This China-LED. Org report gives a comprehensive overview of policy developments in China and the impact these subsidies are having on the industry as a whole. The subsidies drive industry developments, but oversupply is still a big problem. Similar to earlier Chinese reports LEDinside have translated, this one also highlights lack of industry standards hinders industry development.
There are no standard statistics on China’s LED industry size. The global LED industry market value is about EUR 50 billion (US $68 billion), and the Chinese market accounts for about 12 percent to 15 percent, roughly equivalent to EUR 6 billion to EUR 7.5 billion, said Li Zhijun, General Manager, Shanghai INESA. However, industry statistics indicate the Chinese LED market value is actually much larger valuing about RMB 350 billion (US$ 24.07 billion).
Industry insiders revealed Compound Fluorescent Lamps (CFL) have about 80% market share, but LED is starting to erode CFL market shares. At the same time, the general lighting market is expanding.
China’s Central government energy efficiency policies
China’s Ministry of Finance (MOF) and National Development and Reform Commission (NDRC) jointly published “Interim Measures on Administration of Financial Subsidies for Promoting High-Efficiency Lighting Products.” The measures included financial subsidies to promote CFLs, LEDs and other highly energy efficient lighting. In the following year, the NDRC and MOF initiated financial subsidy policies to promote CFL.
Under the promotion of these policies, the lighting industry has advanced rapidly, with obvious optimization in industry structure. Market surveys by NDRC’s green lighting division showed CFL and incandescent bulb production ratio has increased from 1:1.5 in 2007 to 1:1 in 2012.
The subsidies to promote high energy efficient lighting will be ending soon, according to the measure plans. Focus is now turning to implementing related LED subsidies in China.
Related central government departments are researching and promoting LED products and policy measures, but local governments have been much quicker to react.
Local governments take the lead in implementing LED subsidies
Local governments have been much quicker than China’s central government in implementing LED subsidies.
Guangdong Province, which has the largest LED industry size in China, has highest amount of subsidies. In 2013, Foshan in Guangdong Province, Dongyuan, Zhongshan and many other cities have launched subsidy projects to promote LED lighting products and applications. Chancheng District in Foshan City released a RMB 15 million subsidy for LED lighting products, while Dongyuan City is offering up to RMB 10 million for a LED construction project. In Zhongshan city, power costs saved by LEDs are all used to subsidize construction projects.
Jiangmen City in Guangdong announced a policy to support the development of strategic emerging industries including green lights. The project is aimed at subsidizing LED industry’s epiwafer, chips, package, applications, substrates, materials and other key industries or new expansion or equipment investments. Total equipment investments that reach RMB 50 million or below will receive 6 percent subsidy. Companies with equipment investments over RMB 50 million will receive 8 percent subsidy for the amount exceeded.
At the same time, “Shanghai’s 12th five-year plan for semiconductor lighting and industry development” proposed to upgrade 20 percent of Shanghai’s 40,000 streetlights to LED.
Moreover, Nanchang, Jiangxi Province will complete retrofitting public areas with LED lights before the end of 2015. Public lighting, state-owned enterprises and other state invested infrastructures and lighting construction projects will all use LED products, and prioritize procurement of “Nangchang Manufactured products”.
Yangzhou City in Jiangsu Province started procuring government subsidized LED luminaire products as early as 2010. According to the regulations, the related municipal government agencies must purchase LED luminaires or PV products made by local manufacturers for residential, building and other applications. The value of a single government purchase can be more than RMB 100,000, and manufacturers can receive up to 20 percent financial subsidy from the procurement.
Observations by industry insiders noted China’s LED industry is still in its early stages, and the lighting industry is facing a difficult transition. However, with more energy efficient subsidies, the industry faces oversupply issues as manufacturers pour in more investments in the industry.
NDRC and China’s Ministry of Industry and Information Technology (MIIT) recently discussed LED industry’s oversupply issue at a recent meeting, said a source familiar with the matter.
Lack of industry standards sabotage development of good quality products
Disorder in China’s LED industry deserves attention, according to industry insiders. “Insufficient LED lighting standards and poor interchangeability between different product brands, might result in bad quality products driving out good ones,” said Opple Lighting Chairman Wang Yaohai.
Not so long ago, Opple Lighting pointed out in an investor prospectus three major obstacles the LED industry faces—industry upgrade, lack of market regulations, and production management difficulties. Companies face risks of sliding market shares if they are unable to release attractive products to gain market share, and overtake competitors in R&D.
Kingsun Optoelectronic also noted there are many manufacturers in the LED industry, and market competition is intensifying. Under an oversupply situation, LED lighting products Average Selling Price (ASP) will fall, and bring overall industry profits down.
The surge of investments in the LED industry has outpaced industry expansions, explained Hangzhou Yuzhong Gaohong lighting Electrical Equipment Chairman Zhang Linfu. LED industry entry levels have been low due to lack of standards. With large numbers of manufacturers swarming into the industry, stable industry development has been undermined.
“LEDs will gradually replace CFLs, but LED’s long lifetimes will trigger industry restructures a few years later,” said Zhang.
A single 3W LED lamp, 5W CFL, and 25W incandescent bulb have the same light efficiency. As LED technology matures, LED lamps will have even longer lifetimes, and will last 25 times longer than incandescent bulbs, and more than three times that of CFL.
Therefore, manufacturers are focusing on expanding LED product applications. Future LED applications will extend beyond lighting, as well as periphery applications.
“Expanding lighting applications will become a major global lighting development trend,” said Li. “International manufacturers including Philips and Osram are also working on this issue.” Shanghai INESA and Chinese consumer electronic manufacturer Xiaomi have reached an initial agreement to collaborate on developing smart lighting and controls. Streetlights might also become the entry point for smart cities in the near future.
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