The speed at which Shanghai has dusted off plans to become a test bed for bigger economic reforms, including full capital account convertibility, has caught market watchers by surprise even as Qianhai 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, a district of the provincial capital 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,China chief economist at Citic Bank International.

“Of course, Shanghai has a higher starting point given the development of trade of goods but in the area of service trade, Shanghai free trade zone is also starting from almost zero.”

A draft policy outlining reforms in Shanghai’s recently approved Free Trade Zone (FTZ) could be released as early as this week with its interim management plan due on Sept. 27, the official Shanghai Securities News reported on Wednesday, citing sources with knowledge of the matter.

Plans for FTZs in southern China come at a time when the government is attempting reforms to rebalance its economy, shifting dependence away from manufacturing to consumption.

The proposed Shanghai trade zone will cover less than 30 square kilometers, while Qianhai, which has been dubbed a mini-Hong Kong, is about half that size. But it won’t be size that matters, as what measures and incentives they offer will determine their success with investors in the coming days.

Focused on finance, logistics and technology and backed by the Communist Party, the proposed $45 billion Qianhai Bay zone hopes to draw on Hong Kong’s expertise as it seeks to provide similar financial services and trade settlement.

But while Qianhai has struggled to attract Hong Kong property developers at its recent land auctions, media reports have outlined a slew of initiatives for Shanghai targeting shipping, insurance, healthcare among various others.

But the case for Shanghai is also not entirely clear, especially in its ambitious dream to operate as a fully liberalised trading hub for the Chinese currency.

If authorities restrict the companies to conduct all their business only within the zone, the impact will be very small, while if the freed-up financial services within this zone were accessible to any firm in China, then it would basically have opened up its capital account, Standard Chartered analysts say.

But one thing is certain. Shanghai hosts the country’s markets while Hong Kong is a global financial center and the competition will be between these two cities in the long term.

For now, market watchers in Hong Kong are adopting a wait-and-see approach to see what policies will be unveiled by Shanghai, with some officials welcoming the challenge.

Citing a Chinese saying, Norman Chan, the chief of the Hong Kong Monetary Authority said competition among financial centers has always been fierce and will be even more in the future.

“Excel and advance” or “stay put and be left behind!” he said at a conference. (Reuters)