China's New Net Zero Goal Can Benefit from Building Efficiency

Last month, Chinese president Xi Jinping announced his country’s pledge to reach carbon neutrality by 2060. Supporting policy is expected in the next 5-year plan due in March 2021. This policy will more than likely include an expanded role for energy efficiency in China’s building sector, which includes concrete, steel, and other sectors that the country has yet to decarbonize successfully. For domestic Chinese vendors, large opportunities in commercial buildings will likely arise in sustainable practices for new construction. For foreign vendors, opportunities will likely arise in meeting the accelerating demand for energy efficient appliances in the residential sector.

Commercial Buildings Create Opportunities in New Construction 

According to a 2018 report by Tsinghua University, China’s building sector represented 20% of the country's total primary energy consumption in 2016. Commercial energy demand is accelerating to accommodate higher average floor space per employee in China’s growing service economy. According to Guidehouse Insights’ Global Building Stock Database 2Q20, Chinese retail, office, and education verticals will see 10-year compound annual growth rates (CAGRs) above 3% from 2020 to 2029.

China has great energy savings potential with the increased adoption of passive and integrative design for new commercial and residential buildings, according to a paper by representatives from Lawrence Berkeley National Laboratory. This potential will likely mean growth in demand for materials such as envelope insulation, high performance windows, low carbon concrete, and secondary steel. Design-oriented approaches such as infiltration control, natural ventilation, and daylighting can also help minimize building loads.

Also according to the 2018 Tsinghua University report, energy from building materials and construction accounts for 20% of total life cycle energy consumption in buildings. Los Angeles-based HMC Architects has shown the potential of green building techniques in China with an official green pilot hospital for the Shunde Hospital of Southern Medical University, including natural ventilation, chilled beams, locally sourced building materials, and a host of other sustainable design practices. Other notable examples come from Broad Sustainable Buildings (BSB), a Chinese manufacturer of prefabricated buildings using secondary steel, low carbon concrete, and other integrative design approaches. In its recent 57-story Sky City building in Changsha, BSB’s approach to heating, cooling, and power resulted in 80% efficiency gains over conventional designs, potentially saving 15,000 trucks full of concrete.

Residential Building Expansion Correlates with Appliance Demand

China’s residential building market is also showing strong growth. Guidehouse Insights’ Global Building Stock Database 2Q20 forecasts Chinese multifamily and single-family construction to see 10-year CAGRs of 3.2% and 4.7% through 2029, respectively. As rising household incomes spur growth in the single-family residential segment, sales of kitchen and HVAC equipment will likely follow suit, as they correlate strongly with home sales. Vendors such as LG have bolstered profit margins (LG reported a 9.3% margin in fiscal 2019) through sales of premium energy-saving refrigerators and washing machines in US and European markets. As demand for these premium products increases in China—the world’s largest appliance manufacturing center—significant penetration growth can be expected in new urban developments and through upgrade purchasing in established urban markets.

A Goal Likely to Be Met

China’s net zero goal is ambitious but likely to be achieved considering China’s legislative record in support of reducing energy intensity. In a society-scale transformation like this one, vendors offering building efficiency solutions can seize opportunities to increase their presence in China, despite well-known challenges that foreign firms face doing business there. This net zero announcement signals future opportunities in China’s building efficiency market.