UPDATE: China may not be lifting its ban on Facebook and Twitter after all, even within the Shanghai free-trade zone, “authoritative sources” from the city have told the People’s Daily newspaper (spotted first by Tech in Asia). The unnamed sources say there won’t be any changes to current policies that involve ideological concepts — which include Internet regulations.

Whether or not the rumors come true can only be determined when the Shanghai free-trade zone officially opens, which may be as soon as the end of this month.

The Chinese government has decided to end a long-standing ban on sites including Facebook and Twitter, but only within a free-trade zone in the city of Shanghai, unnamed government sources told the South China Morning Post.

The free-trade zone has been designated as a place with more freedom, just like Chinese territory Hong Kong with its own separate laws, as the Chinese government is keen to test the ground for significant financial and economic reforms on the mainland.

One of the sources told the newspaper:

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.

Besides more Internet freedom, the free-trade zone will also see foreign telecommunication companies compete for licenses to provide Internet services, alongside the Chinese state-owned operators, a first for the country.

Earlier today, we also reported that Microsoft formed a joint venture with Chinese company BesTV to develop games — and the venture is expected to be registered in this very same Shanghai free-trade zone.

China holds a tight leash on Internet access in the country as it strives to ensure that people toe the political line. The lack of Internet freedom, however, could have possibly put investors off — and such an image is something that China may be trying to change as it seeks to boost its economy.

Previously, China also lifted its infamous Great Firewall to allow open social media use during the 2011 World Cup and for a short time during the 2008 Olympic Games in Beijing.

Headline image via Thinkstock