Who is the beneficiary? Taiwan or China LED from the recent China Recent Credit Crunch on LED industry?
The Chinese government subsidized purchase of MOCVDs from 2008-2013, but with subsidies ending this year, and with small companies unable to acquire subsidies, it has caused the issue of idle equipment. Although China added 300 MOCVDs this year, less than one third has actual output. Some equipment manufacturers even face accounts receivable risks. There is doubt about the industry’s unbalanced supply and demand.
Chinese banks’ recent credit crunch has impacted the LED industry. More than 100 LED manufacturers have defaulted as a result in Eastern and Southern China this year. Taiwanese LED manufacturers have emerged as the beneficiaries of the industry restructuring, as foreign investors purchase stock from industry leaders Epistar and Everlight.
In July, several LED manufacturers in southern China announced insolvency due to the Chinese government’s monetary policies to curb shadow banking, which restricts lending to “six industries with high levels of idle capacity” that includes LED and solar energy, according to a recent Xinhua News Agency report.
Chinese LED manufacturers suffered from short-term turnover issues as a result, which led to the recent wave of closures in Foshan and Guangzhou area. At least more than 100 Chinese small-mid size LED companies have shut down this year, as a conservative estimations.
The above trends are happening not only in China, also Taiwan. Over the last two years, banks have been increasingly conservative in their lending to the LED industry, according to a financial director of a major Taiwanese LED brand. However as a comparison, Taiwan LED manufacturer’s finance structure and cash flows are much better than their Chinese counterparts’.
China’s subsidy policy is the root cause behind the unbalance of supply and demand in the LED industry, said those in the industry. Currently, there is a continual rise in LED lighting demands, and the bar remains high for entry in the mid and high powered LED applications. Taiwan’s LED manufacturers have technology as backup, and will be the biggest beneficiaries in this bankruptcy wave in China, especially companies that are focused on LED lighting.
As an Analysts estimation that Epistar and Everlight will emerge as the biggest beneficiaries from this default wave in China. Currently, China’s downstream manufacturers are experiencing financial difficulties, while upstream epitaxy manufacturers will face the issue of staff returning to Taiwan.
Foreign investors purchased Epistar and Everlight stocks because both companies have healthy financial structure and advanced technology.