China's policymakers unveiled Monday a blueprint for financial reform during the period of the 12th Five-Year Plan (2011-15), with the aim of pushing forward the internationalization of the yuan and convertibility under the capital account.
However, analysts expressed disappointment that the plan does not offer a clear schedule for interest and exchange rate reform, and does not address the convergence of China's split bond markets.
The value added of the financial sector will account for 5 percent of China's GDP by 2015, up from the average of 4.42 percent over the past decade, and direct financing or financing from bond and stock markets in the non-financial sector will account for 15 percent of the total social financing, up from 11.08 percent from 2005 to 2010, according to the plan.
"But the plan fails to specify the timetable and quantitative target for the interest rate and exchange rate reform," said Lu Zhengwei, chief economist with Shanghai-based Industrial Bank, on his Weibo Monday.
Also, the plan did not mention the convergence of China's bond markets, which will hold back progress toward the internationalization of the currency, Liu Xiao, a consultant with Beijing-based Anbound Consulting, told the Global Times.
China has two separate bond markets and each is subject to different regulators. In the interbank bond market, banks and major dealers such as financial companies and trust companies can trade government bonds and bonds issued by State-owned enterprises.
The market is subject to the supervision of regulators including China Banking Regulatory Commission and the National Development and Reform Commission.
The other bond market is regulated by the China Securities Regulatory Commission and has a trading volume of about one-tenth of that of the interbank bond market. It allows individual investors and funds to trade government bonds and bonds issued by listed companies.
Different rules and standards apply in the two markets, which results in higher financing costs for bond issuers and difficulty in trading, Liu said.
The bond and stock markets are the two major channels for investing offshore yuan, and are a vital part of internationalization of the currency. So the lack of unified rules for the two bond markets will put off international investors from investing in China's bond market, and it remains a bottleneck for offshore yuan in flowing back to China, Liu said.
"There has been reform for China's stock markets, such as the launch of stock index futures trading, margin trading and other measures over recent years. But there has been no change in the bond market over the past decade," Liu noted.
China's bond market value reached 22.1 trillion yuan ($3.5 trillion) in 2011, and its stock market value reached a total of 20.9 trillion yuan last year, according to the central bank.
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