I'm just back from 3 days in Shanghai (with a day trip to Hangzhou). The OP's experience was not mine at all. With the exception of some drink vending machines at Hongqiao Train Station there wasn't a single place I couldn't use cash. This included museums, public transit, restaurants and convenience stores. Plenty of which were local and small. Once or twice I got pushback for using 100 Yuan notes but even then I still got change made.