"I actually don't see where in the zone they could set up hospitals. It is a bit far away from the major population centers," says Gleave at KPMG.

Top: Mark Purdy, chief economist and managing director of economic research at management consultancy Accenture. Above: Kevin Chen, principal of international management consultancy AT Kearney. Photos by Gao Erqiang / China Daily

The authorities are keen that the FTZ is not becoming a new Lujiazui, Shanghai's financial district with skyscapers that draws people away from the main city area. It is anticipated many companies will just rent a room or a floor within the zone. The FTZ regulations and benefits will only cover their activities within the zone and not those in the rest of China.

Steven McCord, local director of China retail properties research at Jones Lang LaSalle, based on the 25th floor of Plaza 66 with a dramatic high view of the city, says the establishment of the FTZ is not necessarily going to change the landscape of the areas involved in the pilot.

"They are not going to build any Grade A office towers like this. It is clear to us that so called high-end office areas are on the negative list and will not be permitted. This is to ensure that the good development goes into the Central Business District," he says.

"There won't be a huge demand for office space within the free trade zone. Most companies will set up a representative office, perhaps just a room several hundred square meters."

McCord adds that when Subway Line 16 is completed some areas of the zone will be within an hour of the city center and some people may want to commute, but he doesn't believe it will be an attractive place for further development.

"Some of it is on reclaimed low lying land and if you had a category three typhoon the sea might inundate some of the land. I wouldn't want to live there personally," he says.

But whether the FTZ proves to be a success or not does not revolve around these largely secondary practical issues.

"It is about the upgrading of the Chinese economy and the move away from manufacturing to service sector industries," says Chen at AT Kearney.

"The future growth of manufacturing in China is limited and we need to develop a service sector base that can take the economy onto the next stage."

One uncertainty at present is whether the FTZ model is going to be replicated in other cities in China such as the northern port city of Tianjin or Chongqing in the western part rather than a precursor to reforms rolled out across the whole of China.

"I think if we can have a successful test within two or three years we will have other similar free trade zones in Guangzhou, Tianjin and Chongqing as a second phase," says He at the China-US/EU Study Center at the China Association.

"If they are successful it can be introduced to the rest of the country. It is therefore important that the Shanghai free trade zone is reproductive."

Yan at Barclays Capital in Hong Kong says it will certainly be of interest to the foreign banks whose activities are currently heavily restricted in China.

"In China foreign banks have the disadvantage of being very small, and not having a lot of branches, they don't have a deposit base yet they are subject to the same loan to deposit ratio of 75 percent. If they are given more freedom they will be very interested."

There has been concern expressed in Hong Kong that if the zone is successful, it could pave the way for Shanghai to replace the special administrative region as China's key financial center.

"I think the most likely scenario is that they would be complementary," He says.

"If you look at Europe there are many financial centers, including London, Frankfurt, Paris, Zurich and Luxembourg. The distance between Shanghai and Hong Kong is 1,500 km so there certainly needs to be more than one financial center."

Purdy at Accenture says it is important that people do not get carried away with the idea that the FTZ will change China overnight and see it more as the pragmatic move that it is.

"It is probably not the big bang game changer that some people believe it to be. It is a testing ground for policy, a safe laboratory for market liberalization. I think it is a positive development that shows the direction of economic reform in China," he says.

andrewmoody@chinadaily.com.cn

(China Daily European Weekly 11/08/2013 page1)