The new Free Trade Zone will combine four existing pilot free trade areas in the municipality, including Waigaoqiao FTZ, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive FTZ.
It is expected to further expand to cover an area of nearly 29-square kilometers.
The new FTZ is being established as the central government trys to impose a more proactive opening-up strategy to boost trade.
A government statement says the move is designed to "help explore a new path for China's opening up, speed up transformation of government functions and promote economic restructuring".
It is expected the pilot zone in Shanghai will be copied in other parts of the country at some point down the road.
The statement says the FTZ will showcase an "u
