One in five Chinese LED lighting companies may fail this year as falling
prices and oversupply batter an industry that Beijing bankrolled to try
to build an energy-efficient future.
About 4,000 companies in China
are producing LEDs, or light emitting diodes, tempted by tax breaks,
subsidies and offers of cheap land for factories. Now they are locked in
intense competition that has halved prices over the past three years.
as over-investment and sagging exports dragged down Beijing's solar
panel and wind turbine champions, China's much-hyped LED lighting
sector, the largest in the world, is now facing a drastic shake-up.
is making LEDs these days. The industry is a mess," Irving Pun, global
marketing director of LED maker Civilight Shenzhen Semiconductor
Lighting Co Ltd, said in an interview.
"This is a typical problem
associated with China," he added. "Whenever a new industry is introduced
here, a huge swarm of speculators will descend upon it and quickly turn
it upside down."
Civilight's multi-story LED light factory in
Shenzhen is surrounded by dozens of rival manufacturers. In 2006, when
Pun and his colleagues set up the company, they were pioneers in an
industry the central government was determined to promote as part of
China's drive for green technology.
Beijing has set a target for
LEDs to account for 30 percent of the domestic general lighting market
by 2015, more than triple the current level. That would cut annual coal
use by 35 million tonnes, according to official estimates.
of China's lights were LEDs, the electricity saved would be 2.5 times
that of the annual output of China's Three Gorges Dam, the world's
largest hydropower project by capacity, analysts say.
demand is weak. Despite subsidies and the promise of reduced power
bills over time, Chinese households have been slow to switch to LEDs
because they are still much more expensive to buy than conventional
lights. Quality issues have also hurt consumer confidence.
least 20 percent of Chinese LED lighting firms may be forced out of
business, according to industry experts and even some LED company
"Many small LED lighting companies are suffering and
may not see light at the end of the tunnel," said Wei Li, board
secretary of Dongguan Kingsun Optoelectronic Co Ltd, a leading Chinese
LED street lighting manufacturer.
"There won't be so many
enterprises five to 10 years from now," she told Reuters by phone from
the firm's headquarters in the city of Dongguan in southern Guangdong
province, an LED manufacturing centre.
Industry consolidation may
temporarily disrupt the world's LED supply chain given 60 to 70 percent
of China's capacity is built for exports, analysts say. But in the long
run, the shakeout should lead to a healthier Chinese LED industry and
hence better quality products.
Shares of the more than two dozen
Chinese LED players listed in China and Hong Kong, some of which
attracted private equity investment before their listings, have tumbled
as their profits evaporated. Ledman Optoelectronic Co Ltd is down 48
percent from a March peak, and Shenzhen Unilumin Group Co Ltd has lost
Foreign lighting titans including Philips Electronics
NV, Osram - partly owned by German engineering conglomerate Siemens AG
and General Electric Co should emerge as winners due to their financial
clout and technical expertise, industry experts say.
Osram, which have traditionally focused on conventional lighting in
China, have ramped up production of LEDs. Osram, which employs 8,000
people in China, started construction of its first-ever LED chip
packaging plant in China in August, a 100,000-square-metre complex in
the eastern city of Wuxi, using chips made in Germany and Malaysia.
winners may include Kingsun, Foshan Electrical and Lighting Co Ltd, NVC
Lighting Holding Ltd, Elec-Tech International Co Ltd, Shenzhen Unilumin
and Shenzhen Refond Optoelectronics Co Ltd, analysts say.
far, LEDs are mainly used in street lighting, shopping malls, upscale
hotels and office buildings. To accelerate a broader shift to efficient
lighting, China in October started to phase out wasteful incandescent
bulbs, joining other countries like the United States and Japan.
diodes, semiconductors that convert electrical current into light, are
much more efficient than the two dominant products for home and
commercial lighting, compact fluorescent lamps (CFLs) and incandescent
bulbs. LED lights are longer lasting and up to 10 times more efficient
than incandescent bulbs.
Some industry experts predict that within
10 years, these lights will deliver more environmental and economic
benefits than any other clean technology, including high-voltage power
transmission, electric vehicles, smart grids or renewable power.
North America, LED-based lights account for about 8 percent of the
general lighting market, according to a 2012 report on the global LED
sector from consultants McKinsey.
The use of these lights in the
United States alone has saved 2.6 terawatt hours of power per year,
equivalent to the electricity needed to power over 200,000 average U.S.
households, according to a 2011 research report prepared by Navigant
Consulting Inc for the U.S. Department of Energy.
In China, the
world's top energy consumer and carbon emitter, general lighting
accounts for 12 percent of annual electricity consumption. About 70
percent of China's electricity is generated from coal.
the anticipated shakeout, Beijing remains committed to the industry.
The Ministry of Science and Technology said last summer it planned to
create a 500 billion yuan LED lighting industry by 2015.
plans to nurture 20 to 30 technologically competitive industry leaders
involved in LED chip making, packaging or fixture manufacturing, and
nominated the sector - now with an annual output value of about 200
billion yuan- to receive further government support.
It did not identify the leading firms.
Lin, senior analyst at international LED consultancy LEDinside in
Shenzhen, said they may include some listed companies as well as
unlisted players such as Shenzhen Spark Optoelectronics S&T Co,
Shenzhen Collection Enterprises Co and French-invested Zhongshan Juneng
Hi-tech Optoelectronics & Lighting Co.
Chinese LED makers
currently rely heavily on foreign companies for chips, which account for
half of the production cost of the lights. Bringing that technology
back home would help reduce costs. Lower costs and advances in
technology are crucial if China is to meets its LED goals.
a global trend, the Chinese LED lighting market will likely see a
compound annual growth rate of over 40 percent through 2016, making up
46 percent of the country's overall general lighting industry, the
McKinsey report said.
"I believe the LED era will come one day,"
said Zhu Jianqin, executive director of Hong Kong-listed TCOrient
Lighting Holdings Ltd, which is mainly involved in LED road lighting
© Thomson Reuters 2013