THE Shanghainese like to describe themselves as ''smart but not sophisticated'' (jingming bu gaoming). Smart in the sense of being good at business and making money but woefully lacking in the kind of cultural sophistication usually associated with other major cities. It is an image the municipal government is keenly aware of and is anxious to change. If Shanghai is to regain its place as a modern, international city then, officials say, residents really will have to expand their cultural horizons and develop other interests besides just lining their wallets. At the moment, Shanghai's ''cultural activities'' seem largely confined to shopping, singing karaoke and consuming huge amounts of XO in glitzy and outrageously expensive night clubs. The city's economic boom of the last two years has tended to exacerbate the image of Shanghainese as cash-crazed hedonists, concerned only with making money and spending money in more or less equal proportions. Shanghai residents say such unbridled conspicuous consumption is perfectly understandable because, ''when the people have been starving for 40 years, you should not expect them to have very good manners when they finally get to the banquet table''. But officials at the Shanghai Academy of Social Sciences claim that beneath the money-grabbing facade, there is rich and highly sophisticated culture which the government is hoping to bring more to the surface. ''When Zhu Rongji was mayor of Shanghai, he placed great emphasis on raising the cultural level of the city and that work is continuing today,'' said Professor Zhang Xuequn of the academy's international politics department. Shanghai has the greatest concentration of universities and research institutions of any city in China, and Professor Zhang says that is producing a highly educated, talented and sophisticated population. The city, because of its historical and geographical position, is also probably the most westernised part of the mainland and has become something of cultural melting pot, producing a dynamic and vibrant culture similar to that in New York, he said. Shanghai people are becoming both smarter and more sophisticated as the city develops, Professor Zhang said, citing the rapidly growing fashion industry as an example of how commerce and culture are working together in the new Shanghai. The Shanghainese are certainly the best dressed people in China but many local observers say that does not necessarily mean they are getting more sophisticated. ''They just look at the prices of designer label clothes and think 'that must be good, I'll take half a dozen,' '' said the manager of a clothing import company.