Infrastructure investment has become a hot topic in recent years. With the advancement of urbanization and economic development, the demand for infrastructure construction and investment in countries around the world is increasing. China, as the world’s second largest economy, has huge infrastructure investment opportunities. According to statistics, China has US$60 trillion of infrastructure assets, 2% of which are expected to be securitized via REITs. Therefore, infrastructure REITs in China are expected to reach US$1.2 trillion in 2030. This article will analyze the key factors driving China’s infrastructure REITs boom and the major infrastructure investment opportunities.
China’s infrastructure stock provides ample underlying assets for REITs
China has accumulated a huge amount of infrastructure over the years of rapid development. As of 2020, the total asset value of China’s infrastructure exceeds 150 trillion RMB. Major infrastructure sectors like transportation, municipal utilities, logistics facilities all have trillions of asset value, providing a solid foundation for the issuance of infrastructure REITs. In addition, with the advancement of urbanization, China’s infrastructure investment will continue to grow, which means more high-quality assets can be injected into REITs. The sufficient infrastructure stock and incremental assets ensure a sustainable supply for China’s REITs market.
Infrastructure assets generate stable cash flows attractive to investors
Mature infrastructure assets like toll roads, warehouses, power plants generally have steady operational cash flows, providing a stable source of dividend distribution. Infrastructure REITs can offer alluring 4-8% dividend yield for investors. This is extremely appealing for yield-hungry investors when bank deposit rates are low. Moreover, Infrastructure projects have long concession periods, ensuring the stability of cash flows in the long run. Therefore, infrastructure REITs are set to attract tremendous demand from institutional and retail investors alike.
Policy incentives spur the growth of infrastructure REITs
The Chinese government has rolled out supportive policies to encourage infrastructure investment and financing innovations like REITs. Infrastructure REITs are written into the 14th Five-Year Plan as a key innovative financial instrument. Favorable tax policies are implemented to boost the yields of REITs products. The loosened restriction on foreign institutional investment in Chinese securities also brings more international capital. With policy tailwinds, China’s REITs market expects accelerated growth and greater openness.
Infrastructure REITs channels long-term funds to quality assets
Infrastructure projects require massive long-term capital investment. However, the financing channels are often limited to bank loans and government fiscal budget. Infrastructure REITs enable the securitization of quality assets and channel more long-term funds from institutional investors like insurers and pension funds. This aligns the needs of investors looking for stable yields and infrastructure projects seeking low-cost financing. The virtuous cycle facilitates the development of infrastructure and expansion of REITs market.
In summary, the huge infrastructure stock, stable cash flows, policy incentives and long-term funding demand constitute the key drivers of China’s burgeoning infrastructure REITs market. Trillions of dollars in REITs assets are expected in the coming years, presenting enormous opportunities for domestic and global investors.