Twenty years ago, when I first introduced the concept of REITs to China, few people knew what these five letters meant. Today, China's REITs market has moved beyond the pilot phase into a new era of regular issuance. This journey has taken two decades, which is not short, but in the grand narrative of China's financial reforms, it is also not long. Some media outlets have called me the "Godfather of China's REITs." Whether this title is accurate is not important; what matters is that the REITs financial instrument is now crucial for China's economy. To address the accumulating risks of local government debt, the central government has set the tasks of "exiting platforms, cleaning up hidden debt, and severing credit," along with a fairly urgent timeline. In this article, I will review the development history of REITs as a researcher and advocate, detailing the achievements already made. More importantly, I will propose the main directions for the continued advancement of China's REITs, enabling them to play a greater role in the country's economic and social development.
Where to start
The ability of REITs to resolve local government debt is already being recognized. The July Politburo meeting called for "building a solid safety net, stabilizing the real estate market, and implementing a package of debt resolution plans." Several key data points highlight the urgency of the debt resolution issue. As of the end of May 2026, the total outstanding balance of local government debt nationwide was approximately 58.2 trillion yuan. Among this, special debt was about 40.3 trillion yuan—marking the first time local government special debt has exceeded the 40 trillion yuan threshold. General debt was about 17.9 trillion yuan. As of June 2026, the total outstanding government debt stock was approximately 102.1 trillion yuan. This only covers explicit debt. According to budget report data, the total outstanding government debt balance at the end of 2025 (excluding local hidden debt) was about 96.05 trillion yuan. Although hidden debt has been significantly reduced, from a peak of approximately 14.3 trillion yuan to about 7.4 trillion yuan at the end of 2025, the stock remains substantial, and it has all been replaced by issuing new debt. In 2026, local governments need to issue 2.8 trillion yuan in new bonds to replace existing hidden debt. As of the end of April 2026, the issuance progress of the 6 trillion yuan special bonds for replacing hidden debt had exceeded 86%. Meanwhile, the repayment pressure of city investment bonds is reaching a historical peak. According to professional institutions, the scale of "maturity plus put options" for city investment bonds in 2026 is 4.2 trillion yuan, a historical high. Among this, the scale maturing within the year is 2.41 trillion yuan. As of March 17, 2026, the outstanding stock of city investment bonds was approximately 9.87 trillion yuan. More urgent is the timeline. The central government has decided that by the end of June 2027, financing platforms must fully withdraw from the government financing list, and hidden debt must be cleared. The year 2026 is a crucial year for tackling this challenge. How to tackle it? In which direction? Society as a whole is still in a state of confusion.
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Faced with such enormous repayment pressure, what are the current debt resolution methods for local governments? As mentioned earlier, the main approach is issuing new bonds to repay old ones, and issuing long-term bonds to repay short-term ones. Due to insufficient local fiscal capacity, to maintain operations and avoid defaults, localities have to continue borrowing "new to repay old." In April, the net financing of city investment bonds remained negative, still mainly focused on borrowing new to repay old. This leads to a vicious cycle: borrowing new to repay old does not reduce the total debt; it only pushes today's pressure to tomorrow. Issuing long-term bonds to repay short-term ones also does not reduce the total debt; it only extends the term. The debt remains, the principal remains, and it must be repaid eventually, leaving hope only that future inflation will dilute the debt. The State Taxation Administration's deployment of a "billing economy" special rectification in 2026 precisely aims to cut off the risk transmission path of "inflating revenue—obtaining credit—borrowing new to repay old" from the invoice end. What does this show? It shows that "borrowing new to repay old" is no longer just a financial measure but has evolved into a systemic risk. Inflating revenue to obtain credit, then using new debt to repay old debt. How is this resolving debt? It is rolling the debt ever larger. Even more concerning is the structural issue of special bonds. Local government special debt, from its first issuance of less than 100 billion yuan in 2015 to the planned issuance of 4.4 trillion yuan in new special bonds in 2026, has grown 44 times in scale. In China's government debt structure, treasury bonds account for 42.9%, local special bonds 38.8%, and local general bonds 18.2%. The central-local debt ratio is roughly 40:60, with special bonds accounting for 70% of local debt. This pattern of "controlling deficits, expanding special bonds" results in a large amount of debt being sunk in localities, whose repayment capacity cannot keep up. The issue of special bond project returns not meeting expectations also requires continuous attention, as the efficiency of debt fund conversion is not high. Some experts point out that the formation of this debt structure is closely related to the economic development model, fiscal system, and debt resolution needs. The problem is that the old model's debt cannot be solved by continuing the old model; a new model is needed. Relying solely on borrowing new to repay old, living beyond one's means, where will it end?
