The deepening debt crisis in China’s construction sector has significant implications for emissions from the cement industry, ultimately leading to reduced emissions. With cement output and construction closely linked, China’s position as the world’s largest construction market and top cement producer results in high emissions due to the heavy use of coal-fired kilns in cement manufacturing. However, as the property sector faces a slowdown caused by mounting debt concerns among major developers, the output and use of cement are expected to contract, resulting in lower emissions.

China’s cement sector is responsible for approximately 12% of the country’s total carbon emissions, making it one of the largest greenhouse gas emitters. In 2021, China’s cement sector discharged 853 million tonnes of carbon dioxide, almost six times more than the next largest cement producer, India. However, as the property market experiences a slump, with major developers facing record debt loads and defaulting on payments, the production and utilization of cement are likely to decline.

The property market plays a crucial role in China’s economy, accounting for around a quarter of the country’s GDP. Government policies have historically used the property sector to influence the overall economy by encouraging lending to homebuyers and supporting large-scale construction projects. However, the increasing debt burden on major developers has led to concerns among investors, reduced spending, and deteriorating retail sales.

As construction activity slows and building sites face interruptions due to debt disputes, cement output is projected to reach multi-year lows by the end of 2023. In response to the bleak demand outlook in the property sector, some cement plants may curtail production. Additionally, emission reduction efforts during the winter months could lead to output rate restrictions. Cement producers may seek to boost exports to offset lower domestic sales, but they will face competition from lower-cost exporters in Vietnam.

Given the weak state of global construction activity and the high level of cement exports from key producers like India, Turkey, United Arab Emirates, and Indonesia, Chinese firms may need to quickly reduce output to align with the subdued construction sector. This contraction in cement production will result in a decrease in emissions, providing an unexpected climate benefit amidst the ongoing disruptions in the property market.

Sources:
– Data from the World Cement Association
– Data from the Global Carbon Atlas
– Fidelity International research
– China National Bureau of Statistics data
– Vietnam National Cement Association (VNCA) data

Note: This article is an adaptation of an article by Gavin Maguire published by Reuters.