The deepening debt crisis in China’s construction sector may have an unexpected climate benefit of reducing emissions from the cement industry. China is the world’s largest construction market and the top cement producer. The production of cement is a dirty business, with coal-fired kilns being extensively used. China’s cement sector is responsible for a significant amount of carbon dioxide emissions, making it one of the largest greenhouse gas emitters.

However, as the property sector grinds to a halt due to escalating debt concerns among major developers, cement output and usage are likely to contract, leading to implications for emissions. The property markets contribute significantly to China’s economy, and the sector has been used as a tool to influence the direction of the economy. However, record debt levels among big property developers have led to a slowdown in borrowing and spending, causing a slump in the housing market.

With construction activity in China slowing and major building sites halted due to debt payment disputes, cement output is expected to reach multi-year lows by the end of 2023. In response to the bleak demand outlook in the property sector, cement plants may also be required to reduce output rates during the winter months to cap emissions. Some cement producers may attempt to boost exports to compensate for lower domestic sales, but they will face intense competition from lower-cost counterparts in Vietnam, the top cement exporter.

Given the weak state of global construction activity and the high levels of cement exports from other countries, high-cost Chinese firms may be forced to quickly reduce output to align with the subdued construction sector. As a result, emissions from the cement industry are likely to decrease, providing a rare climate benefit amidst the ongoing disruption in the property market.

Sources: World Cement Association, Global Carbon Atlas, Fidelity International, China National Bureau of Statistics, Vietnam National Cement Association.