Conditions are set to be a lot colder compared to the likes of Australia and Bahrain, where Ferrari and Vettel won at the circuits, and the four-time World Champion is cautious predicting that the weather will play into Mercedes' hands again.
The top three finished the afternoon in the same order as they had ended the opening 90 minutes of practice.
"Well we have to get a really good qualifying in but in general even when that doesn't happen I think in the race we will be competitive and in this track you can overtake".
Hamilton was in high spirits prior to the race but was left disappointed with his performance
The Dutchman says Red Bull can be happy with its performance on Friday, describing their long runs as "very positive" and therefore a good indication of strong race pace, which is important here as overtaking is often abundant on the wide Shanghai circuit.
"I still believe we are the best team".More news: California has agreed to deploy 400 National Guard troops at Trump's request
Mercedes need to counter the early-season pace and form of Vettel, who somehow managed to last 39 laps on severely-worn tyres in Bahrain to take a 17-point lead in the standings ahead of Hamilton.
Vettel raced to victory in Australia to open the Formula One season, following up with a tense triumph over Mercedes last weekend in Bahrain.
No driver can match Hamilton's record of five wins here and no team can match Mercedes' four-year dominance in which they have won every race staged since 2014.More news: Possible Samsung Galaxy S9 Mini Leaked Online
Hamilton wasted little time in putting his name at the top of the timesheets, with the Brit going quickest in each sector en route to a time of 1:34.962 before strapping on the soft tyre and lowering his mark to a scintillating 1:33.999, 0.359s ahead of Ferrari's Kimi Raikkonen.
Max Verstappen split the Mercedes for Red Bull, but there was serious disappointment for team mate Daniel Ricciardo. Renault's Nico Hulkenberg was sixth.
"Although we missed a little bit of track time this morning, I'm feeling quite comfortable in the vehicle, the balance feels good so if we can improve on certain areas overnight we could be fighting at the sharp end of the midfield battle again". And Williams look no closer to solving their early season problems, with Lance Stroll finishing at the bottom of the pile in both sessions.More news: "Fortnite" Update Adds Replay Function, New Heroes, & More
"It's quite simple and easy to blame the younger driver", Verstappen said.