Innovation Ecosystem in Shanghai

February 1, 2021
Innovation Insight

XNode Blog

Innovation Ecosystem in Shanghai

1 | Shanghai & Innovation

Shanghai is on the East Coast of China near the Yangtze River and has a population of about 24.28 million people. It has a distinctive profile as probably the most western city in China and is known for its inclusiveness and diversity. There is the pursuit of excellence for people that come to Shanghai with the ambition to build their companies or their career very fast.

Shanghai is a big economic force. It is ranked as No.1 national wide. The city is still full of growth and has lots of opportunities for people looking for jobs and also for startups.

There are five domains that we need to take into consideration when thinking about innovation. Shanghai has achieved remarkable progress in its initiative of “five centers” - Economy, Finance, Trade, Shipping, and Sci-Tech Innovation. Innovation plays a key role in Shanghai’s economic resilience and vitality. Nowadays, Shanghai increasingly wants to present itself as a city where innovation takes place. For startups, there are opportunities both financially (e.g. capital for merge and acquisition) and business-wise (e.g. international trading).

2 | Government Focus

When talking about China, you can’t avoid speaking about the role of the government. When it comes to innovation and business, it is extremely important and strategic. The government policies in Shanghai in driving innovation forward can be grouped into three categories: facilitation, financial support, and talent acquisition.

In general, the government is trying its best to facilitate company creation and efficient allocation of innovation resources. As a startup coming to Shanghai, you could get significant financial support from the government which includes rent reduction, entrepreneurship subsidies for local young professionals, and subsides for innovation in line with the implementation of China’s 2030 Innovation Megaprojects like 5G, smart city and AI.

China is already spending a lot of money on educating science and technology engineering graduates. Besides that, there are more policies in place to introduce overseas talents into the city. As an early-stage technology company, you can find the right talent at the right moment to grow your company.

One important thing to notice is that different districts in Shanghai have different policies. A successful company needs to understand how the local policies work, and navigate itself in the landscape of different districts and sub-districts to be as effective as possible.

3 | Industry Focus

Let’s talk about specific industries where Shanghai already has or is trying to gain a competitive advantage. Fintech, consumer goods and retail, cultural and creative industries, and artificial intelligence (AI) are the areas central to the government’s development strategy. There are four more areas that startups may look into - integrated circuits (IC), new materials, biopharmaceuticals, and new energy vehicles (NEVs).

These focused areas are represented by specific clusters. As a startup founder, you need to ask do I fit or can I fit into any of these key industries. You also need to have something differentiating and that can add to the economic growth of Shanghai as an economic development region.

4 | Key Players in the Ecosystem

The player here specifically means the incubators and accelerators that are active in this space. They can be sorted into four categories according to their characteristics: government-owned, industry-focused, investment-oriented, and platform-based.

Government-owned incubators typically have a lot of capital and networks. But sometimes it’s also challenging because the interest of a private company and the way you’d like to work are different than the way Chinese government works. You can work with them, but try to also have a 3rd party in between that has the experience dealing with the government and handling manners in a way where it leads to productive business relationships.

If you have an industry focus or seeking industrial clusters, there are plenty of such incubators, especially related to the industry focus of the city. There are also specific investment-oriented incubators, investing in both Chinese and foreign startups. A platform-based incubator often connects enterprises to different stakeholders, trying to safe-guard the interest of entrepreneurs while at the same time smartly leveraging the ecosystem players that are out there.

It is up to you as a foreign company to choose which type fits your need and of course you can collaborate with multiple companies spontaneously.

5 | Advice for startups

  1. To successfully penetrate the Chinese market, including Shanghai, you need a long-term plan. It will take at least one year to build a business here. You need to build relationships, understand how Shanghai works and how to deal with different entities. But if you have a long-term plan, you can grow extremely fast here.
  2. It is vital to have a deep understanding on the “nitty gritty” details of local innovation policy. You have to work with the government, to understand them and have partners help you navigate the complex landscape. Always ask and seek for help when needed!
  3. Work with a trusted partner or counterpart who is good at building connections between startups, and with government, corporates, and academia.

Having said all of those things, the most easy place to land your business in China is in Shanghai. It’s the most international and foreign-friendly place, where people understand what foreign enterprises come from and how to deal with foreign enterprises.