Shanghai seeks digital upgrade

Shanghai has demonstrated its determination to accelerate its digital push and outrank peer cities in the digital economy through two major agreements with Chinese internet giants.

By teaming up with Alibaba Group Holding Ltd and Tencent Holdings Ltd on a number of new tech applications, the municipal government is seeking to leverage internet technologies to spur new growth momentum and improve public services, experts said.

There are fears that Shanghai is falling behind in digital transformation, which has started to change the business models of traditional industries in noticeable ways, said Chu Yin, a researcher specializing in digital economy at the Center for China and Globalization.

"The latest deals suggest that the local authorities feel the need to embrace the internet on a much larger scale and in a deeper way, or otherwise Shanghai will lag behind in the digital race," said Chu.

One case in point, according to Chu, is that none of China's high-flying internet companies, such as the traditional tech trinity of BAT - which stands for Baidu Inc, Alibaba and Tencent - nor upstart players like JD and Toutiao, are based in Shanghai.

"A lack of tech majors could be problematic, since the internet-based economy is perhaps the one that relies the most on economies of scale," he noted. "That is to say, the bigger you are, the more likely you are to squeeze out smaller players by generating the predominant amount of traffic."

The tie-up seeks to explore and employ valuable data from both the government and enterprises, which are seen as a gold mine in the digital age, said Fu Weigang, executive dean at Shanghai Institute of Finance and Law.

"The agreements will help overcome obstacles for companies to obtain certain data and create applications specific to a wide array of scenarios," Fu said. "We can expect a growing number of public services in terms of variety and sophistication."

The efficiency gains from the adoption of new technology have already created dividends for the city. For example, Shanghai's economic trackers pointed to the employment of big data and cloud computing to revamp traditional retail as a force to bolster consumption, which grew 7.7 percent year-on-year in the first half.

But in this ongoing digital race, Shanghai needs to carve out its own identity, which features sound commercial infrastructure, a large population, and the highest level of disposable income nationwide, analysts said.

"Thanks to its mature commercial environment, legal systems and logistics, Shanghai is where most businesses pilot pioneering commercial endeavors in China," said Fu.

Whereas many pure-play internet companies primarily focus on the consumer end, Shanghai is in a position to provide richer application scenarios that serve general business purposes such as advanced manufacturing, said Li Zhu, founding partner of venture capital firm Innoangel.

"There is little room for complacency. But by playing to its strengths and enabling traditional sectors to digitalize, we can create economic, social and strategic benefits for the city," said Chu.