The plan, which could be announced as soon as this year, was discussed during Premier Li Keqiang's visit to Shanghai in late July, and leaders plan to discuss it further at their annual gathering in the seaside resort town of Beidaihe this month, one of the people said.

Whether or not U.S. products and companies would be included in the project remains under discussion, the person said.

The sources declined to be named given the sensitivity of the matter.

U.S. President Donald Trump sharply escalated the U.S.-China trade war last week when he threatened 10% tariffs on the remaining $300 billion worth of Chinese goods imported into the United States, starting September 1.

An official at the Shanghai free trade zone declined to comment, and China's state planner, the National Development and Reform Commission (NDRC), did not respond to a faxed request for comment.

Under the plan, if implemented, foreign firms would not be charged customs duties for goods transiting or stored in the zone, would be able to store merchandise temporarily without customs clearance and benefit from simplified customs procedures.

Currently, duties are still imposed by customs at the Shanghai FTZ.

If successful, the plan could be rolled out to China's other roughly one-dozen Free Trade Zones (FTZs), according to the people.

The Shanghai FTZ, China's first, was founded in 2013 with the aim of easing international trade, including making cross-border money flows more flexible.

During his visit to the Shanghai in late July, Chinese Premier Li vowed greater efforts in to further reform and open China's economy, urging the Free Trade Zone to align with "advanced international levels", according to the official Xinhua News Agency.

Critics have expressed doubt that the FTZs will produce tangible outcomes in resolving complaints from foreign businesses in China that they face an uneven playing field.

The zone attracted attention from overseas businesses and was hailed as one of China's boldest reforms in decades when it was first launched, although a lack of specific policy details since then has dulled some of that enthusiasm.

China has announced various measures over the past year to improve market access as it looks to deflect criticism of its treatment of foreign companies.