Chinese shares closed higher on Friday as the government announced a plan for the pilot free trade zone (FTZ) in Shanghai.

The benchmark Shanghai Composite Index gained 0.20 percent, or 4.22 points, to finish at 2,160.03.

The Shenzhen Component Index increased 0.39 percent, or 32.83 points, to finish at 8,472.29.

Combined turnover on the two bourses shrank to 195.54 billion yuan (31.80 billion U.S. dollars) from 243.6 billion yuan the previous trading day as investors remained cautious ahead of the national holiday.

The sectors of entertainment, medical equipment and bio-pharmaceuticals led the rises, edging up 3.74 percent, 2.95 percent and 1.83 percent, respectively.

China will experiment with a wide range of reforms, including easing restrictions on the yuan, investment, trade and business management in the Shanghai FTZ, according to a general plan released by the State Council on Friday afternoon.

Following the news, FTZ-related stocks trimmed their losses, with several starting to rally from a 10-percent dive in the morning session.

Despite the small recovery, the sector's sub-index had declined 5.73 percent by Friday's closing. Shanghai Material Trading Co., Ltd. and Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. still tumbled by a maximum 10 percent.

Also on Friday, official data showed that major Chinese industrial firms saw their combined profits rise 24.2 percent year on year in August, quickening from 11.6 percent in July and pointing to further evidence of a firming economy.