How Shanghai Municipality Can Play a Leading Role in Integration of the Yangtze River Delta
I wrote this article back in November 2019 for the Shanghai International Think Tank Summit, where I shared Gao Feng Advisory's view on integration of the Yangtze River Delta Region. I am grateful for the invitation to join the Development Research Center of Shanghai Municipal People's Government, and am also honored to be a member of the Shanghai Think Tank International Summit. All of our findings come from our observations working with clients over the years; therefore, I'd also like to take this opportunity to thank our clients for being our source of inspirations.
Applications of disruptive technologies are growing in numbers and this means new innovative business opportunities for corporations all over the country. In November 2018, the Central Government formally elevated the “Yangtze River Delta Integration Plan” and declared its intent to make this region the driving force for economic development of the entire nation. Subsequently, Shanghai Municipality, Jiangsu Province, Zhejiang Province, and Anhui Province quickly responded to the central-level initiative and formulated joint development plans. Earlier these four regions had their own separate developmental goals and sometimes even competed vigorously with each other, leading to a waste of replicated resources. Thus, a closer integration across these regions is expected to facilitate the development of the Yangtze River Delta. We have summarized the challenges faced by some companies in these regions, and put forward our recommendations for Shanghai’s role in the integration of the Yangtze River Delta as follows:
Integration of Data Management
Currently, different cities in the Yangtze River Delta have established their respective data management centers and their standards for data collection, data accessibility, and data retrieval vary. When companies across the region try to use the data, they run into different data collection standards and the process of consolidation of data costs considerable amount of time, money and effort. What makes the problem even worse is they need to repeatedly apply for data access to different local governments, leading to complicated, and repeated application processes and time-consuming repetitive works.
Therefore, Gao Feng Advisory Company suggests Shanghai take the lead in integrating data management in the Yangtze River Delta. As such, Shanghai shall then be able to better assist companies that are in need of public data. Shanghai should organize cross-Yangtze River Delta data governance, and establish an integrated data management center. This will allow standardized and refined management of open data.
In the past three years, Shanghai has ranked first among Chinese local governments in terms of providing access to data because of its pioneering efforts in exploring data openness. In September 2019, Shanghai issued the "Interim Measures of Shanghai Municipality on Opening up Public Data", the country’s first local government regulation on public data accessibility. The approach focuses on unifying standards of data disclosure, data sharing and data security, which will likely guide the opening and utilization of public data in Shanghai to a new stage.
While spearheading opening up of data accessibility, Shanghai government should draw lessons from the past and provide other local governments more replicable and expandable insights. Moreover, Shanghai Municipality, while establishing the shared data platform, should also take the lead and encourage integration of data management systems across the region and unify data collection, management, opening, and security standards.
First, the collected data must have a clear source of origin. This ensures data quality and makes the data more useful for businesses and the public. Second, Shanghai Municipal Government should periodically inspect its public data security system to prevent data theft and illegal use and share its insights with others in the region. Third, while establishing a cross- Yangtze River Delta big data platform, Shanghai Municipal Government should outline data input and modification standards, ensuring availability of audited and protected data.
Moreover, Shanghai should also lead other governments to focus on addressing the needs of emerging industries. It may consider opening up data first to enterprises in strategically relevant industries in the Yangtze River Delta, such as smart manufacturing and new energy vehicles, which are likely to provide strong boost to the economy. One-time submission should be sufficient for companies to use data in multiple places, accelerate the opening up of data, ease the application process, ensure data security to help companies residing in the Yangtze River Delta.
Integration of logistics resources
With the ongoing transport projects along the coast and along the Yangtze River, the Yangtze River Delta region is becoming ever more connected, breaking geographical constraints. However, companies here often have business partners, including upstream and downstream supply chain partners located in other regions of the Yangtze River Delta. Typically, a product usually needs to go through multiple stages, from components production to assembly, before reaching the final product. The production sites often span across multiple regions. When materials need to be transported to other parts of the value chain, high transportation costs are still required to be incurred.
For companies in the Yangtze River Delta region, high transportation costs remain a major obstacle to the shift towards industry integration. As such, these companies are concerned about optimization of logistics resources, minimizing geographical restrictions so that they can focus on optimizing resource allocation and facilitate industry collaborations.
Advances in emerging technologies have brought new opportunities to reduce transportation costs. Development and application of intelligent driving technology will help facilitate regional cooperation. According to a previous analysis by Gao Feng Advisory Company, current driver costs take up around 19% of total costs in logistics. On April 11, 2019, the Intelligent Driving Industry Alliance of the G60 Science and Technology Corridor in the Yangtze River Delta was officially established. More than 80 participants including intelligent driving companies, scientific research institutes, and financial institutions from the nine cities (regions) partnered to make commercialization of autonomous driving a reality. With logistics companies such as Cainiao, Meituan and JD.com carrying out testing of unmanned vehicles and more OEMs investing in driverless technology, realization of driverless goods movement is becoming more promising than ever.
