China’s National Development and Reform Commission (NDRC) has issued a new directive providing clarification on the infrastructure REIT trials that were first announced earlier this year.
NDRC announced on 3 August that it had recently issued the “Notice Concerning Effectively Performing Infrastructure REIT Trial Project Application Work” (关于做好基础设施领域不动产投资信托基金（REITs）试点项目申报工作的通知).
The Notice indicates that the Chinese government will give priority to “national key strategic” infrastructure projects when receiving applications for REIT trials, as well as “encourage the undertaking of trials for new forms of infrastructure.”
According to NDRC real estate projects – including hotels, commercial sites, high-rise offices, apartments and residential buildings, will not be included within the scope of trials.
The Notice further indicates that “national key strategic” infrastructure projects will include those associated with regional development plans for the Jing-Jin-Ji area, Xiong’an New Area in Hebei province, the Yangtze River Delta, the Greater Bay Area, and the Hainan Free Trade Port.
Key areas covered by the infrastructure REIT trials will include warehouse logistics, railway lines, airports, ports, urban sanitation and recycling, solid waste processing and municipal utilities.
The trials will also encompass “New Infrastructure,” including data centres, artificial intelligence centres, 5G projects, telecommunications towers, Internet of Things (IoT), Industrial IoT, broadband internet, smart transit, smart energy and smart city projects.
According to the Notice the trial projects must in principle have an operating time of no less than three years, as well as stable, ongoing cash flows and rationally distributed cash source, alongside strong investment returns.
Trial projects must maintain profitability or positive net cash flows within three years.
PPP projects must derive the mainstay of their revenues from user fees, and where revenue sources include local government subsidies, they must be clearly stated within PPP contracts or licensing agreements.
On 30 April the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly issued the “Notice Concerning Concerning Work in Relation to Advancing Infrastructure Real Estate Investment Trust Trials” (关于推进基础设施领域不动产投资信托基金（REITs）试点相关工作的通知).
According to the Notice CSRC and NDRC will “fully make use of capital markets to actively support the undertaking of REIT trials for high-quality infrastructure in key areas and industries in accordance with the principles of the market and rule of law.”