China's State Council unveiled the blueprint for a free-trade zone in Shanghai last Friday, a move that will lead to long-overdue economic reform on the mainland. 

Yet the announcement lacked clarity, and some industry participants remain sceptical about many of the mooted reforms, notably interest-rate liberalisation. 

Under the free-trade zone, ideally interest rates will be determined by the market. There will also be full renminbi convertibility, and the possibility that foreign investors can invest in industries which are notoriously difficult to access, such as the telecommunications sector. 

Friday's free-trade zone blueprint provided guidelines for 18 industries including financial, shipping and cultural.  

Shanghai is regarded as a testing ground before the rest of the mainland undergoes similar economic and finance reforms under Premier Li Keqiang.

Speaking at the Change and Reform conference held by Caixin and China Europe International Business School in Shanghai, Cao Yuanzhen, chief economist of Bank of China International, said Hong Kong's offshore RMB market provides the regulatory framework needed for Shanghai's onshore RMB market. 

Yet Huang Yiping, professor in Peking University, noted that a number of important questions remain unanswered. It is still not clear how the free-trade zone will work, he said, such as how to isolate capital flow between the free-trade zone and other parts of Shanghai. There is also no mechanism in place to decide the interest rate, he added. 

Wu Xiaoling, former deputy governor of the People’s Bank of China, agreed that isolating the capital inflows will be difficult, and as such argues that fully liberalised interest rates in the free-trade zone is not a good idea. 

"It is impossible to build a fence for capital inflow in the free-trade zone [from other areas]," she told attendees. 

Her chief concern is that after fully liberalising interest rates in the free-trade zone, there could be an influx of capital from Shanghai and the rest of China, when the free-trade zone does not actually need it. This capital should instead be used to help China's economy as opposed to just its financial markets, Wu argued.
 
The first goals of the free-trade zone, she argued, was to identify "the barriers in [China's] financial system [and then] remove those barriers". 

Although Friday's documents lacked detail, participants agreed it was an important breakthrough and will pave the way for economic reforms in the rest of China once implemented in the next two-to-three years.

Soon after the policies were announced, eight banks, including the big four - Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China - applied to China Regulatory Banking Commission (CBRC) to set up branches in the free-trade zone, according to media reports.