Page 8 - SCBJ-201612
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NA BRIEFING South China Business Journal
FDI in Green Buildings in China
– a Solution for its Affordable
Housing Problems?
Article by Dezan Shira
In July this year, China’s State Council released data Defining ‘green’ buildings in China
showing that the country is aiming for the construction of
3,500 new urban areas by 2030, with a collective capacity of China classifies green buildings as those that can conserve re-
3.4 billion residents – roughly half of the world’s population. sources (such as energy, land, and water), protect the environ-
Although met with criticism for being unrealistic, the target ment, and reduce pollution, and the country uses ratings to mea-
underlines a very real problem that the Middle Kingdom is sure a building’s effectiveness in meeting these standards. While
currently facing. there are a range of rating systems from different countries that
qualify, the two most dominant are China’s own Green Build-
As a result of China’s rapid urbanization – 56 percent by the close ing Evaluation Standard (GBES), and the U.S.’s Leadership in
of 2015 – demand for affordable housing in the country’s sprawl- Energy and Environmental Design (LEED). Foreign companies
ing metropolises has quickly outstripped supply. 60 percent of entering the market are therefore advised to plan their housing
households in cities with a population of more than seven mil- around one of these two systems.
lion are unable to afford basic housing at market rates, according
to research from McKinsey. The issue looks set to worsen in the National incentive framework for
future, with Chinese cities now regularly topping global rankings
for home price growth. green housing
It is therefore no surprise that the Chinese government is look- China’s preferential policies for green housing are a primary
ing to increase and make more affordable the supply of urban driver behind their commercial viability. Buildings that are rated
housing, reflected in an investment outlay of RMB 1.54 trillion 2-Star in an applicable classification system will enjoy a subsidy
(US$236.9 billion) in its affordable housing program last year – of RMB 45 per sq. m, while 3-Star buildings qualify for RMB 80.
but it isn’t any kind of home that the country is targeting. Along- The potential benefits of these subsidies shouldn’t be underesti-
side plans to boost the supply of housing overall are plans to mated. According to statistics on the incremental cost of Chinese
increase the supply of ‘green’ buildings, primarily to cut carbon green buildings, subsidies given by the national government to
gas emissions and help meet ambitious clean energy targets. The 2-Star buildings covered up to 68 percent of the incremental cost
country’s New Type Urbanization Plan for 2014-2020 mandates for residential buildings and 44 percent of public buildings, re-
that the share of green buildings in new construction rise from spectively, while the subsidy for 3-Star buildings covered up to
two percent in 2012 to a massive 50 percent by 2020. 66 percent and 50 percent.
The case for green affordable housing in China then becomes Additionally, China’s corporate income tax (CIT) law (中华人
clear. Because most Chinese domestic construction companies 民共和国企业所得税法) stipulates that costs incurred while
are still unfamiliar with green materials, there is a gap in the conducting R&D for green buildings in China can be deducted
sector that foreign firms with the necessary expertise are well from a company’s CIT payment. This means that the cost of the
placed to bridge. And while some may worry that constructing R&D will be reduced from the firm’s declared profits, resulting in
housing that is both green and affordable may not yield a return less being applicable for CIT.
on investment, China has a strong incentive framework in place
both nationally and regionally to ensure that investments made
are worthwhile.
6
FDI in Green Buildings in China
– a Solution for its Affordable
Housing Problems?
Article by Dezan Shira
In July this year, China’s State Council released data Defining ‘green’ buildings in China
showing that the country is aiming for the construction of
3,500 new urban areas by 2030, with a collective capacity of China classifies green buildings as those that can conserve re-
3.4 billion residents – roughly half of the world’s population. sources (such as energy, land, and water), protect the environ-
Although met with criticism for being unrealistic, the target ment, and reduce pollution, and the country uses ratings to mea-
underlines a very real problem that the Middle Kingdom is sure a building’s effectiveness in meeting these standards. While
currently facing. there are a range of rating systems from different countries that
qualify, the two most dominant are China’s own Green Build-
As a result of China’s rapid urbanization – 56 percent by the close ing Evaluation Standard (GBES), and the U.S.’s Leadership in
of 2015 – demand for affordable housing in the country’s sprawl- Energy and Environmental Design (LEED). Foreign companies
ing metropolises has quickly outstripped supply. 60 percent of entering the market are therefore advised to plan their housing
households in cities with a population of more than seven mil- around one of these two systems.
lion are unable to afford basic housing at market rates, according
to research from McKinsey. The issue looks set to worsen in the National incentive framework for
future, with Chinese cities now regularly topping global rankings
for home price growth. green housing
It is therefore no surprise that the Chinese government is look- China’s preferential policies for green housing are a primary
ing to increase and make more affordable the supply of urban driver behind their commercial viability. Buildings that are rated
housing, reflected in an investment outlay of RMB 1.54 trillion 2-Star in an applicable classification system will enjoy a subsidy
(US$236.9 billion) in its affordable housing program last year – of RMB 45 per sq. m, while 3-Star buildings qualify for RMB 80.
but it isn’t any kind of home that the country is targeting. Along- The potential benefits of these subsidies shouldn’t be underesti-
side plans to boost the supply of housing overall are plans to mated. According to statistics on the incremental cost of Chinese
increase the supply of ‘green’ buildings, primarily to cut carbon green buildings, subsidies given by the national government to
gas emissions and help meet ambitious clean energy targets. The 2-Star buildings covered up to 68 percent of the incremental cost
country’s New Type Urbanization Plan for 2014-2020 mandates for residential buildings and 44 percent of public buildings, re-
that the share of green buildings in new construction rise from spectively, while the subsidy for 3-Star buildings covered up to
two percent in 2012 to a massive 50 percent by 2020. 66 percent and 50 percent.
The case for green affordable housing in China then becomes Additionally, China’s corporate income tax (CIT) law (中华人
clear. Because most Chinese domestic construction companies 民共和国企业所得税法) stipulates that costs incurred while
are still unfamiliar with green materials, there is a gap in the conducting R&D for green buildings in China can be deducted
sector that foreign firms with the necessary expertise are well from a company’s CIT payment. This means that the cost of the
placed to bridge. And while some may worry that constructing R&D will be reduced from the firm’s declared profits, resulting in
housing that is both green and affordable may not yield a return less being applicable for CIT.
on investment, China has a strong incentive framework in place
both nationally and regionally to ensure that investments made
are worthwhile.
6
