More investments likely in environmental infra system by 2030

As more financial tools will be adopted to promote the construction of urban environmental infrastructure, more investment is projected to come to this sector, further facilitating China's green development, industry experts said.

A guideline jointly released by the National Development and Reform Commission and three other government bodies on Thursday said China will establish a comprehensive, efficient, intelligent, green and safe modern environmental infrastructure system by 2030.

To help achieve the goal, qualified companies are being supported to issue corporate bonds and asset-backed securities to seek financing for urban environmental infrastructure projects as long as no new burden will be added to the local government's implicit debt, the guideline said. Eligible projects are encouraged to try out with infrastructure real estate investment trusts, or REITs.

Yin Zhongshu, an analyst from Everbright Securities, said REITs will help inject more vitality into the existing assets in the environmental protection industry, as more institutions will be attracted to this sector. The investing willingness of both State-owned capital and private capital will be buoyed by introducing REIT mechanisms in the environmental sector.

Modeled after mutual funds, REITs pool the capital of various investors. This makes it possible for individual investors to earn dividends without buying or managing any properties. Specializing in a specific real estate sector, REITs also help increase construction efficiency by seeking public financing.

China's first batch of infrastructure REITs began trading on June 21, with five trading at the Shanghai Stock Exchange and four at the Shenzhen bourse. The nine products covered specific areas such as highways, industrial parks, storage and logistics, as well as sewage treatment.

Meanwhile, eligible environmental infrastructure projects will be included in local government special bonds. Development and policy banks should give full play to the mid to long-term loans to better support the construction of environmental infrastructure, the guideline said.

The A-share listed companies with businesses related to environmental protection saw their prices rise by 0.73 percent on average on Thursday, compared with the 0.17 percent increase for the day of the benchmark Shanghai Composite Index, which closed at 3485.91 points.

Specifically, the A-share sewage treatment sector climbed 0.79 percent on Thursday, with companies such as Kingland Technology and Fujian Haixia Environmental Protection Group going up the daily limit of 10 percent.

GF Securities analysts wrote in a report that environmental protection may become a major investment theme for 2022. As policies have stressed that construction concerning urban environmental infrastructure should be accelerated, specific industries are likely to see their profitability improve as market demand is projected to build up.

The sectors of waste incineration and regeneration may see their business peak in the following months. Companies specializing in environmental protection, monitoring and governance have shown better-than-expected interim results for 2021 and their orders are expected to surge during the 14th Five-Year Plan (2021-25) period.

But institutional investors only hold a limited position in these companies at present. Individual investors should closely watch for opportunities in these companies, analysts from GF Securities said.