Thoughts on breaking the deadlock
To find a true path to resolution, one must first answer a question: where did all the money from local government debt go? The answer is very clear. The interest-bearing liabilities of city investment platforms are approximately 68 trillion yuan, of which over 70% was used for infrastructure construction, backed by assets such as roads, pipelines, reservoirs, industrial parks, and affordable rental housing. Although these debts are heavy, they are sunk into real assets. This leads to a key judgment: the root problem of local government debt is not "too much debt," but "sleeping assets." The government has accumulated a vast amount of infrastructure assets but lacks an exit mechanism to realize their value and repay debt. Under the old model, infrastructure cannot be sold; after completion, it can only recoup costs slowly through years of operation, forcing local governments and related enterprises to bear debt for many years. However, one issue must be addressed: who currently holds these assets? They are held by local city investment platforms, whose credit is backed by the local government. This makes it clear that creditors hold "government credit" rather than "the assets themselves." The central government has decided to "exit platforms, clean up hidden debt, and sever credit." If the platform exits, who gets the assets? Who bears the massive debt? How does government credit exit?
REITs: A socialized path avoiding platform privatization
A dangerous trend has recently emerged. Under the pressure of "exiting platforms, cleaning up hidden debt, and severing credit," some people want platform assets to exit through "management buyouts." This practice would provoke a strong social reaction, with people viewing it as "privatization." Such concerns are not unfounded. If the government, when "exiting platforms," sells to private enterprises, could any single private enterprise or group of enterprises absorb such a massive volume of public policy assets? Furthermore, selling platform assets to managers—the platform leaders themselves—turning them into private business owners, is both socially unfair and inconsistent with the original intention and direction of "exiting platforms." However, if no buyer is found, how can the government achieve "exiting platforms, cleaning up hidden debt, and severing credit"? Will it become empty talk? The REITs I introduced provide a completely different path for "exiting platforms, cleaning up hidden debt, and severing credit": not privatization, but socialization. The essence of REITs is to extract the income rights from real estate assets, process them into capital goods, and circulate them in the capital market. When government city investment platforms securitize infrastructure assets through REITs, these assets are not sold to private enterprises or specific operators but are publicly issued to the whole society—social security funds can buy them, insurance funds can buy them, public funds can buy them, and ordinary people can buy them too. In this way, the asset holder changes from the government platform to the "general public." We neither follow the old path of a "planned economy" nor the wrong path of "privatization." This is what I have repeatedly emphasized: "using REITs to achieve asset socialization." By holding REITs shares, the public can share in the stable income from infrastructure; local governments, by monetizing assets, obtain cash to repay existing debt or make new investments. This neither crosses the red line of "strictly prohibiting new hidden debt" nor effectively reduces the debt scale. More critically, REITs are equity-oriented, true asset securitization. They rely on the assets' own sustainable and stable income, not the credit endorsement of the issuing entity. Once a city investment platform sells assets to a REIT, it no longer needs government credit to back it up—government credit naturally exits, and the platform completes its market-oriented transformation. The relationship between REITs and city investment reform can be summarized in a clear logical chain: city investment bonds create a large stock of infrastructure assets → REITs securitize these assets, turning them into tradable financial products → city investment platforms obtain cash flow to replace debt and complete market transformation → ultimately achieving a clean break with government credit. Resolving local debt through REITs alone does not require additional funds because the funds are already embedded in these projects, existing in the form of liabilities. Promoting REITs for equity financing is about changing the way funds exist in the projects, shifting from government platform liability holdings to investor equity holdings. This is the fundamental reason I have persisted in promoting REITs for twenty years. It can both resolve local debt and avoid privatization. Using REITs to socialize public assets, letting the public hold them, letting the market price them, and letting the government exit credit endorsement. This is the correct path for China to resolve local debt.