As early as March 2018, Shanghai issued the country's first batch of plates for intelligent and connected cars for testing and opened up 5.6 kilometers in the Jiading District for road testing. As of September 2019, Shanghai has opened up over 53.6 kilometers, covering 1,580 test scenarios. Jiading's road test environment has strongly supported autonomous vehicles companies in the process of technology optimization.
However, the simulated environment in the geo-fenced zones is not comparable to real road environment. Road testing of unmanned vehicles needs to be based on a large amount of data to continuously optimize driving algorithms. Without testing in complex traffic environments and fast-moving urban intersections, vehicle performance in position tracking, perception, control and decision-making cannot be optimized. However, even as the leader in China ’s intelligent driving technology, Shanghai still requires a lot of policy breakthroughs for opening up roads for road testing compared to California, the United States. As early as November 2018, California had already issued driverless testing licenses, allowing Google's Waymo’s self-driving cars to test on open roads. Compared to companies in California, companies in Shanghai and other regions in the Yangtze River Delta still face more stringent road-testing laws. China's policy in the field of driverless cars still needs to be improved, and currently there is no policy breakthrough.
As the leader in China’s autonomous driving technology, Shanghai should further liberalize its "unmanned driving" policy and expand the coverage of designated inter-provincial and inter-city highways for unmanned vehicles, and issue driverless testing licenses to speed up road testing so that companies can catch up with the United States. As the technology matures, Shanghai Municipal Government and other provinces in the Yangtze River Delta shall gradually open up roads for testing driverless cars. Moreover, Shanghai should lead in studying the relationship between industrial chains and major transportation hubs in the region. Through analysis of each site, it can go ahead and design cross-city interconnection webs in the Yangtze River Delta region to make it more closely connected which shall spur development.
Piloting new ideas and accelerating industrial upgrade
The current pace of technological development is leading to profound changes in various industries. With the development and innovation of emerging technologies such as blockchain, cloud computing, big data, 5G, IoT and other technologies, many of our clients have asked us about how these technologies could materially impact their businesses, what are the application scenarios of such new technologies, and how could their companies benefit.
These questions are very typical for traditional companies. In the era of rapid developments in science and technology, how to create a close loop encompassing rapid research, development and commercialization, so that technological breakthroughs can be implemented more quickly is a question worthy studying. We recommend that while being the international science and technology innovation center, Shanghai continues to leverage its geographical advantages. It should continue to nurture its technological capabilities, encourage companies to set up R&D centers in Shanghai, and carry out research jointly with the other three provinces to achieve technological breakthroughs, pilot commercialization, while controlling for risks. This way, the breakthroughs in technology can be quickly commercialized and pushed to the market to empower businesses and consumers.
In the emerging fintech field that’s currently under the spotlight, technological breakthroughs in blockchain have resulted in emergence of new opportunities and applications. For example, the application of blockchain technology can ease management of cross-border flows of money for multinational companies. In the past, companies had to submit relevant financial statements to banks and foreign exchange management departments to prove their sources of funds and the reasons for the remittances and exchanges. This is time-consuming and labor-intensive for both corporates and governments. However, nowadays, the breakthroughs in blockchain technology can simplify the supervision process. Relevant compliance departments can monitor companies’ cross-border capital flows in real-time to ensure regulatory procedures are followed.
If such a technology can be quickly applied and used for real transactions, it can enable multinational companies to significantly reduce the cost of preparing compliance statements and free up their domestic funds, bringing them immediate benefits. However, similar to other emerging technologies that will bring convenience to the public, the application still requires regulatory support to be tested in pilot programs. Only when financial risks are found to be controllable, the application rollout can be accelerated. Therefore, we recommend Shanghai set up pilot programs for rapid iterations and risk assessments for application of such emerging technologies in the Lingang area, and continue to educate businesses about these applications, so once the pilots have been completed, the applications can quickly roll out in the Yangtze River Delta region.
As the core of the Yangtze River Delta region, Shanghai should clearly define its positioning, from setting standards, advancing policies, to piloting new ideas. Additionally, Shanghai should actively share its existing resources with others in the region and continue to make breakthroughs in innovative projects. This will enable continuous and high-quality development of the Yangtze River Delta region.
Dr. Edward Tse is founder and CEO, Gao Feng Advisory Company, a founding Governor of Hong Kong Institution of International Finance and Adjunct Professor, School of Business Administration, Chinese University of Hong Kong. One of the pioneers in China’s management consulting industry, he built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies – both headquartered in and outside of China – on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas, as well as to the World Bank and the Asian Development Bank. He is the author of several hundred articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version «创业家精神»).