Hong Kong Bauhinia Magazine:

Recently, the NDRC published a notice on comprehensively implementing the regular issuance of real estate investment trusts (REITs) in the infrastructure sector. The move has attracted significant attention from the capital market. What are the main changes in the regular issuance mechanism compared to the policies in the pilot phase? Thank you.

Zhao Chenxin:

I'll give the floor to Mr. Zhang to address this question.

Zhang Shixin:

Thank you for this question. The NDRC recently published a notice to promote the regular issuance of REITs in the infrastructure sector. This represents a significant step towards further advancing institutional and mechanism reforms in investment and financing while simultaneously fostering the development of a multi-tiered capital market. The move signifies that infrastructure REITs with Chinese characteristics have officially entered a new phase of regularized issuance.

Since the pilot program was initiated in 2020, the NDRC has recommended 67 infrastructure REIT projects to the China Securities Regulatory Commission (CSRC), including those involving offering new shares. Among them, 44 projects have gone public, raising 128.5 billion yuan in funds. The net recovered funds used for new investment have exceeded 51 billion yuan. These funds could potentially lead to a total investment of more than 640 billion yuan in new projects. Over the four-year pilot period, China's infrastructure REITs have seen continuous improvement in institutional arrangements and regulations, sustained growth in issuance scale, and a constant increase in asset types. Market performance remains generally stable, and related parties have become increasingly proactive in participating. Infrastructure REITs are gradually playing a significant role in promoting institutional innovation of investment and financing, deepening capital market reforms, and supporting the real economy. Therefore, the transition to the regular issuance of infrastructure REITs is underpinned by a solid foundation.

Based on the experience of this pilot program, the notice aims to establish a mechanism for regularly issuing infrastructure REITs. Guided by market-oriented and law-based rules, the notice upholds the principle of enhancing related institutional arrangements, standards and regulations while comprehensively improving the application and recommendation mechanisms. The new changes can be summarized in the following four aspects. First, the government review process has become more focused, with clear boundaries established between the roles of the government and the market. The notice specifies that the NDRC's review work will primarily focus on the basic requirements of the programs, their alignment with macro policies, compliance with investment-related regulations, and the use of recovered funds. The NDRC will no longer impose requirements on matters that should be decided by the market and implemented by businesses. Second, infrastructure REITs have been expanded into more sectors to further boost market vitality. New assets, including environmentally friendly and highly efficient coal power plants and elderly care-related infrastructure projects, have been added. The NDRC has also appropriately relaxed the requirements concerning offering new shares of specific projects and those with large-scale initial public offerings (IPO). The utilization of recovered funds has also become more flexible. Third, project application and recommendation administration procedures have been streamlined to enhance operational efficiency. In addition to simplifying administrative procedures and eliminating early-stage counseling, the notice specifies that provincial development and reform commissions or central state-owned enterprises (SOEs) are now authorized to submit applications directly. Concurrent with this, specific time limits for each procedure have been established. Fourth, the distinction between powers and responsibilities has been further clarified to ensure project quality. Maintaining the consistency of powers and responsibilities and strictly implementing the project withdrawal mechanism to promptly retract ineligible projects is essential. Additionally, more punitive and deterrent measures will be taken against institutions and agencies, as well as counseling and reviewing organizations that violate related regulations.

Moving forward, the NDRC will thoroughly study and implement the guiding principles of the third plenary session of the 20th CPC Central Committee. It will put into practice the decisions and plans of the Party Central Committee and the State Council and strengthen collaboration with the CSRC. Taking the publication of the notice as an opportunity, the NDRC will launch a series of programs on policy communication and interpretation. We will also expedite the establishment of supporting institutional arrangements and regulations while organizing training and exchange events. These efforts will facilitate the smooth implementation of regular issuance mechanisms for infrastructure REITs. Moreover, the NDRC will work to put idle funds to good use, further facilitate a sound flow of investment, and better leverage the capital market's role in supporting the real economy to bolster high-quality economic growth. Thank you.