Twenty years: REITs from concept introduction to regular issuance
In 2005, the concept of REITs was first systematically introduced to China. That year, I held an international REITs seminar at the Beijing Sheraton Hotel, inviting experts from Singapore and Hong Kong to introduce REITs, giving people an initial glimpse. In 2006, I promoted REITs in Tianjin with Mayor Dai Xianglong, planning a pilot to package and list property assets. In 2007, I further proposed that China's REITs should start with public assets like government rental housing and urban infrastructure. Why start with public assets? Because the REITs pilot was constrained by real estate control policies at the time. REITs were translated as "Real Estate Trust Investment Funds" and were seen by regulators as a means of real estate financing, making pilot cities face significant resistance. In 2014, I restarted the promotion of REITs, explicitly stating "using REITs to resolve local debt." By then, the volume of public assets held by local governments was already quite large. Starting with government infrastructure projects would make promoting REITs relatively smoother. I repeatedly called for REITs to resolve local debt as a win-win solution. In 2015, with support from the Development Research Center of the State Council, the REITs Research Group was established, with Chen Yuan, Vice Chairman of the National Committee of the Chinese People's Political Consultative Conference, as Chief Advisor, and myself and Liu Shijin as Co-Chairs. After another five years of effort, the China Securities Regulatory Commission and the National Development and Reform Commission jointly issued a notice in 2020, officially launching China's REITs journey. Twenty years of sharpening a sword. There were setbacks, misunderstandings, and periods of dormancy, but I always believed that REITs would eventually thrive in China. From the start of the pilot in 2020 to today, only five years have passed, but the achievements of China's REITs market are gratifying. In May 2021, the first batch of nine public REITs was approved for piloting, raising a total of 31.4 billion yuan. As of May 2026, 82 products had been established, with a total issuance scale exceeding 210 billion yuan. As of the end of March 2026, 79 public infrastructure REITs products had been listed in mainland China, with an issuance scale of 215.5 billion yuan and a total market value of about 221.3 billion yuan. The total initial offering scale across the market was 208.9 billion yuan, with an additional offering scale of 12.2 billion yuan, for a cumulative fundraising scale of 221.1 billion yuan. In five years, China's REITs market has completed the leap from pilot launch to regular issuance, a growth rate that is remarkable. The types of REITs assets are also becoming increasingly rich. Starting from basic infrastructure, it has expanded to include warehousing and logistics, industrial parks, affordable rental housing, clean energy, toll roads, and then consumer infrastructure. In December 2025, the National Development and Reform Commission expanded the REITs industry scope to 15 major categories. In June 2026, the first batch of commercial real estate REITs was officially listed on the Shanghai Stock Exchange, marking a breakthrough in China's public REITs market from infrastructure to commercial real estate, forming a pattern of comprehensive coverage across property categories. At the same time, we must clearly recognize that while the number of REITs products is growing rapidly, the scale of individual products and the total market value still lag significantly behind mature markets. China's REITs market is still in its early development stage, with enormous room for future growth.
Direction one: Introducing corporate REITs
The achievements in introducing REITs are gratifying, but the types of REITs products in China are not yet complete, and the institutional framework has significant room for advancement. One direction for development is the introduction of corporate REITs. Currently, all REITs in China adopt a contractual model, which governs the rights and obligations of multiple parties, such as fund managers and custodians, through contractual arrangements. Contractual REITs face significant structural challenges: the governance structure is not optimal, with a long chain of governance and complex rights and responsibilities; conflicts of interest are prone to arise between the original equity holders and other investors; capital operation flexibility is insufficient, and active management capabilities are weak. The international mainstream model is the corporate REIT. A corporate REIT operates as a joint-stock company, with a short decision-making path and high operational efficiency. Investors hold company shares rather than fund units and have legal personality. Management can independently decide on asset acquisitions and operations. Information disclosure is stricter, shareholder rights are clearer, and rights protection is more sufficient. The scale gap between corporate REITs and contractual REITs in the international market is several times. In the US market, contractual REITs account for only 9%, while corporate REITs account for 72%, or eight times that of contractual REITs. If China remains solely with the contractual REIT model for a long time, the REITs market will lack an important institutional pillar, fail to align with international mainstream models, and find it difficult to scale up. My suggestion is clear: introducing corporate REITs is an inevitable choice for the industry's development. Establishing corporate REITs in China does not require amending superior laws; it can be achieved through regulatory guidelines issued by the authorities. The pilot should still start in the infrastructure sector. Once corporate REITs are implemented, China's REITs market will move from a "single contractual" model to a more complete institutional stage, achieving a "dual-engine" drive from corporate and contractual REITs. More existing public assets will be activated, and greater debt resolution energy will be released.
