By Samuel Shen

SHANGHAI (Reuters) - China's plans to launch real estate investment trusts (REITs) this year will provide a badly-needed source of funds for developers struggling to raise money amid stagnant sales, tight credit and a frozen IPO market.

While REITS are being introduced amid a global economic downturn, analysts say they will provide investors with a toe-hold in China's fast developing real estate market.

"In the short run, REITs are probably important to some of the local developers as a way to get financing for their new projects," said Alex Wang, Shanghai-based partner at U.S. law firm Paul, Hastings, Janofsky & Walker LLP.

"Given the difficulties to get financing in the credit market and in the equity capital market, REITs give developers an opportunity to securitise certain performing properties."

Launching a domestic REITs market is part of a financial reform package unveiled by the Chinese government last December to aid the rapidly slowing economy.

REITs buy properties from developers, providing an important source of funds and reducing the time needed to recoup initial investments, noted Shuai Hu, analyst at Haitong Securities Co.

More cash on hand should theoretically speed new development, spurring business activity and saving or creating jobs.

Development of China REITs will also allow foreign property investors to more easily exit the market in the long run and take profits. Firms such as Morgan Stanley (MS.N: Quote, Profile, Research) and Macquarie Bank (MQG.AX: Quote, Profile, Research) have been accumulating Chinese real estate assets.