Casting your mind back to the China of 2003 almost feels like an exercise in historical fiction.
With an economy barely larger than Italy’s, it was still underdeveloped and isolated. Plagued by power shortages, a delinquent banking system, and SARS — the brief coronavirus epidemic that resembled a trial run for COVID-19 — there was still little outward sign of the coming boom.
And yet the China of today is oddly reminiscent of a generation ago. With a four-year real-estate crash showing few signs of abating, construction of new housing is now back to the levels of the early 2000s. Just 132 million square meters of homes have been started in the four months through last month, according to government data this week. That is less than one-third of the level before the crash began in 2021 and the lowest total since 2003.
Illustration: Louise Ting
For all that has been written on the financial impact of China’s housing bubble bursting, that degree of slowdown suggests that we might still be underplaying the scale of this reversal as a shift in economic activity — and, importantly, the carbon emissions that result from it.
That is because the first commodity market to feel the impact of a slowdown in new home building is cement, one of the most polluting substances on the planet.
It is essential as the binder that holds concrete together, so it is one of the first materials to be used when developers break ground at a new site.
However, it accounts for about 8 percent of the world’s emissions and China’s consumption alone comes to nearly 4 percent of all carbon pollution.
Where housing starts go, cement quickly follows, and that is what we’re seeing right now. January-to-April cement output came to just 495 million tonnes, the lowest level since 2009. At that time, China was still filling in the details of what would soon become the biggest stimulus package in history. Those measures helped turn the country from a sweatshop for foreign manufacturers to a modern economy encrusted with brand new concrete infrastructure. We are now returning to those far-off pre-stimulus days.
What does that mean for the global climate? Each tonne of cement accounts for about 0.6 tonnes of carbon emissions, so the decline in annual output between 2021 and last year of roughly 550 million tonnes is already equivalent to reducing the emissions of the UK or Poland to zero.
It would be unwise to assume this is a blip. Real-estate declines can be persistent, thanks to the way they crystallize large-scale shifts in the demographic and financial makeup of the population. US housing starts have never recovered to more than 80 percent of the peak they hit in 2005, while the UK is running at barely half the level it reached all the way back in 1988.
There is good reason to think the same dynamic might be playing out in China. The great driver of the real-estate boom was urbanization. The population of its cities has increased by more than half a billion people since the 1990s, as hundreds of millions moved from farms in search of work. Hundreds of millions more were born in urban hospitals.
That has attenuated dramatically in recent years. You have to go back to the aftermath of the 1989 Tiananmen Square Massacre to find a time when China’s urban population grew as slowly. Last year, the increase was just 11 million — roughly half the rate that prevailed during the 2000s and 2010s, and barely one-third of the peak in 2011.
Set against such a small increase in demand, China is still arguably building too many homes. At an average 40m2 per person, you only needed about 433 million square meters to comfortably accommodate all the increase in urban population last year (considerably less, when you consider how many of the new urbanites were newborn babies). That is well short of the 537 million square meters of residential buildings that was completed.
New home prices are still falling in all but two of the 70 biggest cities and prices for established dwellings are dropping in all of them, suggesting there is a clear oversupply.
This tipping point cannot come soon enough. The process of urbanization was historically one of humanity’s dirtiest, as cement and steel were transformed into buildings linked together by gas-guzzling cars, railways and millions of kilometers of asphalt. Other urban booms might still come in India, Southeast Asia, Africa and elsewhere, but the end of China’s world-changing period of epic growth will at least provide a breather for a planet that has nearly choked on its effects.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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