China launches pilot scheme for C-REITs: the era of REITs "with Chinese characteristics" begins

As it navigates its way out of the COVID-19 crisis and prepares to relaunch its economy, China may have been looking for a positive news story that demonstrates its commitment to further open up its economy.

It is not, purely coincidental then that after years of discussion and multiple false starts, it was on 30 April 2020 that China finally introduced a pilot scheme for Chinese real estate investment trusts (C-REITs) that has the potential to create an enormous market for REITs investors, developers and fund managers, with a value over time estimated to be in excess of US$3 trillion (making it the world's largest REITs market and more than twice the size of the U.S. REITs market). Under the pilot scheme, C-REITs (which can be listed on the Chinese stock exchanges in Shanghai and Shenzhen) will initially focus on infrastructure assets with the aim of:

  • Providing an alternative funding tool for infrastructure projects.
  • Facilitating investment in the infrastructure sector.
  • Reducing the large debt burden on local governments.
  • Boosting domestic capital markets.

Although the pilot scheme for C-REITs presents significant potential opportunities, it provides for a legal structure for C-REITs that differs from that of REITs in other jurisdictions, and leaves several important questions unanswered: When will the pilot scheme become operative? Will the scope of C-REITs be expanded to other asset classes (such as commercial or residential real estate) and be granted favorable tax policies that underpin the attractiveness of REITs in other jurisdictions? What will the governmental procedures for the review of the underlying assets entail and how will they be conducted? It remains early days and so many of the details of the pilot scheme are yet to emerge.

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