As we have discussed, the Chinese government has been considering increasing LCD panel import duties to help its local panel manufacturers. Currently, import duties on LCD modules are 5%, and 3% for the cell and open cell (cell with driver ICs and PCB attached). Speculation that the Chinese government may double tariffs has been a source of concern for Korean and Taiwanese panel suppliers who are importing LCD TV cells and modules to China.
There are good reasons for China to increase import duties.
- First, domestic panel makers such as BOE, ChinaStar, and CEC-Panda are ramping up LCD TV panel fabs, and they need to catch up with their peers in Korea and Taiwan in the technology and production stability. Falling panel prices are a challenge to these players, and they need a more secure market place to grow.
- Second, Korean and Taiwanese panel makers have pulled back on their plans to build fabs in China because of over-supply. This presents challenges for Chinese authorities, who had depended on TFT LCD manufacturing as part of their economic growth plan, especially in provincial cities.
- Third, after several years of involvement in the panel industry, including governmental encouragement and subsidies, more than 90% of LCD TV panels used in China are still imported from Korea and Taiwan.
However, there are many different views on raising import duties. The strongest objections come from panel buyers: the domestic TV brands, who care most about quality, reliability, stable supply, product mix, and of course prices, regardless of the nationality of the supplier. Taiwanese and Korean panel suppliers are more competitive than Chinese suppliers in these aspects. For example, as we track in our Quarterly Large-Area TFT LCD Product Roadmap Report, Taiwanese and Korean panel makers are developing many new TV panels (such as 39”, 43”, 48”, and 50” wide panels, direct-type thick LED backlit panels, slim type LED backlit panels, FPR 3D technology, and 120/240 Hz) that have been broadly adopted by Chinese TV companies. Since domestic panel makers cannot currently provide this range of panels, raising import duties increases costs for TV companies.
We understand that there has been a great deal of political discussion and lobbying in the past few months. There are now indications that duties might be raised a modest amount, to 5% for cells and open cells, which most Chinese TV companies are buying, as well as for modules, perhaps starting in January. This scenario is basically a compromise between the desire to protect domestic panel makers and the cost structure of the domestic TV brands. However, 5% might not be big enough to drive Taiwanese and Korean panel makers to build fabs in China. According to our cost analysis