China: Green Building China: Green Building

Page 1 of 6

Cathy Wang
Date (08/2008)

Summary

China’s construction industry is one of the world’s largest and offers vast export opportunities. Since
1999, China’s construction industry has grown at an average annual rate of 20%. The World Bank
estimates that by 2015 half the world’s building construction will take place in China. McKinsey Global
Institute estimates that in the next twenty years China will build nearly 40 billion square meters of floor
space, tantamount to between 20,000 and 50,000 new skyscrapers. Accompanying such growth, China
will account for 20% of global energy consumption well within the next decade. As such, all major
stakeholders, including private and public constituents, are increasingly realizing the need for
environmentally aligned and energy-saving building strategy.

China’s green building industry consists of architectural design, construction strategy, and lifetime
operation that attempt to keep accord with established sustainability principles and standards. This report
briefly discusses relevant market issues pertaining to the export potential of green building products to
China and with surveying the underlying materials and technologies being implemented in China green
building initiatives.

The bottom line is that green building, though often associated with higher initials costs, ultimately
increases market competitiveness and will receive further investment. With China’s green building
emerging as an upscale market with potential for much broader application, American companies should
consider market entry or expansion of green building product exports to China.

Market Demand

Natural Resource Defense Council, an NGO, estimates China’s energy consumption in manufacturing
and transporting building materials, constructing homes and offices, and temperature control of such
structures to be about 45% of China’s total energy use. China’s market demand for green building is
spurred by both increasing governmental concern in reducing energy consumption and increasing
international legitimatization and appreciation of environmentally sustainable building.

On the one hand, the Ministry of Construction has enacted a policy in which all cities must cut their
building energy use in half by 2010 and by 65% by 2020. Some cities, such as Beijing and Tianjin, have
already raised their minimum energy saving requirements to 65%. The Ministry of Construction also
plans to retrofit a quarter of existing public buildings to increase energy efficiency by 2010, as well.
According to one leading expert, for the past three years energy efficiency and environmental protection
goals have accounted for the bulk of active People’s Congress legislation to advance the development of
green building. In short, increasing regulation over energy efficiency and pollution prevention is
conducive to green building’s market value.

On the other hand, environmental concerns have increasing sway in shaping development and consumer
preference throughout China. When discussing motivations for green building, developers cite the
corollary benefits of international status and general corporate social responsibility best practice
recognition. Such status is evinced by the proliferation of certification systems that rate the environmental
success of green building projects.

By far, however, the United States Green Building Council’s Leadership in Energy and Environmental
Design (LEED) is expected by several southern China-based developers to remain the preferred

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 China: Green Building
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benchmark in the international community, for at least the next five years, and is steadily gaining currency
among private sector developers in south China. That LEED’s certification programs cover new
construction, commercial interiors, and existing building renovations suggests the wide range of
opportunities for green building products. Moreover, the fact that LEED is an American-based
certification positions American exporters well, in not only supplying approved green building products,
but also suggests such exporters’ ability to anticipate changing trends in the industry.

In concert with their pipelined and executed green building projects, south China developers are
launching market education initiatives, with “demonstration centers” showcasing “green lifestyle” benefits
that will help increase consumer awareness of the economic, social, and health advantages of going
green. That said, residential green building has been implemented mostly in upscale developments,
including villas, townhouses, and high rises. Though ultra-green economy housing remains unfeasible,
several projects underway in south China will cater to mid-income home buyers.

Market Data

Chart 1 World Trade Atlas

China - Imports -Total-
9405 Lamps & Lighting Fittings & Parts
Etc Nesoi
Millions of US Dollars

January - December
%
Change
Rank Country 2005 2006 2007 - 07/06 -
1 United States 15.965797 17.861621 23.220624 30.00
2 Germany 14.201918 17.306198 21.489526 24.17
3 Japan 22.513156 18.030087 18.425051 2.19
4 China 8.879530 7.749300 17.948396 131.61
5 Taiwan 12.885764 11.706867 15.464424 32.10

6 Italy 8.086563 8.910439 12.781792 43.45

7 France 5.395599 2.965031 7.914109 166.91
8 Korea, South 9.498521 9.123107 7.428770 -18.57

Chart 2 World Trade Atlas

China - Imports -Total-
5601 Text Wadding & Articles; Text
Fibers Nov 5 Mm, Etc
Quantity

