Will We All Have to Go to China?

By David Hsieh – Vice President, Greater China Market, DisplaySearch

Flat panel demand is very strong in China, particularly considering the worldwide economic slowdown. The challenge for China is how to leverage their strong markets (especially LCD TV) to capture benefits such as technologies and manufacturing investments. The majority of TFT LCD panels are built in Korea, Taiwan and Japan, while China mainly has backend LCD module assembly, which is labor-intensive but lower value than the front-end array and cell processes.

On the other hand, China’s economic development system is focused on GDP growth, which encourages local or provincial administrations to try to attract TFT LCD manufacturing in their precincts. Chinese entities did try to build their own fabs-starting with Gen 5 years ago-but has not been able to move forward due to crystal cycle timing, limited technology and fab management skills.

Although China could become the world’s largest LCD TV market, local TV brands like TCL, Hisense, Skyworth, Changhong, Konka and Haier have the lion’s share of the domestic market, but none buys panels domestically. All LCD TV panels are imported from Taiwan, Korea and Japan. As one Chinese official put it to me: “If our own horse cannot run by itself, let’s find a neighbor’s horse to come here and run for us. We have a much bigger ranch so they should come!”

The policy was changed to persuade leading LCD TV panel suppliers such as Samsung, LG Display, Sharp, AUO and CMO to build Gen 8 fabs in China. The TV market potential is the negotiation tool, and investment benefits such as tax and lower interest rates are the bait. Meanwhile, the economic planners in China are smart enough to let the provincial governments compete with each other in persuading one of these panel makers to come.

Finally, LG Display announced they have signed a memorandum of understanding with the Guangdong government to build a Gen 8 plant, the first publicly announced investment from the program (there are many unverified rumors flowing in Asia about other panel makers investing in other provinces in China).

This is just the beginning, we believe. Of course, governments of Taiwan, Korea and Japan will not just let the tax revenues, jobs and technology know-how flow to China. None of these governments ever officially approved TFT LCD fab investment in China, and each has clear regulations and guidance that prohibit TFT LCD technology exports. In the past, Taiwan, Korea and Japan used political power to offer economic benefits and successfully stimulated the TFT LCD industry in their countries; now they might have to face competition from China using the same strategy and grabbing panel makers from them.

LG Display’s announcement has made some in the Korean government nervous, as well as the Taiwanese and Japanese panel makers and politicians. Samsung will surely expedite the process of building a Gen 8 fab in China. Eventually, we will see a Gen 8 in China-possibly more than two. When a fab is built, an entire supply chain will have to be developed to support it, which means Gen 8 glass tanks, 55″ backlight manufacturing, 42″ color filter production, assembly lines that can output millions of 60″ LCD TVs per year, and thousands of experienced engineers. When the supply chain starts to move to China, it could lead to a shift in the entire ecosystem, as we have seen in many other industries.

So, will we all have to move to China?