Shanghai's vice mayor on Monday urged cooperation from Hong Kong over China's ambitious new free-trade zone, saying its potential to boost growth will offset any competitive threat to the former British colony.

The FTZ in Shanghai, launched in September, will allow unfettered exchange of China's yuan currency as part of a bold push to reform the world's second largest economy.

But the zone has been seen as a threat to Hong Kong's free economy and its status as a finance hub, with fears that capital might flow out to the FTZ. Observers have said that it could be a warning by Beijing to dampen political protests in Hong Kong, a semi-autonomous region of China.

But Tu Guangshao, executive vice mayor of Shanghai, brushed aside those concerns, saying the FTZ could serve as an engine for collective growth.

"We should make proactive efforts to seize the opportunity. It should provide room for (both) Shanghai and Hong Kong (to grow)," Tu said at the Asian Financial Forum conference in Hong Kong.

"I heard people saying that resources may flow from Hong Kong to Shanghai. There is such possibility. But we should rather see... there will be a greater market need."

China formally set up the FTZ in Shanghai on September 29, with the government promoting free conversion of the yuan currency, greater cross-border use of the yuan and interest rate liberalisation.

Hong Kong has fallen to number three in the International Institute for Management Development 2013 World Competitiveness Yearbook, compared to its top spot in 2012.

Asia's richest man Li Ka-shing warned in September that the new FTZ will have a "big impact" on Hong Kong's economy, urging the city to up its game to avoid losing out.

But Tu, citing potential areas for mutual cooperation, said Hong Kong and Shanghai could develop new financial products, adding that both cities will be "motivated" to work together under the new mechanisms to be implemented in the FTZ.

"Hong Kong and Shanghai can together fuel growth in Asia and globally," Tu said.