Shanghai ahead in China free-trade zone race, eclipsing Qianhai, Hengqin

Shanghai is pulling away as the clear leader in the race to set up free-trade zones on the mainland, casting a cloud over the future of other areas, such as Qianhai, that were clear favourites before and had the blessings of top government officials.

The speed at which Shanghai has dusted off plans to become a test bed for bigger economic reforms, including full capital account convertibility for the yuan, has caught market watchers by surprise even as Qianhai, in Shenzhen, pressed ahead with a charm offensive to attract companies and banks to set up shop within that zone.

The barren stretch of reclaimed land near the Hong Kong border is not alone in feeling the heat. The Shanghai proposal has also overshadowed similar plans for Hengqin island in the Zhuhai special economic zone and Nansha, in Guangzhou, which have also thrown their hats into the ring to become such zones.

"There will be competition between Shanghai and Qianhai in the long run, given both are targeted mainly at the opening up of financial services," said Liao Qun, chief China economist at Citic Bank International. "Shanghai has a higher starting point given the development of trade of goods, but in service trade, the Shanghai free-trade zone is also starting from almost zero."

A draft policy outlining reforms in Shanghai's recently approved free-trade zone could be released as early as this week, with its interim management plan due on September 27, the official Shanghai Securities News reported on Wednesday, citing unnamed sources. Plans for free-trade zones in southern China come at a time when the government is attempting reforms to rebalance its economy, shifting dependence away from manufacturing to consumption.