A Strong Foreign Role in China’s Green Building Industry

In the words of the 12th Five Year plan, “The construction industry will promote green architecture, green construction, concentrate efforts on optimizing structure and service mode by using advanced construction, materials and information technology.”(1) Green building in China is still in its nascent stages, but is receiving increasing government attention – signaling future opportunities, including those for foreign players.

Opportunities in this sector vary dramatically geographically, with energy savings from buildings more promising in northern China due to the cold winters and mild summers. In fact, keeping in line with developing technology, there is 85 percent potential energy savings in residential buildings’ heating and cooling systems in the northern part of China by 2030, according to a McKinsey study.

Government Policy and Incentives

Government policy only contributes to this potential, in terms of building requirements and specific financial incentives. For example, the Ministry of Housing and Urban-Rural Development (MOHURD) building requirements include a stipulation for heat-measuring systems in residential and commercial buildings (in which electricity bills will be calculated based on the actual consumption per household) and local governments to complete retrofits for 35 percent of residential buildings in northern provinces by the end of 2015. Similar incentives are present on the local level as well; for example, Tianjin’s Binhai New District provides lump-sum awards in the amounts of RMB 100,000, RMB 200,000 and RMB 300,000 to projects receiving one, two and three stars from the Ministry of Housing and Urban-Rural Development (MOHURD) and green building certification pursuant to the MOHURD’s Green Building Evaluation Standard.(2)

Foreign Involvement

Foreign players are already playing a significant role in China’s green building sector, perhaps a larger role than in the production of renewable energy. Various initiatives such as the Econet China, the German Energy Center & College or the Global Green Building China Focus in June 2011, give foreign companies opportunities to showcase and promote their solutions to better open up the market for themselves.

Shanghai is also home to the world’s most energy-efficient building, Hamburg House, the German city’s independent pavilion at the 2010 Shanghai Expo. The project was financed 50 percent by the Hamburg and 50 percent by Shanghai, and is China’s first in “passive house” construction style.

One of the largest areas of foreign involvement in green building is the development of green building standards. The Chinese Green Building Label, officially launched by the Chinese government agency MOHURD (Ministry of Housing and Urban-Rural Development) in 2007, is built upon the American LEED green building system and the German DGNB system, with additional contributions from the British BREEAM system and the French HQE. The system is receiving a great deal of government support and is likely to become more prominent then the currently dominant American LEED system. Thanks primarily to low certification costs in comparison to other systems and successful marketing, LEED –  an American building standard introduced in March 2000 by the U.S. Green Building Council - is currently the green building standard of choice among the majority of Chinese building owners, investors, and operators. Criticism of LEED, including its limitations as a design tool, inability to measure a building’s actual performance, and lack of requirements for inspectors on the building site to examine building material, nor measurements of actual building design outcomes, has caused certain experts to predict that the Chinese market requires an alternative (effective, yet affordable) green building system. Whether an alternative foreign building system or the Chinese green building design and evaluation label will fill this role is yet to be determined.

One notable example, the Shanghai Tower currently being constructed in Lujiazui by the global architecture firm, Gensler, is going for both LEED and the China Green Building Council’s standard. The 128 story building is to be completed in 2014 and has an asymmetrical, twisted shape, which reduces the wind load by 24 percent, thereby massively decreasing building material quantity. A double skin design, with air between the glass facade and the inner structure acting as insulation, saves heating and cooling energy. The designers also plan to collect rainwater to be used for the tower’s heating and air conditioning system and install wind mills on the roof. 

Dezan Shira & Associates is a specialized foreign indirect investment practice, providing business advisory, tax, accounting, payroll and due diligence service to multinationals investing in China, Hong Kong, India, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with nineteen offices in four jurisdictions, employing over 170 business advisory and tax professionals.

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