After the State Council put its official stamp of approval on plans to establish a free trade zone (FTZ) in Shanghai, several other local governments - including those in Tianjin, Chongqing and Guangdong Province - quickly followed its lead with proposals and plans to create similar zones of their own.

One of the major aims of Shanghai's FTZ is to test economic reforms which may one day benefit other provinces and cities across China. In light of current conditions, authorities are right to move slowly and cautiously with their approvals.

For one thing, the trial reforms which will take place within the FTZ would put a great deal of stress on China's capital market if not thoroughly tested in a controlled environment. Shanghai's FTZ is expected to stage experiments aimed at freeing up interest rates, expanding offshore yuan operations and converting the yuan under China's capital account. Such bold moves, if not carefully tested and refined, would almost certainly disrupt the machinery of China's capital market and its financial sector as a whole. If multiple local governments rush to set up FTZs before markets and regulators are adequately prepared, the results could be disastrous.

And then there is the fact that many of China's local governments lack the resources needed to set up and properly manage an FTZ. After analyzing 1,200 FTZs around the world, most of these zones serve as multipurpose trading, storage, processing and financing centers. Thus the regions hosting such zones should be able to tout the following features: a relatively advanced financial system, a solid economic foundation, experience in managing a special economic area, modern infrastructure and a pool of talented professionals familiar with international trade. Looking just at these criteria, few areas in China are equipped to run an FTZ.

History shows us the danger of rashly making the special zone leap. Back in the 1990s, China was gripped by a passion to establish development zones. After late Chinese leader Deng Xiaoping made his special economic zone speech during his famous southern tour, numerous high-technology development areas, economic cooperation zones and export processing zones sprang up across the country. Most have long since collapsed, swallowing up large sums of investment money in the process.

Unfortunately, the FTZ frenzy we're seeing now shows that some local officials are still too dependent on investment as a driver of GDP growth. Tentative plans from the governments pursuing FTZs call for hundreds of billions of yuan in investment. If allowed to go ahead with such projects, local governments could find themselves saddled with enormous debt burdens if they can't pay back their investors.

The author is an associated professor of economics at University of International Business and Economics. bizopinion@globaltimes.com.cn