Now that the Shanghai free trade zone has got the State Council's approval, people have begun to wonder what Shanghai would be like without it. The short answer is all those big plans for becoming an international financial center and a global trading hub will remain, well, big plans for many years to come.

The free trade zone would provide the conditions for Shanghai to make a real breakthrough from its present mode of development. Without it, the city is constrained from realizing its ambitious dream because of the national economic and financial structure, regulatory environment, bureaucratic inertia and entrenched political and business interests.

Of course, China is fast changing. But it will likely take decades before the system is loosened up enough for Shanghai to take flight. As it is, Shanghai must be content to play host to the largely domestic capital market. With the newly developed deep-water port, Shanghai is well established as a major sea port servicing its vast Yangtze River Delta hinterland.

To be sure, the domestic business is large enough to facilitate the restructuring from manufacturing to a high-value-added, service-oriented economy. The services sector now accounts for more than 60 percent of the city's economy and provides the main impetus for its growth. But Shanghai is far from being an international city, although it is the location of choice for China or regional headquarters of an increasing number of foreign companies.

Unlike Hong Kong or Singapore, Shanghai is not equipped to handle offshore trade and financial transactions. Thanks, at least partly, to its low tax regime, Hong Kong is a well-established loan syndication center servicing the funding needs of governments and corporations in the region and around the world. It also shares with Singapore the region's fund management and private banking businesses.

Shanghai is not in a position to grab a share of those cross-border financial businesses. The proposed free trade zone, covering an area of 28 square kilometers, just a little smaller than Macao, is supposed to be a game changer.

Few people doubt the potential of the free trade zone in catapulting Shanghai to the forefront of global logistics hubs. The tariff-free environment will enable the growth of offshore trade, offering new opportunities to many Chinese export enterprises in expanding their production capabilities to neighboring low cost markets, while concentrating on the higher value added front end and back end of the manufacturing process.

The free trade zone can turn Shanghai into a real shopping paradise. Of course, nearly all the major international brands have set up shops in Shanghai. But those are more show windows than sales outlets. Many Shanghai consumers go to Hong Kong regularly to stock up on high-end fashion and other goods to take advantage of the lower prices. But shops opening in the free trade zone are expected to be able to compete with their Hong Kong counterparts on pricing, at least. Adding their advantage of proximity, they can attract many free spending customers not only from Shanghai, but also from around the region.

A financial center? That's somewhat more complicated, but not undoable. Opening the door to foreign banks is helpful in starting up an offshore renminbi market in the free trade zone. But this must be augmented by the introduction of a set of rules to ensure transparency and a level playing field for all.

The harder problem that needs to be solved is the shortage of financial talents not only in the execution of complex transactions, but also in risk control, liquidity management, business development and client service. Some bankers with extensive experience in offshore financial centers maintain that risk control is essential to ensuring success. And they agree that this is one of the weaker links among Chinese banks which have operated for years in a tightly controlled marketplace under State protection. In a relatively freer environment of the free trade zone, they will have to learn to protect themselves.

An explosive increase in demand for financial talents in most discipline can be expected with the financial center beginning to take shape in the free trade zone. The Shanghai government has said many times that it is making great efforts to attract the right financial talents to live and work in the city. It may have to redouble its efforts now to take full advantage of the opportunity it cannot afford to miss.