Zhao said this is why many Chinese cities are developing a headquarters economy. They rack their brains trying to attract multinational companies to establish headquarters in their cities and have launched many alluring policies. Beijing is among these cities.

What makes a city attractive?

But a city cannot attract multinational companies with policy incentives alone. In Zhao's opinion, it needs to have unique advantages in developing a headquarters economy.

The first condition is that the city must have high-quality human, research and education resources so that corporate headquarters can create knowledge-intensive value at a low cost. The city must also have geographic advantages and good transportation networks.

"Like New York, Hong Kong and Singapore, Beijing and Shanghai have geographic advantages, strong research and education resources and perfect infrastructure conditions, which is conducive to attracting the management and technical staff needed by corporate headquarters," Zhao said. "This is an advantage in developing a headquarters economy."

In order to develop a headquarters economy, Zhao said, cities need both excellent hardware, such as urban construction, and high-quality software, such as urban management and a cultural atmosphere. A city should have modern urban management systems and the government should improve its efficiency and create a good legal environment to reduce comprehensive operating costs. At the same time, the city's social services, market order, customs procedures, integrity system, social security conditions and civilization level should all meet high standards. Furthermore, to develop a headquarters economy, a city should make itself a melting pot of different cultures. Cultural tolerance is absolutely necessary to develop a headquarters economy.

Zhao said that in cities with large numbers of corporate headquarters, service industries contribute more than 70 percent to the total GDP. Take Hong Kong as an example. Its service industries contribute 82 percent to the city's GDP. Developed service industries, consistent systems that encourage competition and complete development strategies for service industries increase a city's economic benefits and economic strength, and are an important condition for developing a headquarters economy.

The role of the service industry

According to Zhao, strengthening the service economy in Beijing will make the city more competitive in the development of a headquarters economy.

After 30 years of development since reform and opening up, per-capita GDP in Beijing surpassed $9,000 in 2008. According to international standards, per-capita GDP of over $6,000 means that a country has reached the level above medium developed countries and is on its way to becoming a high-income country. During the process of economic development, most developed countries were on a path of "light industry stage—heavy industrialization stage—service industry stage." Now that per-capita GDP in Beijing has surpassed $9,000, the city's economy will be in a stage of rapid transformation and the service economy will become the major force promoting economic development in the capital city. This is necessary for developing a headquarters economy, because when a multinational company decides to establish its headquarters in a certain city, the first consideration is the city's service ability, as well as the influence of its economy on surrounding areas.

Pillar industries of Beijing such as finance and software continue to grow, and new service industries like information services, the creative industry and e-commerce are developing fast. High-end, high-efficiency industries are playing a more important role in economic development. Moreover, since Beijing is the capital of China, it has greater international influence than other Chinese cities. Zhao said that Beijing and Shanghai should develop into cities with a cluster of multinational company headquarters, while other Chinese cities should focus on attracting domestic companies to set up headquarters.