CHINA policymakers toed a careful line between industry growth and risks in the newly released Five-Year Plan for the financial sector.

The blueprint covers the 2011-15 period and comes amid constant speculation about reforms in the finance industry.

The general goals set forth in the plan might be described as relatively unambitious, but at least they come with some performance measures.

By 2015, the plan says, the added value of financial industries will contribute to 5 percent of China's total gross domestic product, up from an annual average of 4.42 percent in the last decade.

That figure compares to 8 percent in the United States and 6.5 percent in Japan, and it seems to indicate that financial markets in China won't grow much faster than the overall increase of gross domestic product.

The proportion of direct financing, such as through equities and bonds, will reach 15 percent, only slightly higher than last year's 14 percent.

Among the somewhat grandiose wording and paltry specifics usually found in such sector blueprints, economists managed to find some optimism for reform progress while voicing disappointment about loose ends.

"There are four reforms that may make breakthroughs by 2015," said Lu Zhengwei, a chief economist with Industrial Bank.

He cited one allowing a financial institution to conduct different businesses, such as banking and insurance services. Another is the development of more derivative products. Yet another is an apparently higher tolerance for defaults in the bond market. "The blueprint said financial institutions can choose to operate in a variety of businesses based on their own advantages," Lu said. "And in the bond market, pledges to deepen the market mechanism seem to indicate that the government will make less effort to prevent companies from defaulting."

Accelerating reforms

Concerning more macro aspects, Lu said that policymakers seem to indicate that they will accelerate the opening up of the capital account and continue interest rates liberalization.

"The blueprint specified that capital accounts will be gradually opened through direct investment, convertibility under securities investment, cross-border fund-raising and larger freedom in personal foreign-exchange businesses," Lu said. "The pity," he added, "is that the blueprint didn't give a timetable and sequences for reforms of interest rates and exchange rates. This may cause disputes and delay the progress of the reforms."

To other economists and industry insiders, the latest financial industry blueprint seemed to shed light on proposals that were first advanced more than five or 10 years ago, including the establishment of a deposit insurance system and the introduction of tax-deferred pension products.

Katie Chen, an analyst with the Moody's Investors Service, said she expects China will introduce a deposit insurance system under the auspices of the People's Bank of China within the next two years. It would be an essential step toward interest rate liberalization, she said. "Although the last Five-Year Plan also mentioned implementing a deposit insurance system and establishing an exit process for financial institutions, the 12th Five-Year Plan contains more operational detail that makes these efforts more likely to come to fruition," Chen wrote in a report.

Insurance companies are anticipating that a long-awaited tax-deferred pension program will be introduced on a trial basis in Shanghai this year. The idea, first broached in 2007, has come to be seen as a boost for the sluggish insurance industry.

"This Five-Year Plan mentions conducting trials of a tax-deferred pension program," said Chen Jiangang, an analyst with Sinolink Securities. "The program may stimulate demand for insurance products in the next three years."

Fang Xinghai, director of the Shanghai Financial Services Office, and top executives from Ping An Insurance (Group) Co and China Pacific Insurance (Group) Co have expressed hopes on different occasions that the trial project will begin this year.

But the outlook is more murky for the long-awaited international board, the proposed new exchange where foreign companies for the first time will be able to sell yuan-denominated shares on the mainland. The board has been ballyhooed as a necessary step in realizing Shanghai's dream to become a global financial hub on par with New York and London.

Though the latest Five-Year Plan explicitly says that officials will "explore the establishment of an international board," no one from the China Securities Regulatory Commission, Shanghai Stock Exchange or Shanghai Financial Services Office has yet to give even a hint when the board might actually be launched.

Trust sector

Among those most disappointed with the latest plan are probably businesses in the trust sector, which got no mention at all in the blueprint.

According to a report by Z-Ben Advisors, the sector had 5.5 trillion yuan (US$873 billion) in assets under management by the end of June, up from 4.8 trillion yuan six months earlier.

Powered by loan-trust products investing in real estate and infrastructure projects, trusts now rank as the third-largest segment of China's financial sector, after insurance, which oversees more than 6.4 trillion yuan.

While the trust sector helps ease capital strains due to a tightening of traditional financing channels, it is constantly under scrutiny for its less-transparent business model and high-risk appetite.

Analysts said the absence of this sector in the latest Five-Year Plan might indicate that regulators look unfavorably on the rapid explosion of trust businesses.

"A trust is more a financial function than a real financial institution," said Ba Shusong, a researcher with the State Council, China's cabinet. "Wealth management products of banks, asset management services of brokerages, and investment-linked insurance products are all trusts, while many institutions deny their trust nature because they are afraid of falling into a different regulatory framework."

Fan Jie, a researcher with an investment consultant firm Cnbenefit, wrote in a report that China is more likely to allow commercial banks, fund houses, venture capital firms and even futures companies to conduct different asset management businesses, thus marginalizing trust companies.

"That encouragement is explicit in the Five-Year Plan," Fan said. "The plan left a huge challenge to the trust sector, and only trust companies that actively manage their investments will thrive."

Trust firms that passively depend on loan products will face challenges from new financing channels, such as private placement bonds issued by smaller companies and asset-backed notes in the interbank market, he said.

Highlights of 12th Five-Year Plan (2011-15) for the financial sector

Banking

Guiding qualified financial institutions to conduct cross-sector businesses on a trial basis; setting up a "fire-wall" between the banking and securities sectors to prevent systemic risks

Offering necessary fiscal support for selected businesses

Building a batch of large-scale commercial banks with sound brand images and international competitiveness

Insurance

Conducting the tax-deferred pension program on a trial basis

Studying and expanding commercial insurance companies' participation into the social security and healthcare insurance systems

Regulating insurance market order and addressing misleading sales behavior and difficulties to claim compensation

Securities

Exploring establishment of an international board

Improving mechanisms to facilitate companies' delisting and switching between different boards

Improving bond issuance management system and enhancing coordination between different regulatory bodies

Currency

Drafting laws to specify functions and operational models of the deposit insurance system

Facilitating direct investment, opening up domestic capital market, expanding outbound securities investment and encouraging cross-border fund raising

Expanding use of Shanghai Interbank Offered Rate, improving yield curve of mid- and long-term markets and studying direct exchange mechanisms between the yuan and currencies of emerging markets