the new industry in regions results from relevant regional actors’ purposeful actions in terms of modifying technological, market, and institutional assets. Methodologically, there is a dualism in evolutionary economic geography research between qualitative and quantitative work. To seek a methodology integration, this dissertation proposes the mixed-method that is composed of four concrete approaches, namely the triangulation approach, the embedded approach, the sequential exploratory approach, and the sequential explanatory approach. Among these concrete approaches, the embedded approach is utilized in empirical work. The embedded approach in this dissertation refers to the embedding of the qualitative case study (which deals with the ‘how’ questions) into quantitative research (which deals with the ‘whether and to what extent’ questions). Empirically, this dissertation first examines the emergence of fintech industries in China’s cities based on the quantitative regression analysis (mainly dealing with the ‘whether and to what extent’ questions) and then zooms in on the city of Shenzhen, which is the largest fintech hub in southern China, based on the qualitative case study (mainly dealing with the ‘how’ questions). The findings are as follows. (1) Based on a unique dataset from 2003 – 2019, this dissertation provides a city-level analysis of the fintech industry in China. The econometric results show that fintech industries tend to emerge in cities that have more fintech-related technologies, particularly in the fields of finance, e-commerce, data sciences, and security. This confirms the principle of technological relatedness. Moreover, it finds a positive relationship between the development of the fintech industry and the demand for fintech services. To the best of my knowledge, this is the first systematic evidence of the significant positive role of the demand-side market in the emergence of the new industry in regions. (2) In order to uncover the underlying processes (the question of ‘how’) that lead to the above significantly positive effect, this dissertation resorts to the qualitative case study. The case study shows that the rise of Shenzhen’s fintech industry mainly grows out of Shenzhen’s pre-existing internet and financial industry. By systematically comparing the processes that internet and financial industry diversify into the fintech industry, it finds that the emergence of the fintech industry in Shenzhen result from internet and financial firms’ purposeful actions in terms of redeploying their pre-existing technologies, market, and institutional logics, as well as creating the new ones that are necessary for fintech but are missing for the internet or financial firms. In other words, it is the processes of asset modification, particularly redeploying pre-existing assets and creating new assets, that give rise to the birth of the fintech industry, leading to the positive relationships found in the quantitative regression analysis.

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