Currency tightening policy, China's LED chip plant temporarily park expansion plan

LEDinside, a LED industry research firm owned by TrendForce, said that under the subsidy policies of various local governments last year, China's chip factories are optimistic about the demand for LED lighting market, substantially expanding their plant expansion plans, and increasing the number of production equipment MOCVD machines. However, due to the lack of clear demand for LED industry terminals in 2011 and the continuous increase in product inventories, various manufacturers have begun to slow down the purchase of MOCVD equipment.

In addition, in order to cope with inflation, China has constantly raised the reserve ratio and tightened monetary policy, making it difficult for local governments to allocate financial subsidies. Under the influence of various factors, China's LED chip makers are conservative about the plan for expansion in the second half of 2011. LEDinside estimates that there will be 711 newly installed MOCVD machines in 2011, of which 380 will be installed in the Chinese market. .

Inflation pressure makes Chinese government begin to tighten monetary supply

Since 2011, China’s consumer price index has continued to hit a new high. The inflation rate in May was 5.5%. The People’s Bank of China used the tightening monetary policy to control the inflation rate. Since June 20, the People's Bank of China has raised the deposit reserve ratio six times, making the deposit reserve ratio of large and medium-sized financial institutions in mainland China reach a historical high of 21.5%. The lending benchmark interest rate was also raised to 6.56% from July 7th, which is the third interest rate hike in 2011. From the point of view of new loans in May, compared with April, it has dropped by 25% from RMB740 billion to RMB 552 billion, compared with the same period in 2010, it has decreased by 13.7%. Corporate financing is more difficult, coupled with the continuous increase in labor costs, the management of corporate operating costs is also facing challenges.

Currency tightening policy affects LED manufacturers' expansion plans

In addition, since China's Yangzhou City government announced that it would stop the MOCVD acquisition subsidy policy in the second half of 2011, China and Taiwan-owned chip factories began to worry that local governments would stop the subsidy policy, and therefore began mass procurement of MOCVD in the first half of 2011. The machine platform hopes to catch up with the validity of the subsidy policy.

However, due to monetary tightening policy, Chinese LED companies’ financial subsidies have not been easy to obtain, affecting the schedule of expansion, coupled with overall terminal sales sluggishness and chip price declines, and some LED chip manufacturers’ capacity utilization rate has dropped to 50%. Use the machine for engineering research and development. Therefore, various manufacturers have deferred the progress of the expansion.

LEDinside view

According to LEDinside's research and investigation, the first-line Chinese chip factory also converted the base to be expanded to a sales center, and the original MOCVD machine purchase plan scheduled for by the equipment manufacturer also discussed with the equipment factory the deferred delivery time for the second half of 2011. China's chip market supply increases variables.

On the other hand, second-tier Chinese chip makers may be under a shortage of funds, lack of professional and technical personnel, and insufficient MOCVD production equipment. They may stop expanding their production plans or even face a crisis of closure. LEDinside believes that manufacturers with high technology and cost advantages will be able to overcome the challenges of the second half of 2011 in the event of weak demand for this wave of terminals.