In a move underlining the leading role Shanghai will play in the country's economic future, the cabinet has formally endorsed the city's plan to open the mainland's first free-trade zone.
The free port will be a testing ground for major policy reforms to free up cross-border commodity and capital flows, areas in which it threatens to eclipse Hong Kong's traditional contribution to the national economy.
The State Council said in a statement after a meeting chaired by Premier Li Keqiang that the free-trade zone would be a snapshot of an "upgraded Chinese economy".
Economists said the plan, aimed at eventually creating a "mini-Hong Kong" in the mainland's commercial hub, would benefit Shanghai as the city sought new engines to revive its slowing economic growth.
"The approval will help China gain new advantages in global competition," the cabinet statement said. "It will help build a new platform for economic co-operation with other countries and pave the way for further economic growth."
Initially, Shanghai will upgrade and expand its existing four bonded areas, where goods can be imported, processed and re-exported without the intervention of customs authorities.
Government officials said the free-trade zone would eventually become a large territory and undertake financial liberalisation.
Xu Quan, a deputy director of the Shanghai Financial Services Office, told a financial forum last week that reforms of interest rate and exchange rate mechanisms would be carried out in the free-trade zone.
"The city's officials, confident of Shanghai's future role in the regional economy, however, are going to take a go-slow approach in implementing liberalisation," said a local government official.
"Shanghai is pinning its hopes on the free-trade zone to raise its international profile."
Shanghai's economy has grown more slowly than those of most other provinces and municipalities since 2008.
Its ambition to become a global financial centre by 2020 was regarded as empty talk while the previous top leaders remained reluctant to approve major financial liberalisations in the city.
The new leadership, including Li and President Xi Jinping , which is seen as being more reformist, is believed to be more supportive of Shanghai's growth. In 2007, Xi had a brief stint in Shanghai as its party secretary before election to the Politburo Standing Committee.
Last month, the Post reported that Fang Xinghai, former head of the Shanghai Financial Services Office, who once downplayed Hong Kong's importance as a financial hub, had been named a senior official of the central leading group for financial and economic affairs in Beijing.