January - December
%
Change
- KG - - KG -
Rank Country 2005 - KG - 2006 2007 - 07/06 -
1 Korea, South 4,140,015 3,435,494 2,705,536 -21.25

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2 Taiwan 5,855,306 4,501,235 2,525,475 -43.89

3 Japan 1,577,039 1,982,030 2,102,921 6.10
4 Germany 1,316,675 1,524,604 1,552,284 1.82
5 China 1,154,191 1,061,670 1,262,675 18.93
6 United States 1,090,550 661,256 1,197,406 81.08
7 Hong Kong 1,221,843 1,337,706 1,107,496 -17.21
8 Thailand 1,143,534 9,37,758 920,104 -1.88
9 Indonesia 542,666 376,027 684,182 81.95

Chart 3 World Trade Atlas

China - Imports -Total-
6810 Articles Of Cement, Concrete Or
Artificial Stone
Quantity

January - December
%
Change
- KG - - KG -
Rank Country 2005 - KG - 2006 2007 - 07/06 -
1 Taiwan 10,948,681 11,016,463 13,114,037 19.04
2 Korea, South 4,968,192 5,813,931 4,513,989 -22.36
3 Japan 534,730 2,768,482 3,980,734 43.79
4 Italy 8,236,668 5,603,523 3,842,019 -31.44

5 Spain 2,567,501 3,211,071 1,748,371 -45.55

6 United States 953,243 2,230,438 1,520,034 -31.85
7 Portugal 40,168 100,072 611,742 511.30
8 Czech Republic 122,089 635,935 600,442 -5.58
9 Malaysia 2,569,114 487,430 532,170 9.18

Source: China Customs Bureau

Chart 4 World Trade Atlas

China - Imports -Total-
3921 Plates, Sheets, Film, Foil & Strip
Nesoi, Plastics
Quantity
January - December
%
Change
- KG - - KG -
Rank Country 2005 - KG - 2006 2007 - 07/06 -
1 Taiwan 63,379,180 53,556,942 42,323,065 -20.98

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2 Korea, South 36,110,685 35,677,256 34,357,502 -3.70

3 China 18,455,329 18,958,634 20,822,889 9.83
4 Japan 15,657,980 16,154,921 16,762,750 3.76
5 United States 6,902,047 7,317,700 9,262,289 26.57
6 Germany 4,397,007 6,628,252 7,243,344 9.28
7 Italy 2,710,758 3,254,105 4,628,611 42.24
8 Hong Kong 6,096,195 5,116,008 4,294,363 -16.06
9 Netherlands 1,747,883 1,612,352 2,661,593 65.08

Source: China Customs Bureau

Best Prospects

The defining characteristic of the green building market in China is its nascence. As such, supply chains
for green building products have not solidified, and their development will pursue the most competitive
solutions. Several successful suppliers have introduced their products to consulting firms such as U.S.-
based EMSI, Holland-based DHV, Germany-based Siemens Building Technology - all of which have
strong presences in southern China.

Broadly, the areas of most potential for American exports include: energy efficient technology, systems,
and solutions; water efficient technology, systems, and solutions. Concrete products with the most export
potential include lighting, low E windows (glazing), structural envelope and roofing insulation, and HVAC
solutions. Commercial, high-end residential, hospitality sectors will constitute the main arena of green
building development. Nevertheless, government commissions for public buildings are also expected to
be quite widespread. The industrial sector holds less opportunity, as existing fixed capital is hard to
replace with green capital, especially when compared with retrofitting a residential structure.

What follows is a general list of products with export potential for green building: double-paned glass;
bubble concrete; roofing: XPS and EPS; variable speed pumps; advanced window glazing; motion
sensors; photovoltaic panels; prefabricated plaster wall; insulation products and systems; heating,
ventilation and air-conditioning (HVAC) systems; geothermal heat pumps; solar-thermal energy cooling
systems; heat recovery systems; automated management systems (lighting, temperature, and
appliances); CO2–free refrigeration systems; LED lighting; low VOC paints; low E windows; gray-water
treatment systems; recycled carpet underlay; lavatory flushometers; and motion sensors

