Convertibility

On a national level, the Shanghai FTZ could act as a trailblazer in terms of prodding other markets to open up as it helps improve China's economy. Policy makers have already signaled that they hope to hasten the convertibility of the yuan over the next few years to boost its use in trade and support wider financial reforms.

Shanghai is not presently equipped to handle offshore trade or financial transactions like its regional counterparts Hong Kong or Singapore, Sun said. Opening the door to foreign banks is conducive to jumpstarting an offshore yuan market in the free trade zone, he added.

As the free trade zone may lead to more experimentation with a fully convertible Chinese currency, the city will morph into an international financial hub faster than anticipated, Steinbock said.

Shanghai Mayor Yang Xiong has already told the city's legislators to work toward building a solid legal framework for the FTZ, as the reform measures will require about a dozen laws to be modified.

He said initial research has shown there are more than 90 detailed reform measures ready to be launched in the free trade zone, most of which will focus on innovation.

Xiamen, Tianjin and other coastal cities have submitted applications to set up FTZs, as have provinces including Jiangsu that neighbor Shanghai.

But Lu Bin, a professor with Nanjing University of Finance & Economics, expressed concern that such pioneering reforms in Shanghai could dilute the competitiveness of cities in Jiangsu that were recently granted favorable policies.

Cooperation

He said that once the FTZ eases controls on how foreign exchange is managed, another pilot zone in Huaqiao, Kunshan in Jiangsu province that is run in cooperation with Singapore will "enjoy no comparative advantage."

Kunshan, which lies on the outskirts of Shanghai, could also be negatively affected as many of the foreign multinationals that now base their headquarters there will be tempted to relocate to the new FTZ, he added.

But Jiang Hongkun, Party chief of Suzhou, sees more opportunities than challenges. "Just as Suzhou depended for its growth on the development of Pudong New Area, so the new FTZ will present us with more opportunities," he said.

Experts say the FTZ also represents a counter-challenge to other recent developments such as the Trans-Pacific Partnership. This US-led initiative is widely seen as a move to curtail China's growing influence on global trade.

Wei Jianguo, secretary-general of the China Center for International Economic Exchanges, said the partnership could be seen as the first step toward establishing an Asia-Pacific Free Trade Zone. As such, he said China could take the initiative in joining it to maximize the benefits for the region as a whole.

The Shanghai FTZ could play an active role in such a mission, as its reform measures may answer certain partnership requirements pertaining to government subsidies and intellectual property, he added.

"Today, people like to say that Shanghai is about to become a ‘mini-Hong Kong.' But, over time, Hong Kong may look like a ‘mini-Shanghai,''' Steinbock said.