China’s property crackdown may help cut pollution

While most economists believe that the strong expansion era in the country's home production has finished, they disagree on when and how quickly that activity would collapse.

It primarily depends on Beijing's willingness to go further in lowering the economy's dependence on house building to reduce carbon emissions in China.

State-directed pressure on the finances of real estate corporations hindered building, which in turn affected the economy.

According to Carbon Monitor, a real-time monitoring programme, the nation's carbon emissions grew at the fastest rate of any country. A year-on-year drop in industrial emissions was the first since coronaviruses were shut down in the early 2020s.

A Carbon Monitor researcher based in Beijing says that the emissions slowdown was caused by energy constraints that led energy-intensive companies, including steel, cement, aluminium and chemical plants, to reduce output, resulting in a significant drop in emissions. On the other hand, real estate building is a more potent tool for lowering emissions over the long run.

Over the last two months, there has been a decline in housing construction, and sales are still declining, suggesting that lower industrial output may outlast electricity shortages.

The massive demand for power in China's industrial sector, a large portion of which is dedicated to the home construction industry, generates the majority of China's emissions.

According to Bloomberg Intelligence, 42 per cent of China's steel output is fueled by real estate. New research shows that the addition of materials like cement, brick and linoleum, and the construction of buildings accounted for about 20 percent of the country's carbon emissions in 2018.

During China's last major property slump in 2015 and 2016, government statistics showed that the number of residences under construction had levelled off, resulting in decreased emissions.

"Investing in real estate is critical. As long as the property industry grows, you'll see more years with flat or declining emissions growth. "That is the opinion of Jan Ivar Korsbakken, a CICERO researcher in Norway who predicts China's emissions.

When it comes to the present downturn in China's housing market, it's unique in that it's a direct outcome of the government's directives to banks to reduce mortgage lending and funding to developers. Economists affiliated with the Chinese government say this might be a sign of Beijing's intention to alter the country's economic model away from relying on real estate.

As in the past, Beijing has intervened when a downturn in the property market threatens the economy. Analysts think that Beijing is more ready to accept slower development to achieve other objectives, such as financial stability.

Beijing's efforts might have a significant impact on greenhouse gas emissions if they go any further. Analysts agree on one thing, but they disagree on when and how quickly expansion in China's house output will slow down. While Beijing has promised to increase its urban population by around 10 million people each year over the next five years, it has not set a goal to build new dwellings.

China Center for International Economic Exchanges (CCIEE) vice-chairman Huang Qifan, a think tank with significant links to the central government, expects the real-estate building to shrink at an annual pace of roughly 3.5% over the next 15 years. During that time, urbanisation would hit its "limit," he said in a recent address.

Soochow Securities Chief Economist Ren Zeping expects China will create 1.1-1.35 billion square metres of new housing per year through 2030 owing to the country's fast urbanisation and desire for bigger homes.

By 2030, China will have added 169 million urban dwellers, according to Gavekal Dragonomics economists.

Real estate development might increase substantially while emissions decline if the industry can be made less "carbon-intensive," but this is not a certainty. More dwellings might be constructed with lower emissions in China if renewable energy output proliferates or new technologies like carbon capture emerge.

Despite this, the Chinese government has stated that it will continue to rely on fossil fuels for the majority of its energy needs until at least 2030, and progress on technologies such as carbon capture has been slow, which means that real estate will continue to be a significant emissions source in the medium term.

China's exports have accounted for around 10% of the country's emissions in recent years, and transportation accounts for almost the same percentage of emissions.

Although Beijing has been unwilling to name a year before 2030 when its emissions would peak, the enormous scale of the property industry may explain why there is uncertainty regarding the rate of building over the following decade.

However, there is a lot of uncertainty about how fast China can implement a clear and consistent transformation in its development paradigm," said Korsbakken.