The involvement of two Chinese state-owned financial firms in Zhongrong International Trust Co's operations and management may diffuse risk at the troubled shadow bank but does little to ease concerns about missed payments, had sizable real estate exposure, missed payments on dozens of analysts and investors said.

The shadow bank, which traditionally so-called trust products since late July, roiling markets and raising fears that China's financial system may be at risk from the property sector crisis.

Angry retail investors in Zhongrong's trust products last month held protests in Beijing and lodged complaint letters with regulators, pleading with the authorities to step in after the missed payments.

Zhongrong said in a statement late on Friday it had signed an agreement with Citic Trust and CCB Trust - the shadow banking arms of two state-owned firms Citic Group and China Construction Bank - for so-called "entrusted management services".

It was not immediately clear whether the support by the two firms was engineered by the Chinese authorities, but Beijing has previously bailed out troubled financial firms by roping in state entities to contain broader contagion risk.

The agreement allows the two financial firms to "provide professional services for operations and management" of Zhongrong, it said, adding the move would not impact its debt ownership and legal relationship in trust products.

The latest development was a standard procedure used by Beijing to diffuse risks at troubled shadow banks in recent years, said a senior executive at a Beijing-based research firm, who declined to be named due to sensitivity of the matter.

"Eventually, investors will not be able to get back all of their money," said the person. "They'll likely incur hefty reductions in principal in the coming repayment plan. That would further dampen investors' confidence in trust products."

The Chinese authorities have ramped up efforts since 2017 to reduce risks in the shadow banking sector amid concerns over financial stability due to their exposure to assets accumulated through opaque fundraising channel.

Under the agreement, Citic Trust and CCB Trust will examine Zhongrong's current operations and help the firm come up with a repayment plan, said sources, who were briefed by the Zhongrong staff and declined to be named due to the sensitivity of the matter.

Zhongrong, the National Financial Regulatory Administration (NFRA), the country's new financial regulator, and the People's Bank of China (PBOC) did not immediately respond to Reuters request for comment.

Citic Trust and CCB Trust also did not respond to request for comment.

Concerns about the outsized exposure of China's $3 trillion shadow banking sector, roughly the size of Britain's economy, to property developers and the wider economy, have grown over the past year as the sector lurched from one crisis to another.

Trust firms operate outside many of the rules governing commercial banks and mainly channel the proceeds of wealth products sold by banks to real estate developers, other sectors, and even some retail investors.

Analysts have said a wave of defaults on trust products could cause substantial ripple effects for China's broader economy as losses suffered by individual investors, lured by higher returns, would have an acute impact on consumption.

Zhongrong managed assets worth 785.7 billion yuan ($107.69 billion) at the end of 2022, out of which 629.3 billion yuan were linked to trust products, according to its latest annual report.

"It's good news and at least provides some clarity," said Zhang, who is an investor in a Zhongrong trust product and gave only his surname due to sensitivity of the matter. "However, it may take more time before detailed repayment plans materialize."

Xu, who invested 3 million yuan in a Zhongrong trust product that has missed payment, said that the development showed the government was paying attention to investors' demand, but was still not hopeful about getting her invested money back.

"It's a torturous progress. The only thing we can do is to wait," she said. "It's a long battle that could take one year or two years. I've put my expectations very low." (Reporting by Ziyi Tang and Ryan Woo; Additional reporting by Shanghai Newsroom; Editing by Sumeet Chatterjee and Shri Navaratnam)