REITs provide an alternative way to invest in income-producing real estate. Similar to mutual funds, REITs allow investors to earn dividends from real estate investments in projects like offices, industrial parks or highways without having to buy or manage the project.

Institutional investors have shown much interest in putting strategic placement on REITs, with the new economy-themed REIT issued by Guotai Junan Securities Asset Management on Sept 20 as one of the best examples. With a plan to issue 500 million shares priced at 3.035 yuan ($0.422) each to raise a total of 15.18 billion yuan, the product received nearly 12.4 billion shares of subscriptions. In other words, investors are bidding with a total of 37.5 billion yuan to get a fair share of the REIT.

The underlying assets of Guotai Junan's new REIT — one industrial park in Shanghai's Jinshan district and another three in Kunshan, Wuxi and Changzhou in Jiangsu province — comprise the major reasons for investors' pursuits, said Zhang Zheng, deputy head of the Guanghua School of Management at Peking University.

As Zhang further explained, the weighted average lease term of the four industrial parks is between 6.47 and 7.37 years, according to public information. Rentals are estimated to increase by 3 to 5 percent annually, showing strong growth resilience in the long run, he added.

Shanghai-headquartered infrastructure solutions provider DNE Group manages the operation of the four industrial parks. According to DNE's chairman and CEO Sun Dongping, most tenants at the parks are "new economy companies" specializing in precision instruments, automobile equipment, information technology, new materials, environmental protection equipment and biomedicine, whose prime businesses are very much in accordance with China's development strategies.

In addition, the four industrial parks had all the spaces rented out by June 30. No tenant terminated the lease earlier this year when a resurgence of COVID-19 cases hit parts of the country, said Sun.

As Zhang of Peking University further explained, the smart or high-end manufacturers at DNE's four industrial parks usually invest significantly in facilities and equipment before they get started. Furthermore, they are more reliant on the neighboring logistics networks and supply chains, which means these companies tend to be more stable in terms of lease renewals, which can be translated into stable profit for the infrastructure REITs derived from them, he added.

The DNE REIT product has been introduced at a time when the local governments in the Yangtze River Delta region are looking for new paths to revitalize the existing assets in the area so that high-quality development can be secured.

According to the second batch of policies jointly released by the local governments of Jiangsu and Zhejiang provinces and Shanghai in mid-September to advance the integrated development of the Yangtze River Delta region, REITs products should be rolled out in infrastructure sectors including transportation, water conservancy, environmental protection, logistics, industrial parks and government-subsidized rental housing.

"The capital market should serve as an important link so that cross-regional project management models can be nurtured," said Hua Yuan, deputy secretary-general of Shanghai municipal government.

Sun of DNE said that local government support is crucial to the successful release of REITs, as they require concerted efforts from government departments covering tax services, natural resources, real estate registration and more.

China's first batch of nine REITs started trading on the Shanghai and Shenzhen bourses on June 21, 2021.

Public data show that a total of 17 REITs had been listed on the Shanghai and Shenzhen exchanges by the end of August, raising nearly 58 billion yuan. While these REITs have covered the sectors of logistics, warehouses and clean energy, among others, expressways and industrial parks account for the majority of underlying assets, taking up 51.4 percent and 17.2 percent, respectively, of the issued REITs in terms of total financing.

Li Chao, vice-chairman of the China Securities Regulatory Commission (CSRC), said on Aug 31 that REITs make up an integral part of the capital market. The maturity of REITs will help to complete the country's overall investment and financing mechanisms and deepen supply-side reform in the financial sector, he said.

The CSRC, the country's top securities watchdog, together with the National Development and Reform Commission, released in late August a total of 10 measures to ensure the "normalized issuance" of REITs, including giving green lights to REITs based on privately-owned enterprise projects and promoting REITs legislation.

According to experts from professional services provider Deloitte, REITs trading has helped to build a complete value chain linking initial investment, construction, operation, capital exit and re-investment. An infrastructure project's liquidity is significantly enhanced once included in REIT trading, they said.

Zhang Yu, chief property analyst at China International Capital Corp Ltd, said that the trading of REITs in the secondary market will help provide an extra channel to trade assets, elevate market transparency, lead to rational pricing and stabilize market operation.

Lu Dabiao, executive vice-president of the Shanghai Stock Exchange, said at the 2022 Tsinghua PBCSF Global Finance Forum in mid-April that the governance mechanism, market-making mechanism and information disclosure for REITs should be further optimized to promote operational efficiency of REITs.

To facilitate the sustained development of REITs in China, Mo Yifan, a fund manager from China Asset Management, suggested that social security funds, annuities and the personal pension scheme should be considered to participate in REITs trading, as long-term and value investment are beliefs held by all.