Raikkonen blazed to a fastest lap of one minute, 36.896 seconds, edging Vettel by 0.109, as Ferrari bared its teeth after some indifferent form in the season's first two races.
Nico Rosberg, who won in Australia and Bahrain, went third quickest in 1:37.133 after posting the fastest time in the morning, while world champion Lewis Hamilton was fourth in the Shanghai haze.
Fernando Alonso, who fractured ribs after a terrifying crash in the season-opening race, was formally cleared to compete by medics after clocking the 12th-fastest time in the morning. The Spaniard inched up to 11th in the second session.
Though lacking, perhaps, the drama of Friday practice 12 months ago, when a Chinese fan vaulted the pitlane wall and demanded to test drive a Ferrari, there were plenty of thrills in the morning with two red flags after a series of blown tyres.
The jousting between Mercedes and Ferrari in the afternoon was no less absorbing, Rosberg and Hamilton flexing their muscles early on before Ferrari's two former world champions put in their blistering qualifying simulation times on super-soft tyres.
Raikkonen, who finished runner-up to Rosberg in Bahrain two weeks ago, had not been happy at all before setting his fast lap, snapping over the radio: “Do you really want me to keep going? Because it's absolutely shit!”
Four-time world champion Vettel placed third in last month's Australian Grand Prix as Raikkonen's engine caught fire, but in Bahrain the anguish was Vettel's as his engine blew on the out lap.
But Vettel cautioned against over-optimism.
“We had a decent day but it's only Friday so I wouldn't stress or put too much importance on the times today,” said the German.
“We can still improve. One lap is good for qualifying but in a race ideally you want to have a lot of good laps in a row.”
OMENS LOOK GOOD FOR FERRARI
But on Friday's form at least the omens look good for Ferrari, the most successful team in China with four victories - including the last of Michael Schumacher's record 91 race wins 10 years ago.
Mercedes for once didn't have things all its own way, with Rosberg's car suffering ignition problems and Hamilton, who has been hit with a five-place grid penalty for Sunday's race after a gearbox change, twice spinning off at turn 11.
“Something's up, I keep having this locking into turn 11,” complained Hamilton after his second mishap at the hard-braking left turn.
The Briton, who has won a record four times in China, including the last two years, added afterwards: “It wasn't a bad day, but it wasn't a spectacular day. Ferrari are quick, which means we're going to have a race and that's exciting.”
Felipe Massa set the tone for a bizarre morning by skidding off at turn four with a punctured left rear tyre - before astonishingly shredding another Pirelli on the same wheel.
“Something is broke on the car,” the Brazilian observed with wry understatement, before Renault's Kevin Magnussen limped back to the pits on ruined rubbers, also to his left rear.
Williams technical head Pat Symonds blamed “wheel rim failure” for Massa's issues.
Original source: Ferrari shows its teeth in 2nd practice