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Mainland China Reveals Ambitious LED Industry Roadmap

Aiming to grab 30% of Global Market for LED functional lighting by 2015

2014/02/18 | By Ken Liu

By JENNY WU

LED makers exhibited trendy products at the LED China 2013 trade show.
LED makers exhibited trendy products at the LED China 2013 trade show.

China has set itself the goal of becoming a world LED powerhouse in 2020 with millions of households using highly efficient LED lighting, and its LED industry aims to snatch 30% of global market for LED functional lighting by 2015. To do that, it will have to overcome outstanding issues with European and American patent holders.

The Chinese LED industry knows that to achieve these goals, it will have to upgrade its technological capabilities by setting up an innovation system for individual manufacturers and facilitating cross-sector cooperation through the establishment of a common technology platform. The manufacturers themselves will need to improve the industry's ecosystem by setting up stringent industry standards and putting them into practice with strict quality inspections. In addition, the industry must consolidate through combination and integration.

Wu Ling, secretary-general of the China Solid State Lighting Alliance, says that the mainland's LED industry is boosting international cooperation to foster its development. Thanks to this cooperation and to support from the government, revenues in China's LED-lighting industry surged 30% in 2013 and its LED industry as a whole grew 23% from 2011 to 2012, with revenues that year amounting to RMB192 billion (US$32 billion at RMB6:US$1).

Wu projects revenues for the mainland's LED industry at RMB450 billion (US$75 billion) in 2015, including RMB180 billion (US$30 billion) for the lighting-application sector.

The secretary-general points out that mainland authorities are highly concerned about the development of their semiconductor-lighting industry, and are facilitating the availability to households of this kind of lighting.

LED products on show at the 18th Guangzhou International Lighting Exhibition.
LED products on show at the 18th Guangzhou International Lighting Exhibition.

Chinese authorities have been systematically adopting strategies to foster the use of LED lighting. In 2012, the Chinese State Council allocated RMB2.2 billion (US$366.6 million) for the promotion of energy-saving (including LED) lighting. At the same time, the Ministry of Commerce inaugurated a “One Hundred Cities, One Thousand Shops Energy-Saving Demonstration” plan and six other ministries, including the National Development and Reform Commission, jointly announced a “Semiconductor Lighting & Energy Saving Industry Plan.”

These moves have been effective in boosting the mainland's semiconductor-lighting industry. Local governments have vied to roll out industry-development plans, set up LED-lighting industrial zones, and establish demonstration zones for LED-lighting applications.

Thanks partly to such measures, LED manufacturing has grown into an emerging strategic industry in China. Industry standards are increasingly comprehensive; existing standards are being revised in the direction of setting up testing methods and minimum functionality requirements, while new standards are being set for production equipment and materials, devices and modules, light sources and lighting fixtures, and lighting applications and functions.

By output capacity and export volume, the mainland is already the world's biggest manufacturer of lighting products, including LEDs. In 2012 it turned out around 310 million general-purpose LED lamps valued at RMB42 billion (US$1.4 billion), a surge of 40% over a year earlier.

Although LEDs accounted for only 1% of China's lighting market in 2011 and around 3% in 2012, they are gaining weight in the mainland's market for general lighting, commercial lighting, and public lighting. Among all LED lighting applications there, commercial lighting applications have scored the fastest growth thanks mainly to the considerable savings in electricity costs that they offer to businesses. Public lighting is the largest consumer of LEDs in the mainland, mainly for motorways, tunnels, squares, and subway lines.

Although the LED industry has undergone many years of development in China, it has still to overcome a number of problems: poor innovation and technological capability, poor market order, and low resource concentration.

The 12th China (Guzhen) International Lighting Fair & LED Application Show highlighted green lighting using LED technology.
The 12th China (Guzhen) International Lighting Fair & LED Application Show highlighted green lighting using LED technology.

Poor market order, for example, has led to dwindling profits for most of the mainland's LED makers, which have completed fiercely on price to attract quick business. Prices have already dropped around 25-40%. Price slashing, plus inadequate product features and an incomplete standards certification system, has eroded consumer confidence in LED lighting.

The mainland's LED manufacturers should also reconsider their business model. So far, construction projects are the primary customers of Chinese LED-lighting makers, but conventional retail outlets such as pro stores and marts are becoming increasingly important buyers. E-tailing, LED experience stores, and general e-commerce shops are also attracting the attention of manufacturers.

In light of these difficulties, Geng Bo, vice secretary-general of the China Solid State Lighting Alliance, suggests that LED makers should have a clear picture of the direction in which the industry is moving. He points out that because of their high energy consumption, factory lighting, retail lighting, and road lighting will remain the major markets for LED makers; it will take two years, he estimates, for LED lighting to expand into households as prices drop further and more improvements in cost-performance ratio are achieved.

Like many other economic powers, mainland China is systematically phasing power-hungry incandescent bulbs out of the market. After promulgating a roadmap for this purpose in 2012, the Chinese State Council decided to ban the import and sale of general incandescent bulbs beginning Oct. 1 that year. To foster the LED industry, the following year the Council and six of its ministries introduced development plans to ensure the prominence of LEDs in cutting carbon-dioxide emissions. The Chinese government has also provided subsidies for the purchase of energy-saving products, including LED lamps.

The mainland's LED-lighting industry became healthier in 2013 after going through a spate of irrational investments in expansion projects, price cutting, factory closures, and consolidation.

Following the surge in demand in 2013, another wave of explosive demand is expected this year because of falling prices (thanks to a drop in the cost of upstream, midstream, and downstream components), the ban on incandescent bulbs, and the global economic recovery.