From Goldman latest Top of Mind on Chinese property:
Various commentators have pointed to China’s cement industry as one indicator of a property bubble, noting that China has produced and used more cement in the last few years than the United States did over the entire 20th century. Data from US and Chinese government sources compiled by the historian Vaclav Smil – and publicized by the blog of Bill Gates – show that China consumed 6.6 billion tons of cement in 2011-2013, vs. 4.5 billion tons consumed by the United States from 1901-2000.
China’s cement market has clearly undergone a very rapid expansion, but the statistic above is a good example of why it is important to understand the features specific to China’ housing market before drawing conclusions:
China’s population in 2012 was 15 times that of the United States in the early 20th century and 9 times that of the United States in 1950.
More important, China has been urbanizing at an unprecedented pace – not only when compared to the United States, but in a global historical context. Around 20-30 million Chinese relocate to urban areas each year, roughly equivalent to one-tenth of the United States’ population from the late 1960s up until the turn of the 21st century.
Unlike US homes, which typically use cement only for the foundation, China’s buildings (and housing in particular) are mainly made of concrete, requiring cement as an input.
Another large source of cement demand – approximately 40% – comes from infrastructure build-out including railroad construction. In April, China announced that it would complete 4,100 miles of new rail lines this year alone.
An estimated 25-30% of China’s cement capacity is low-grade cement not used in other countries (P.C. 32.5 grade). Short- sighted urban planning has led to widespread use of this cement despite its major drawbacks as an energy intensive building material that produces lower-quality buildings. Since cement is not recyclable, this has led to continued reconstruction and propped up overall demand. China announced in 2013 that it would gradually phase out the low-grade cement. Taking that capacity out of the market would lower the country’s cement consumption by 700-800 million tons per year, a level GS analysts consider more reasonable.