The Signing of MOU Fosters Cross-straits LED Industrial Cooperation

By MICHELLE HSU

After several rounds of negotiation, Taiwan and China finally signed a memorandum of understanding (MOU), agreeing to cooperate in the LED, solar energy, and flat panel industries. The two sides will work together in creating industrial standards for these three emerging industries, which will serve as the foundation for future industrial cooperation.

“It's a crucial step for the two sides to jointly make the industrial standards for these three industries,” said Xi Guohua, former Deputy Minister of China's Ministry of Industry and Information Technology (MIIT). “The next step is to encourage companies in these industries to make investments across the straits.”

As Deputy Minister of MIIT, Xi led a Chinese delegation of over 100 members to attend the 8th Cross-Strait IT Standard Forum in Taipei on June 16 and 17. One month later he left MIIT to become the chairman of China's largest telecom company, China Mobile. Replacing him as MIIT Deputy Minister was Shang Bin, former president of China Telecom.

The annual Cross-Straits IT Standard Forum happens thanks to the cooperation of both Taiwan's Sinocon Industrial Standards Foundation (SISF) and China's Chinese Electronics Standardization Association (CESA) and China Communications Standards Association (CCSA). It was during this year's forum that SISF Chairman Steve Chen and CESA Chairman Hu Yen signed the MOU agreement, allowing Taiwan and China to work together in creating industrial standards for the LED, solar energy, and flat panel industries. The two sides will also establish an LED technology commission that will have an important role in creating the LED module standards. “Those who control the industrial standards will be able to control the market,” an MIIT official said at the forum.

Since its inception in 2005, the annual forum has become an important part of promoting industrial cooperation between China and Taiwan. This year the focus of the forum was on the LED, solar energy, and flat panel industries.

At this year's forum, Xi said that as part of its 12th Five-Year National Development Plan announced in the spring of this year, China has included LED as one of the nine strategic industries for priority development during the next five years. In hopes of accelerating the LED industrial development in its initial phase, China has announced a plan of providing 10,000 LED lamps for each of the country's top ten cities, with the goal of boosting LED lamp sales through government subsidies (and the number could exceed 10,000 in each of China's top 10 cities in the following years).

During last year's forum held in Fuzhou City in Fujian Province, SISF Chairman Chen suggested that the two sides sign the MOU to create the necessary industrial standards for emerging industries such as solar energy, LED, and flat panels. Chen has said he is very glad that the two sides signed the MOU a year later.

“In the past, we had discussed how to define the special terms and testing methods of these emerging industries,” he said. “The MOU signed this year marks a great advance in the joint efforts of the two sides to achieve this.” One of the main reasons that LED, solar energy, and flat panel industries will have future significance to both Taiwan and China is that they are among the priority development industries included in both China's 12th Five-Year National Development Plan and Taiwan's Golden Decade Plan.

“The MOU is especially important for those Taiwanese LED companies that attempt to explore the market opportunities in China where the government can now offer subsidies to encourage procurement of LED lamps,” Chen said.

Chu Hsin-sen, Executive Vice-President of the Industrial Technology Research Institute (ITRI), said that now the LED industry is in an early stage of development, the industrial technology will change very quickly. “It's especially important that the industrial standards for companies to follow are made now,” he said. Chu, who is also the chairman of the LED Street Lighting Industry Alliance in Taiwan, said that now in the beginning the MOU makes it possible for Taiwanese companies to play a role in the LED industrial supply chain in China and to start exploring the global market.

According to DigiTimes, the prospects for LED lighting are good because the bulbs are much more energy efficient than traditional ones, consuming only one-tenth of the power consumed by the latter. Assuming an annual price drop of 20 to 30%, the global LED market could reach a compound annual growth of 97.4% between 2009 and 2013. DigiTimes estimates that the global LED lighting market could grow to US$15.4 billion in 2011, which would be one-tenth of the global lighting market. Its market share, according to the industrial newspaper, would continue growing, potentially reaching around 50% in 2015 or 80% in 2020.

　　

China's LED market
As a result of the increased investments in the manufacturing industry during the past several decades, China is now faced with a worsening power shortage problem, especially in the summer when an increasing number of factories cease operations due to an insufficient power supply to support their operations. In an effort to improve this situation, China has announced “energy-saving and green energy development” as the central part of the 12th Five-Year National Development Plan, in which the LED and other green energy industries will become priority development industries. The Beijing government has also announced that by 2015 it plans to achieve an annual reduction in industrial power consumption of at least 18%. As part of this plan, China offers subsidies to companies using energy-saving LED illumination equipment or solar energy generators.

China's National Development and Reform Commission, together with related government agencies, plans on making LED illumination part of green construction, which means that those companies will be qualified to apply for government subsidies. The Beijing government may also require LED suppliers to reduce LED lighting prices as a direct benefit for consumers.

As part of the Beijing government's LED industrial policy, last year Yangzhou City Government announced its own plan in which subsidies of around 10 million RMB for procurement of one MOVDC machine, the key piece of equipment for producing principal components of LED chips, were offered to the upstream LED parts makers. When these subsidies came to an end this year in July, Yangzhou City Government said that it would offer other direct subsidies to LED lighting consumers.

Thanks to these government incentives, China has become the world's largest LED lighting market, which is expected to continue growing and to top 180 billion RMB by the end of this year, compared to 120 billion RMB in 2010. China is also the world leader in the LED TV market, another major consumer electronic product with LED parts, which now has a 20% share of China's TV market, the equivalent to a market value of 40 billion RMB.

