Could a simple change of name get real estate investment trusts off the ground in China?
Many Chinese officials have resisted calls for Reits, seeing them as just another source of funds for irresponsible developers whose borrowing has fuelled the property bubble
When China’s most famous philosopher, Confucius, said “If the name is not correct, the words will not ring true”, he probably wasn’t thinking about property investment schemes.
But his ancient words of wisdom could easily sum up an argument being put forward by advocates of real estate investment trusts (Reits) who believe their near-total absence in China may boil down to one simple thing: the name.
“So far, China hasn’t produced a real Reit, just quasi-reits. Why? For a long time, the Chinese translation has been incorrect, and our understanding of Reit is too narrowly defined. As long as Reit is mentioned we think of financing to developers. We have failed to see the full function of Reits,” Hong Lei, chairman of Asset Management Association of China (AMAC), told a Reits forum at Peking University on Tuesday.
The “real estate” part of Reit has long been translated into the Chinese term 房地產, which is more akin to “housing”, while AMAC and other industry bodies now encourage the translation to be “Fudosan” (不動產), the same term used in Japan. Fudosan calls to mind a much wider range of properties, anything from shopping malls, warehouses and factories to tollways, ports, pipelines and even vineyards.
The problem with 房地產 is that it tends to strike fear into the hearts of cabinet officials. They associate it with the kind of excessive borrowing by reckless developers that has inflated China’s housing bubble to its current bloated levels, and fear Reits would just hand them another financing channel with which to get around curbs.
Reits are a popular product across much of the world, and advocates have lobbied the Chinese government to embrace them for more than a decade, without success.
