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China To Lift Facebook Ban In Shanghai Zone: Report

China will lift bans on politically sensitive foreign sites such as Facebook (FB), Twitter and The New York Times (NYT), but only in the Shanghai free trade zone, the South China Morning Post reported Tuesday.

"In order to welcome foreign companies to invest and to let foreigners live and work happily in the free-trade zone, we must think about how we can make them feel like at home. If they can't get onto Facebook or read The New York Times, they may naturally wonder how special the free-trade zone is compared with the rest of China," a Chinese government source told the South China Morning Post.

The policy will only apply to the free-trade zone, announced in July, the first Hong Kong-like entity on the mainland. It'll be 28.8 kilometers, including the Waigaoqiao duty-free zone and Yangshan port. The goal is to help restructure the economy, encourage foreign investment and begin to liberalize currency and capital flows. Some believe the zone could be widened substantially if successful. Several other cities have applied for similar free trade status.

The major telecom providers — state-controlled China Mobile (CHL), China Unicom (CHU) and China Telecom (CHA) — have been informed of the free-trade zone policy, according to the report.

The open Internet policy, though very limited in area, comes as China intensifies its social-media crackdown in the wider country. That affects Sina (SINA), which runs the hugely popular Twitter-like Weibo microblog, as well social media platform YY (YY). Sina shares have pulled back since hitting a recent peak on Sept. 12, but YY set a new high last Thursday. YY shares did fall 4.8% on the stock market Tuesday.

The South China Morning Post only referred to foreign Internet firms, so domestic sites may not get special privileges in the Shanghai zone.

The social media crackdown seems to have encouraged a shift to mobile messaging apps from such firms as Tencent, which doesn't trade in the U.S. but recently topped a $100 billion market cap. Tencent this month announced a deal to buy a big stake in Sohu's (SOHU) Sogou search engine. Many had expected No. 2 China search firm Qihoo 360 Technology (QIHU) to buy No. 3 Sogou to gain heft in its battle vs. clear No. 1 Baidu (BIDU).