LITTLETON, Colorado, Sept 19 (Reuters) - The deepening debt crisis in China's construction sector - a key engine of economic growth, investment and employment - may trigger an unexpected climate benefit in the form of reduced emissions from the cement industry.

Cement output and construction are closely correlated, and as China is by far the world's largest construction market it is also the top cement producer, churning out roughly 2 billion tonnes a year, or over half the world's total, data from the World Cement Association shows.

The heavy use of coal-fired kilns during manufacturing makes the production of cement a dirty business. China's cement sector discharged 853 million tonnes of carbon dioxide in 2021, according to the Global Carbon Atlas, nearly six times more than the next largest cement producer, India.

The cement sector accounts for roughly 12% of China's total carbon emissions, according to Fidelity International, and along with steel is one of the largest greenhouse gas emitters.

But with the property sector grinding to a halt due to spiralling debt worries among major developers, the output and use of cement are likely to contract over the next few months, with commensurate implications for emissions.

HOUSING SLUMP

The property markets account for roughly a quarter of China's economy, and for years Beijing has used the sector's substantial heft to influence the direction of the rest of the economy by spurring lending to would-be home buyers and fostering large scale construction projects.

But the big property developers racked up record debt loads in recent years that have forced borrowing levels to slow, stoked concerns among investors, and slowed spending across the economy.

China Evergrande Group, once the second largest developer, defaulted on its debt in late 2021, while top developer Country Garden has drained cash reserves to meet a series of debt payment deadlines in recent months.

Fears of contagion throughout the property industry has spurred households to rein in consumer spending, which has in turn led to deteriorating retail sales and further economic headwinds.

Beijing has stepped in with a slew of measures designed to right the ship, including easing borrowing rules for banks and lowering loan standards for potential home buyers.

But property prices in key markets remain under pressure, which has served to stifle interest among buyers and add to the pressure on investors and owners.

CEMENT CUTS

With construction activity across China slowing, and several major building sites stopped completely while tussles over debt payments among developers continue, cement output is likely to shrink to multi-year lows by the end of 2023.

During the March to August period, the latest data available, total cement output was 11.36 million short tons, down 2 percent from the same period in 2022 and the lowest for that period in at least 10 years, China National Bureau of Statistics data shows.

In addition to curtailing output in response to the bleak domestic demand outlook in the property sector, cement plants may be forced to curb output rates over the winter months as part of annual efforts to cap emissions from industrial zones during the peak season for coal heating.

Some cement producers will likely look to boost exports in an effort to offset lower domestic sales, and in July China's total cement exports hit their highest since late 2019.

But Chinese firms will face stiff competition from lower-cost counterparts in Vietnam, which are by far the top overall cement exporters and already lifted overall cement shipments by close to 3% in the first half of 2023, data from the Vietnam National Cement Association (VNCA) shows.

Some Chinese firms may be prepared to sell exports at a loss for a spell while they await greater clarity over the domestic demand outlook.

But given the weak state of global construction activity amid high interest rates in most countries, as well as the high level of cement exports from other key producers such as India, Turkey, United Arab Emirates and Indonesia, high-cost Chinese firms may be forced to quickly contract output to match the subdued construction sector.

And if that's the case, the sector's emissions will come down too, yielding a rare climate benefit to the ongoing property market disruption. The opinions expressed here are those of the author, a columnist for Reuters.

(Reporting By Gavin Maguire; Editing by Miral Fahmy)