The Yangtze River Delta (YRD) region is already one of the key powerhouses of the Chinese economy, as well as one of China’s highly integrated regions. If the region itself was on a country-based index, the YRD region would rank as the 5th largest economy in the world, behind the US, Japan and Germany. The ACEP Index of the China Development Research Foundation (CDRF) says the YRD region is one of two first-tier regions in China.

According to the Shanghai Master Plan 2017-2035, the blueprint of the city’s development announced in 2018, Shanghai is prioritizing inclusion and people’s wellbeing in its strategic planning in response to emerging development challenges. Nevertheless, similar to other highly integrated regions in China, inadequate natural and socio-economic resources could limit growth and Shanghai’s ability to achieve its long-term goals. As a risk knowledge company, we believe deploying smart technology into the city’s risk management system and promoting innovation by fostering growth in the SME sector are critical to strengthening Shanghai’s resilience and supporting its promising future.

Still, the YRD region’s outlook remains very promising. In particular, digitalization is presenting new opportunities and deal with an increasingly complex risk landscape. We believe the YRD will benefit significantly from technology to build a “smart” region where governance and decisions are made on real-time data acquisition and analysis.

The establishment of a Big Data center for the YRD region

We believe it is beneficial to establish a Big Data research center for the region, which would be tasked with collecting, curating and disseminating the information collected from networked devices such as traffic information from road sensors or traffic lights, as well as river flow sensors or rain monitors. Artificial intelligence and machine learning capabilities could then be used to enable the provincial and city governments across the YRD region to more effectively detect, prevent, and manage existing and emerging risks. For example, Shanghai can connect this data centre with its Citizen Cloud platform to enable fast communication and provide advance warning to its citizens when a risk emerges like road congestion or an approaching thunderstorm that could lead to severe flooding. The Citizen Cloud should also be spread further across the YRD region.

Establishing a risk management center and strengthening insurance

Another way to use technology in risk management would be establishing a risk management center. This center coordinates and leads the response if an adverse event transpires. Essential services need to carry on functioning, and this would help reduce potential losses across the whole region including usage of insurance as an effective risk management tool.

Highlighting the Public Private Research Partnerships (PPRPs)

To further enhance the value of a Big Data centre, inter-disciplinary Public Private Research Partnerships (PPRPs) should be initiated. These partnerships would leverage available data and relevant technologies to explore the risks of interconnected systems, produce insights to guide authorities and companies, and suggest effective risk mitigation solutions for building resilient economies and societies.

Small and medium-sized enterprises (SMEs) make up the backbone of China’s economy. The majority of SMEs in the YRD operate in the service sector and are predominantly located in Zhejiang, Jiangsu and Anhui provinces, while Shanghai is home to larger corporations.

Despite their importance, funding is a key constraint for SMEs. Globally, SMEs face difficulties in obtaining loans due to their lack of financial structure, information asymmetry, and high credit risk. Numerous studies have found that lack of funding impedes SME growth and innovation. A lack of funding originates from the inherent information asymmetry between banks and SMEs, as well as the unique characteristics of the Chinese financial system which the authorities have been working to remove.

We believe YRD governments should consider establishing a YRD regional fund dedicated to supporting growth of SMEs. One option would be to establish a regional “YRD Development Bank” to distribute and administer funds and attract additional sources of financing. The use of technology to facilitate credit evaluation could significantly reduce the cost of servicing the SME sector. Because risks are inevitable, insurers could provide credit insurance to SME customers, potentially bundling together property and liability covers as well to provide a one-stop-shop for SMEs insurance needs.

A major objective of YRD regional development is to better integrate developing regions, including Anhui, Northern Jiangsu, and Southern Zhejiang, into the overall development plans. This will occur primarily by expanding infrastructure initiatives in four key areas: transportation, telecommunications, energy, and water conservation. The considerable scale of these initiatives will render financing a significant challenge. It is thus imperative that local governments in the YRD region look to private investment as an alternative source of funding for large-scale infrastructure projects.

The governments of the YRD region have already taken steps toward public-private partnerships through the establishment of the 100 billion yuan (US$14 billion) Yangtze River Delta Collaborative Advantage Fund. However, as financing is dominated by local level state-owned enterprises, private involvement in this scheme remains limited. To facilitate the process and establish a benchmark transaction, a best practice pilot transaction with stakeholders such as the Asian Infrastructure Investment Bank (AIIB) could be set up.

Hurdles need to be removed to better mobilise private sector capital. In particular, the provision of operating data, financial reporting, and disclosure requirements for infrastructure investments need to be standardised to allow infrastructure debt to become more accessible, and ultimately more tradable. Additionally, the Shanghai government could stipulate that all infrastructure projects follow green development principles in order to help achieve China’s sustainable development goals and put Shanghai firmly on the path to becoming a low-carbon city. An investible and tradable infrastructure asset class would be a significant step in facilitating private sector capital flows into infrastructure.