“China's LED lighting market will double in size thanks to the government's favorable policies,” said Xie Qi, Deputy Director of the Environment Protection Department, part of China's National Development and Reform Commission.

　　

The Role of Companies
Besides the establishment of industrial standards, the MOU was also designed to encourage companies to make investments in cooperation with each other. Two months after the MOU was signed in Taipei, Wang Donglai, Chairman of China's Elec-Tech International Co. (Elec-Tech), led a delegation to visit Taiwan seeking partnership opportunities. “The next 24 months should be the crucial period for the LED market development in the greater China,” Wang said, adding that he hopes to make Elec-Tech among the world's top five LED suppliers through partnership with Taiwanese companies.

Elec-Tech's current LED business includes LED chip production and LED packing, but lacks the upstream material sapphire for making LED chips. According to Wang, Elec-Tech initially plans on opening an office in Taipei to manage the sapphire procurement from Taiwanese suppliers. “For three decades Taiwan has developed the LED industry and has an advantage in terms of industrial technologies,” said Zhang Jionli, one of Elec-Tech's top opto-electronics engineers. “For China's LED companies it's beneficial to create and develop partnerships with Taiwanese companies, especially in the area of technology cooperation.”

Established in May 1996, Elec-Tech started with an initial capital of 482.3 million RMB. Initially it focused on production of small electric home appliances. Now, after years of development, the company's product line includes over 300 kinds of electric home appliances. Its major customers include Philips, GE, Wal-Mart, Whirlpool, Carrefour, and Home Depot. In 2009 Elec-Tech entered the emerging LED lighting field, opening production facilities in Xuhu City, Anhui Province in central China, Yangzhou City, Jiangsu Province on the east coast, and Dalian City, Liaoning Province in northeastern China. In June 2004 Elec-Tech made its IPO (initial public offering), with its stocks listed on the Shenzhen Stock Exchange.

In recent years an increasing number of Taiwanese LED companies have expanded their business networks to include China. Everlight Electronics is among the most active ones. The world's largest LED package company (which opened its first factory in China in 1988), Everlight recently increased its China investments to expand its LED lighting business, which features two LED lighting brands, Zenaro and Everlight, the former produced for the U.S. and European markets while the latter is primarily for the Asian market.

According to Robert Yeh, Chairman of Everlight, “the LED bulb is more energy efficient than traditional bulbs by at lest 80%. In China, the annual electricity consumption is 580 billion units (kilowatt-hour, KWH), 14% of which is used for illumination. If all traditional bulbs are replaced with LED bulbs, it will save 464 billion units of electricity in one year, the equivalent to the total amount of electricity generated by three power generators on the Yangtze River or six unclear power generators. Would people rather take the risks involved in unclear power generators or replace their traditional bulbs with energy efficient LED bulbs?”

Optimistic about its LED lighting prospects, Everlight has been ambitious in its operations in China so far this year. In March it opened a new factory that started supplying LED bulbs in April and planned on gradually increasing its productivity during the following months. Also, Everlight has become involved in Suyang City's LED industrial development plan and has invested US$20 million in a new LED factory in the Tienmu Industrial Zone.

This summer Zhengzhou City Mayor Wu Tianjun and Deputy Mayor Xie Yun-chuan led a delegation to visit Everlight's headquarters in Tucheng, New Taipei City in northern Taiwan. Wu invited Yeh to make LED investments in Zhengzhou City, Henan Province, in northern China, and also to provide LED technology consulting services to help the city develop its LED industry. Yeh reached an agreement with Wu regarding his request, and Wu promised that Zhengzhou City will use only LED lighting in public buildings and in future construction projects.

In a related event, Taiwan's Axuntek Solar Energy's US$100 million investment will be focused on the production of high-factor LED bulbs, with pilot production to start by the end of this year, with a projected annual productivity of 350 million RMB in the initial years. To be located in Gaoxing Industrial Zone in Nanchang City, all of the project's planned production facilities will be completed in three phrases, including eleven LED package facilities and six UTCVD processing facilities.

The Gaoxing Industrial Zone is a new Chinese industrial area where the focus will be on the development of the LED illumination industry. Manufacturers of epitaxial wafers, LED chips, LED lighting sources, display panels, and back light sources will all be involved in this work. The goals of this industrial zone in relation to the LED industry are to produce all of the upstream materials and parts, be responsible for the downstream assembly, and also to become the world's largest LED chip production center by 2015, with an annual production of 70 billion LED chips.

Justenergy Technology Corporation, a subsidiary of Advanced-Connectek, Inc., has developed partnerships with local companies in China, which has allowed it to sign contracts with 10 Chinese partners and develop a sales network in Harbin Province and Shenyang City in the northeast, Jinan City in the north, Hanzhou City and Shanhai City on the east coast, Xiamen in the southeast, and Chongqing City in central China. This extensive sales network in China has made it possible for Justenergy to benefit from the Chinese government subsidies designed to boost LED lighting sales. During the five years of China's 12th Five-year National Development Plan, Justenergy hopes to reach an annual sales amount of 200,000 units of LED lighting products. “A major problem facing China's LED lighting market is a lack of industrial standards, so that companies must use their own standards to measure the energy sufficiency of their LED lighting products,” said Justenergy President Chien Wen-hsiang, who expects that LED industrial standards will be established. “Obviously there is inconsistency among different companies regarding how to measure a product's energy efficiency and quality. And such consistency is crucial to maintaining a stable market.”