HONG KONG: 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.
Just 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.
“Everyone 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 per cent 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.
If half 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.
But domestic 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.
At least 20 per cent of Chinese LED lighting firms may be forced out of business, according to industry experts and even some LED company officials.
“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.