SHANGHAI (AFP) - China will allow unfettered exchange of its yuan currency in its first free trade zone, a draft plan seen by AFP on Thursday showed, in a push to reform the world's second largest economy.

The plan showed the free trade zone (FTZ) in Shanghai goes beyond greater liberalisation of trade to take in investment and financial services - including free convertibility of currency.

"Under the pre-condition that risk can be controlled, in the zone convertibility of the renminbi on the capital account will be conducted, the first to carry out and test (it)," the plan said.

It does not explicitly state that the exchange rate will be purely market set.

China's yuan currency, also known as the renminbi, is convertible for trade but the government keeps a tight grip on the capital account on worries unpredictable inflows or outflows could harm the economy - and reduce its control.

The Shanghai FTZ is intended to make the city into a true international trade and financial centre and challenge the free economy of Hong Kong, a special administrative region of China, analysts and government officials said.

Premier Li Keqiang, who took office in March, is backing the zone - which his cabinet approved last month - to be one of the crowning achievements of his administration, they said.