SITTING astride the intersection of the land and maritime routes that make up the Belt and Road Initiative, Shanghai would seem a natural trade hub for the massive project launched by President Xi Jinping in 2013. Yet, despite a strong trade ecosystem and growing technology sector, Shanghai has been late to adopt the most advanced trade-enhancing technologies.
Such technologies are needed to reduce the many ills of traditional trade processes: insufficient access to financing, primarily for small and medium enterprises (SMEs); a lack of visibility on in-transit goods, preventing informed strategic and operational decisions; high costs; and counterparty risk. Underscoring these problems, trade processes have little evolved since they were designed a century ago. Being largely manual and paper-based, they are prone to human errors, fraud, delays, and verification challenges.
Linking emerging technologies like blockchain, connected sensors and artificial intelligence (AI) will profoundly improve those processes. Supply chain platforms that employ connected sensors will provide end-to-end visibility across supply networks, allow for better traceability, increase predictability and better inform operational decisions in order to reduce shipment delays. Digital trade platforms, meanwhile, will automate paperwork filings, creating instant advantages in saved time. And trade finance platforms that digitize and automate financing solutions will enable greater transparency on counterparty transaction histories, thus improving financing decisions. All these platforms can level the playing field for SMEs, which account for a growing share of the Chinese economy.
Several cities are now experimenting with those technologies, activities they see as imperative to retaining lucrative trade revenues. Among others, Hong Kong Monetary Authority is working with a group of 21 banks to develop a blockchain-based trade finance platform designed by the Shenzhen-based Ping An Group. The platform aims to upgrade transaction processes and ease access to financing for SMEs.
In this competition to become the Belt and Road Initiative’s trading hub, Shanghai can build from a strong base in both trade and technology.
In trade, Shanghai boasts state-of-the-art infrastructure (busiest container port worldwide), efficient border administration processes (including single window customs clearance), trade-friendly regulation (establishment of a pilot free trade zone in 2013) and innovative trade services. This vibrant trade environment has already made Shanghai a major contributor to the Belt and Road Initiative.
In technology, Shanghai trails only Beijing in blockchain, with 95 blockchain startups. It contains more than 700 companies involved in Internet of Things (IoT), with revenues growing by almost 30 percent annually. And while Shanghai does not play host to tech giants like Baidu, Alibaba and Tencent, its government plans to boost its artificial intelligence industry to reach 100 billion yuan (US$14.5 billion) in revenue by 2020 (compared to 70 billion yuan in 2017).
To keep pace with more technologically advanced trading cities like Hong Kong, as it has done in the past with ambitious goals, Shanghai must lead in coordinating and developing the new standards in trade-enhancing technologies and applications. How, involves five steps:
1. Create momentum by screening existing technologies to quickly identify successful applications involving supply chain, trade and finance services. City leaders should team with tech companies to launch a few pilot projects, using available technology to shorten test phases.
2. Set an example by installing new technology solutions. For instance, Shanghai customs could set up a blockchain-based platform complementing the existing “single window” customs clearance process with additional services, such as delivery of authenticated bills of lading, or certificates of origin.
3. Build the common infrastructure for innovation — such as connectivity — as well as leading a consortia of private companies.
4. Mobilize stakeholders toward a common objective. One critical issue will be to ensure interoperability of underlying technologies. Another must factor will be to move fast enough to ensure that Shanghai-based companies set — or at least contribute — to standards in trade enhancing technologies to avoid being left behind.
5. Attract key talent and capabilities in order to foster the local ecosystem that is developing trade technologies. This will require careful design of incentives and policies to entice the best scientists, technologists and tech entrepreneurs to the city.
(Gerry Mattios, expert vice president of Bain & Company, and Thomas Olsen, partner of Bain & Company, contributed to this article.)