Key Suppliers

• Sloan Valve Company (America)- Water-efficient lavatory flushometers and Motion sensors
• Siemens Building Technology (Germany) - Lighting products, Automated management systems
and consulting services
• Owens Corning (America) - Insulation products and systems
• Rapidwall (Australia) - Prefabricated walling system which collects coal-fired power plant and
chemical plant waste and transforms it into safe wall plaster. Municipal governments are already
recognizing products like Rapidwall and are providing cash incentives for even small residential
projects implementing such green technology.
• Insulating Technology (Australia) - Manufactures insulating paint that reflects the sun’s rays,
called Insulted
• Ilum-a-Lite (Australia, JV in China) - Designer and manufacturer of energy-saving products for
fluorescent lighting
• EnviroBond (Australia) - Manufacturer of carpet underlay made out of recycled PET bottles

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• York (America) - HVAC products

• Trane (America) - HVAC control software, and HVAC products
• Daikin Industries (Japan) - HVAC products
• Carrier Group, a unit of United Technologies Company (America) - HVAC products and HVAC
control software
• General Electric (America) - Lighting products
• Philips (Germany) - Lighting products
• Panasonic (Japan) - Lighting products
• Yaohua (Glazing company, China joint-venture) - Low E windows
• Honeywell Building Solutions (America) - Consulting services, and Automated management
systems
• EMSI (America) - Consulting services
• DHV (Holland) - Consulting services

Prospective Buyers

This is a representative sampling list of developers, design institutes, architecture firms, and investors
involved in several green projects in south and south eastern China: Vanke; China Merchants Property
Development (CMPD); Space Development; Shenzhen Fountain Group; Guangdong Tobacco
Monopoly; Guangzhou Design Institute; RTKL; Skidmore Owings and Merrill, LLP (SOM) Wachovia.

Market Entry Strategies

American exporters will remain most competitive in providing sophisticated green building technologies,
not only at competitive prices but also cater to southern China’s climate. One size does not fit all, nor is
LEED addressing local conditions in China. For example, LEED’s “sustainable wood” category does not
work in earthquake-prone China and would not meet existing regulations. Consistent with one major
party in Guangzhou, state-subsidized builders are keen to further develop an indigenous set of standards,
departing from LEED if possible.

Market Access Issues & Obstacles

The double-edged sword of green building is such that China is experiencing increasing demand for
green technologies while rising transport costs, both in terms of price and emissions, adversely affect
feasibility.

Materials, on the other hand, are - and will most likely continue to be - sourced locally, as is consistent
with LEED-recommended construction strategy. A Guangzhou developer, for example, decided against a
biomass power plant because of its inevitable remoteness from consumers at the given site, which would
have entailed additional development and transport costs. Additionally, the same developer was able to
locally source all its quotas for double-paned glass, bubble concrete, and XPS roofing from a combination
of Chinese and international firms.

Several other considerations are worth noting. First, one developer catering more to middle-market
residential demand remarked that turning “green into greenbacks” was not a matter of completely
embracing high technology but, rather, was a matter of integrating cheaper, conventional technologies
into green building.

Like technological improvements, attempting LEED certification, which is currently the most rigorous
certification process, is reliably an additional estimated price of 2-15% of project cost - a potential
disincentive for further green building prospects. But at least to the extent that green building increases
developmental costs, it also tends to integrate architect, green consultant, developer, project contractor,
government bodies, and equity investors in ways that can potentially lead to net capital costs savings.

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Indeed, several completed projects in southern China boast a net savings from adopting LEED-based
developmental strategy and will no doubt reap future savings in energy and water.

Finally, market education is still quite preliminary. Though upscale consumers are willing to pay a
premium for green, much market value remains to be realized through market education. According to
one developer in Shenzhen, by far the most important selling points for their residential units will be the
substantial economic benefits of green living, especially in energy and water saving. In this regard, the
receptive consumer audience - as with profit potential for green builders - is certainly expected to grow.

Trade Events

2008 Green Building and Energy Efficiency International Conference

Date: September 18-19, 2008
Venue: The Forum at Shanghai World Financial Center, Shanghai, China

For More Information

The U.S. Commercial Service in Guangzhou, China can be contacted via e-mail at: cathy.wang@mail.doc.gov;
Phone: 8620/8667-4011 ext 616; Fax: 8620/8666-6409; or visit our website: http://www.buyusa.gov/china/en/

The U.S. Commercial Service — Your Global Business Partner

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Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every
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International copyright, U.S. Department of Commerce, 2008. All rights reserved outside of the United States.

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