Infrastructure REITs and the default risk of SOEs in China

Wenkai Kong, Yiqin Mei, Kaibei Lin and Yiyao Xu

Journal of Chinese Economic and Business Studies, 2025, vol. 23, issue 2, 143-164

Abstract: State-owned enterprises (SOEs) play an important role in China’s infrastructure-based real estate investment trusts (REITs) pilot. This study summarises the characteristics of the nascent REIT regime and examines the impact of REIT-related financing on default risk among SOEs focused on infrastructure investments. It utilises the expected default frequency (EDF) based on the KMV model to measure the default risk. A panel model and propensity score-matching difference-in-differences method (PSM-DID) are employed for empirical analysis. The results show that issuing REITs could heighten SOEs’ short-term default risk due to overinvestment and a reduction in mature assets. Additionally, motivation behind SOEs issuing REITs and other potential risks in establishing a new market segment are discussed. This study provides valuable insights for SOEs issuing REITs for infrastructure investments and contributes to the research on sustainable development of SOEs and infrastructure.

Date: 2025
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DOI: 10.1080/14765284.2024.2435225

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