Direction two: Supplementing REITs income with government purchase of services
The current promotion of REITs faces a practical challenge: a large amount of infrastructure has assets but no income, or the yield is too low to meet REITs issuance requirements. The rent-to-price ratio for public rental housing in first-tier cities is below 3%, while internationally, REITs typically require an annual yield of 6-7%. How can this gap be filled? I proposed a solution as early as 2007: using the "government purchase of services" approach to "fill in" the income of public assets. Public assets without rental income can, after being acquired by a REIT, have the government pay rent, which internationally is known as "sale and leaseback." This concept has mature international precedents. CoreCivic (formerly CCA, Corrections Corporation of America), one of the largest private prison operators in the world, is also a publicly traded REIT. Its business model is extremely specific: the government sells prisons to the REIT, and then the government, as a lessee, pays rent to the fund—a "sale and lease back." CoreCivic provides correctional and detention management services for federal, state, and local government agencies. In 2025, CoreCivic's revenue was about $2.211 billion, primarily from long-term contracts with government agencies. The logical essence of this case is: government purchases public services → forms predictable, stable cash flow → cash flow is securitized through REITs → social capital participates in investment → government recovers funds. The regular payments made by the government under the contract precisely meet the REITs requirement for "passive income"—stable, predictable, and non-operational. This method is fully applicable to China's public infrastructure assets with a public welfare nature, such as public rental housing, low-rent housing, subways, light rail, public transport, roads and bridges, reservoirs, and water, electricity, gas, and heating facilities. Because when user fees are insufficient to cover normal operations, it is entirely reasonable for the government to provide appropriate subsidies and purchase services to raise the yield. Comparing rent paid by private tenants to rent paid by the government, the latter is certainly more credible. In China, local governments hold a vast amount of public assets with "assets but low returns," urgently needing securitization through REITs. If we can incorporate government purchase of services into the compliant income sources of REITs, then a large number of assets that were previously difficult to securitize will be activated, including affordable housing, municipal infrastructure, urban renewal projects, and elderly care and medical facilities, all of which can enter the REITs project pool.
Outlook: Flourishing and promising future
I have long publicly predicted that China will become the world's largest REITs market. This judgment is not a prediction but an inevitable conclusion based on structural facts and a firm belief in advancing reforms. First, the asset base is the largest globally. The total assets of state-owned enterprises nationwide (excluding financial enterprises) are 402 trillion yuan, with state-owned capital equity of 109 trillion yuan. The infrastructure assets held by government platforms are about 120 trillion yuan. This massive stock of state-owned assets is the richest underlying asset pool for REITs. Second, the supply of funds is the most abundant globally. China's savings balance has reached 356 trillion yuan, of which household deposits are about 174 trillion yuan. With assets and funds, the only thing lacking is the institutional channel to bridge the gap between them. In the past, through bank loan channels, huge deposits were transformed into local government debt; in the future, more through REITs channels, a large amount of social funds can be transformed into holding capital. Third, the need for debt resolution is the most urgent. It is stipulated that financing platforms must fully exit by the end of June 2027. If existing assets cannot be revitalized within a year, local governments will face enormous liquidity pressure. The development of REITs is directly related to whether localities can smoothly complete debt resolution. Fourth, policy support is continuously increasing. Infrastructure REITs have transitioned from pilot to regular issuance, and commercial real estate REITs pilots have been implemented. Corporate REITs need to be moved from discussion to promotion as soon as possible. After laying the "water pipes" of policy, more "water sources" can be injected. Twenty years ago, when I proposed introducing REITs to China, few people knew what they were. Today, China's REITs market has moved from a stage of existence to a path of growth. However, corporate REITs have not yet been implemented, and government purchase of services has not yet been accepted as a compliant income source for REITs. If these two things are accomplished, China's REITs market will leap from the current scale of over 200 billion yuan to the trillion, multi-trillion, or even tens of trillions of yuan level. By then, REITs will be more than just a financial product in the capital market. They will become the main force for resolving local debt, the driving force for revitalizing state-owned existing assets, and the core channel connecting household investment with the real economy. China has the world's largest infrastructure asset base, the world's most abundant household savings pool, and the world's most urgent need to revitalize existing assets. These three "world's largest" factors determine that China becoming the world's largest REITs market is not a dream but an inevitable path. REITs in China are in full swing, with a promising future. We must work together to promote the early arrival of this day.
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