The Yangshan bonded port in Shanghai, Aug 15, 2013. [Photo/Xinhua]

Shanghai is set to test the water for further financial reform after the central government approved the establishment of a pilot free trade zone in the business hub.

The city released detailed guidelines including measures to allow more private capital in the banking sector and promote cross-border use of the yuan.

The guidelines consist of 42 entries divided into three categories: those that are already in place yet need reinforcement, those that are ready to be launched and those that still await approval.

The 12 entries marked as "innovative reform", which still await a green light from relevant ministries, are mostly measures to lessen foreign exchange control and encourage cross-border yuan flow to facilitate trade and investment in the region.

"These measures are all within the scope of the instruction released by the State Council in July ... we're still waiting for the starting gun from the central government," said an official with the Shanghai government's financial office.

"There are no set patterns or regulations for some of these measures at the moment, but we would like to see these measures carried out in Shanghai first once they're good to go."

The Ministry of Commerce said on Thursday that the State Council - China's cabinet - has formally approved the plan to establish a 28-square-kilometer free trade zone in Shanghai, which comprises four areas under the special supervision of customs.

The plan was passed at an executive meeting chaired by Premier Li Keqiang on July 3.

A detailed plan will be released when the adjustment of legal framework is complete.

Although these measures are not exactly from the blueprint of the long-expected Shanghai Free Trade Zone, he admitted that the FTZ could serve as a testing ground.

According to the guidelines, Shanghai vowed to promote cross-border settlement of yuan and expand the use of the currency in trade, investment and insurance.

To do so, the city will strengthen its role as a settlement center for international trade and pilot fund management for multinational companies' headquarters. It also looks to include more businesses in its inter-bank foreign exchange settlement.