Let me start out with a disclaimer that the farther you get from high-traffic tourist places, the less likely it is that you'll run into this sort of thing. I haven't been to Shanghai, but am sure that I'd fall for this if I weren't warned.
You've just arrived in Renmin Square (People's Square) and a few very friendly Chinese people appear and start to chat you up. You're very likely exhausted from the trip, a bit unsettled by the culture shock and here are some friendly people.
So the scam allegedly goes like this: a couple or even several young adult 'students' come up and strike up a conversation. After varying lengths of time buttering you up, they convince you to go to a teahouse with them. Like I say, this is the only bait they'd need to land me. Tea with the locals? Well sure.
You sit down, have tiny cup after tiny cup of decent (but not exquisite tea) and are presented with an astronomical bill at the end of the visit. That's it. Logic tells you that these overly friendly folk are not to be trusted, but as I say, I'd be overly willing to trust them. Wouldn't want to offend them culturally at the outset. Might really think the experience was an authentic one I wouldn't otherwise have.
Having said all of that, I avoid the most heavily-travelled places that attract most tourists. Hopefully in the event of a trip to Shanghai, I'd have already done enough research to know where to go without being lured into a scam. At least I hope so.