Officials on Friday emphasised that Pudong's Lujiazui Finance and Trade Development Zone offered more favourable conditions for trade, finance and commerce than Beijing, where most foreign multinationals have their headquarters.

'This is because Lujiazui's development relies on Shanghai, which is the biggest commercial and trading centre,' one source said.

He said Pudong was a logistically sensible location for the companies because many of their largest projects were in the area. Such companies with hefty investments in the area include General Motors Corp, Sony and Hewlett-Packard.

Officials said there were more than 50 large projects in Pudong in which multinationals had interests in.

Official records show 50 per cent of the estimated 6.45 million sq ft of office space remains vacant.

A Shanghai-based analyst estimated the vacancy level to be even higher, possibly as much as 70 to 80 per cent.

'Basically, the problem will have to be left to market forces, where falling rents will make it more attractive [to potential tenants],' the analyst said.

Daily rent for grade A office space in Lujiazui has already fallen to 6.5 cents per square foot; a figure expected to dip further as more office blocks were completed.

He said the government should aim to attract more foreign banks to establish branches in Pudong to help ease the oversupply. Pudong sources said Beijing would allow foreign banks there to do business in yuan before the end of the year, which in turn would draw more financial institutions and companies to set up offices.

Similar measures to be introduced by December include approval for Sino-foreign trade companies to conduct export and import business, and Sino-foreign insurance companies to set up shop in the area.

Shanghai's markets such as the property rights, real estate transactions, cereals and oils exchanges also are scheduled to move to Pudong this year.