Japanese media: China is seizing the LCD panel market

Japanese media said that in the field of large-size LCD panels for flat-panel TVs and personal computers, the oversupply situation from mainland China may become increasingly serious. Before 2015, BOE and TCL will build and operate large factories in more than 8 cities in China. The South Korean and Taiwanese companies that had been developing rapidly in the 2000s had to turn to a defensive posture. "Red Panel" will bring drastic changes to the pattern of supply of LCD panels in East Asia.

Let us join hands and work hard for China to become a global manufacturing powerhouse! - Wang Dongsheng, chairman of BOE, stressed at a lecture in Beijing in late November. Its determination has been proven in the recent positive investment situation.

In June 2011, BOE put into operation in Beijing a panel plant with a large glass substrate (2.2 meters by 2.5 meters) called the "8.5th generation". Before summer 2015, factories of the same size will be put into mass production in Hefei and Chongqing in Anhui Province.

The construction fee for the 8.5th-generation factory will exceed 400 billion yen (approximately RMB 23.3 billion). If it does not include the 10th-generation factory of Sharp Japan Display Products Co., Ltd., which is jointly operated by Sharp and Taiwan Hon Hai Precision Industry Co., Ltd., this will be the world's most advanced factory.

Not only BOE, but also the plant of Huaxing Optoelectronics, a subsidiary of TCL's LCD panel in Shenzhen, Guangdong Province. A project was started next to a huge building 400 meters deep and 240 meters wide. In other words, following the 8.5th generation first factory that began production in August 2011, the second factory has already started construction.

If it includes Korean-funded and Taiwanese-funded enterprises, there will be a maximum of nine 8.5th-generation factories within two years in mainland China. US survey company NPD Display Search predicts that the share of production in the same foundry in China will reach 38.6% from October to December 2015, far more than that of Japan and Taiwan, followed by South Korea (45.7%).

However, the slump in the market for large LCD panels will continue for a long time. For example, AUO of Taiwan achieved final profit in 11 quarters from April to June 2013. However, some analysts pointed out that due to the oversupply of China's mainland, AU Optronics may once again fall into losses from January to March 2014.

Japanese companies such as Sharp have already given up their competition in the large-scale panel area, and have turned to the small and medium-sized panel area to find a way out. One of the reasons why Chinese companies seem to be inconsistent with the current trend of increasing production is the expectation that the LCD TV market will continue to grow. Li Dongsheng, chairman of TCL, believes that the supply of panels will increase by about 4% annually, and the market can digest; this is equivalent to the production capacity of an 8.5-generation factory.

Another reason is government support. In July, BOE decided to increase its capital by 46 billion yuan, while the main contributors were Beijing, Hefei and Chongqing municipal enterprises. In order to achieve industrial revitalization, local governments in China are providing funds that are less cost-conscious.

South Korea and Taiwan companies have already turned to a defensive position in order to avoid tariffs and promote production in China. In the past, South Korean and Taiwanese companies that used to have drastically increased production investment to take away Japanese companies’ market share and forced Japanese companies into business crisis. The response to rising Chinese companies is very limited. The last resort is to promote production directly in mainland China. South Korea's Samsung Display Co. launched a factory in Suzhou City, Jiangsu Province in October and is at the forefront of other companies.

In April 2012, the Chinese government reduced the import tariff of LCD panels, which was previously reduced to 3%, to 5%. It is considered to be aimed at reducing the import of this field to 50 billion U.S. dollars each year. And more and more rumors say that by 2014 import tariffs will increase to 8%. In order to reduce the tariff burden, related companies have to organize production in mainland China.

Another major countermeasure is to look for sources of revenue other than TV LCD panels. Han Xiangfan, CEO of South Korea’s LG Display, made it clear that “the focus of investment will shift to organic EL panels”. Samsung will also adopt the same guidelines for expanding television panel production. Taiwan's Innolux will actively develop business needs such as factory equipment. However, the popularity of organic EL TVs has been slow, and the commercial market has also taken a lot of time to develop.

Japanese companies are shifting the device and materials industry from China to Japan. The liquid crystal panel manufacturing equipment and materials manufacturers with high global share are attracted by Chinese companies and are shifting production to China. Tokyo Electron began supplying its first overseas production base in Kunshan, Jiangsu Province in August, supplying the etching equipment necessary for the manufacture of panel substrate circuits.

Although the past has been worried about the outflow of technology, Tokyo Electron has changed its policy because "only China's demand will keep growing" (Tokyo Electronics Co., Ltd. and president Hideo Toro). The production of Tokyo Electronics Yamanashi's subsidiary will be basically transferred to China within a few years. In the material field, Mitsubishi Plastics' production of a polyester film for backlight components in Suzhou started at the end of July 2013.

However, Chinese companies may also use supply capacity as a weapon to fully enter the small-to-medium size panel market in which Japan accounts for 30% of the global market share. Deutsche Securities senior analyst Yasuhiro Nakagi said: "Although the current technological strength gap is still great, but Chinese companies will pose a huge threat in the future."