In-depth Interpretation: Who Pays For The Overcapacity Of LCD Panels In China?

The ZTE incident has aroused people's concerns about the future of China's chips. They brushed on micro-channels and Weibo to express their views. China's display industry is also worrying about overcapacity of LCD panels, and they have also offered advice and suggestions. When Huike Electronics (Shenzhen) Co., Ltd. invested in the construction of Zhengzhou 11th generation LCD panel production line project and Mianyang 8.6th generation LCD panel production line project, the industry people are more worried that the development of China's LCD panel industry is somewhat out of control, and the domestic LCD industry is in an orderly and healthy manner. The road to development will bury multiple hidden dangers. It is not just a matter of overcapacity.

According to statistics, in 2013, the global market share of domestic panel production in mainland China was 11.4%, and the TV panel self-sufficiency rate exceeded 35%. It nearly doubled by 2016, and the shipment area was approximately 57 million square meters. The global shipment market share exceeded 30. %, ranking second in the world. By the end of 2017, China's large-size LCD panel production will account for 35.7% of the global market share, surpassing traditional large-size LCD panel manufacturing country Korea. China has become the focus of the global panel industry.

Although China has become the focus of the global panel industry, the local panel companies have competed to launch the LCD panel production line of the Ma generation, and the result of the surge is obvious, that is, excess capacity. According to statistics from industry associations and third-party research companies, the actual effective supply of LCD TV panels in the world will exceed the demand of 12 to 13%. In 2017, 75-inch global TV panels shipped 156.7 pieces, which accounted for 0.6% of the total market. It is estimated that in 2018, 75-inch global panel shipments will reach 2.6 million, an increase of more than 50% year-on-year.

Taking the current 10.5-generation TFT-LCD production line of BOE Hefei as an example, the predominant production is a 65/75-inch 8K ultra-high resolution LCD screen. The design capacity is 120,000 glass substrates per month, and the 10.5 generation line (glass substrate size 2940mmx3370mm) Compared to the 8.5 generation line, cutting large-size TV has obvious advantages. For example cutting 65 inches, 8.5 generation lines can only cut 3 pieces, and 10.5 generation lines can cut 8 pieces, and the cutting efficiency can reach 95%. 70 inches or 75 inches, 10.5 generation lines can be cut to 6 pieces.

According to statistics, BOE only a 10.5 generation line, with an annual output of 65 inches of 11.52 million LCD panels; 70 inches or 75 inches of 8.64 million LCD panels. According to the current Hefei BOE official announcement, the yield rate of 70% of the 10.5 generation line has reached more than 8 million pieces and more than 6 million pieces, respectively, which is based on the yield rate target of 90.5 percent for the Hefei BOE 10.5 generation line that is climbing capacity. More productive. Taking the increase in the TV panel market of 65 inches or more this year, one BOE 10.5 generation panel production can achieve full coverage.

In the next 23 years, the production lines of 10.5/11 LCD panels, including BOE (Wuhan), Huaxing Optoelectronics (Shenzhen), Hon Hai SDP (Guangzhou), and Wisconsin (Zhengzhou), will be put into operation one after another, and all will be put into mass production. It is estimated that the annual production capacity of LCD panels over 65 inches will reach 38-50 million pieces. This is not the production capacity of LCD panel production lines below 8.5 and 8.5. How to solve such a huge production capacity?

The root cause of excess liquid crystal panel

The development of the liquid crystal panel industry to the current status has to be discussed from BOE.

In 2008, BOE and the Hefei government reached an agreement to build a 6-generation LCD panel production line. In 2009, it also invested 8.5 generations of generations with Beijing. Immediately after the news broke out, it immediately shocked the global panel community. Immediately afterwards, Samsung, LGD, Sharp, AUO, Chi Mei (Chongqun), etc. came to the mainland to apply for the construction of high-generation LCD panel production lines. At this point, BOE’s catfish effect broke the panel companies in Japan, South Korea, and Taiwan to the mainland. The monopoly and blockade of high-generation LCD panel production lines solved the problem of screens in China's electronic information industry, which lacks core and less screens.

BOE's breakthrough is naturally a good thing for China's large-size liquid crystal display industry. BOE has found that the mode suitable for its own development is understandable, but from the perspective of China's overall LCD panel industry development in recent years, it has been somewhat out of control.

Why is it that BOE's development model is understandable?

Because the annual imports of LCD panel 180 billion US dollars (mainly large-size LCD panel), the government has the real intention to support local companies to replace imports, the domestic only BOE technology, have the desire to occupy this market, but BOE lack of money, an 8.5 generation The LCD panel production line needs two to three billion yuan in investment, and BOE cannot afford it anyway. Therefore, the government can only properly solve the problem. The local government cannot directly use BOC to pay for it. Instead, it can use the form of capital injection to form a company and then indirectly support it. For example, the BOE Chongqing 8.5 generation LCD panel production line requires a total capital of 32.8 billion yuan. BOE has issued 10 billion shares in a targeted manner. According to the market price of 2.1 shares sold to the government's capital injection company, it has achieved 21 billion yuan, and has raised 11.8 billion yuan from syndicated banks. The funds required will be solved. A 8.5-generation LCD panel production line will be able to form an output value of five to six billion years after it is put into production. After making money, the syndicated bank can recover the principal and interest, and the local government can also return the funds in the form of selling shares to form a win-win situation.

This type of government-supported development model has emerged in South Korea and Taiwan, and it has performed well, albeit in ways and methods. Therefore, the 6/8.5/10.5 generation LCD panel production line that BOE subsequently invested in was also developed with the help of local governments such as Hefei, Fujian, Beijing, Wuhan, Chengdu and Chongqing.

With the strength and market capacity of South Korea and Taiwan, the Korean government and Taiwanese authorities can support two or three of the panel companies. But it is not appropriate to place them in mainland China. The volume of the entire market is not the same. After BOE broke through the 8.5 generation LCD production technology, Sharp, Samsung, LGD, AUO, Chi Mei (now Chuangchuang), local companies TCL, and Longfei Optoelectronics applied for the construction of high-generation LCD panel production lines.

After the emergence of the LCD panel of the high generation of investment and construction, it has aroused the attention of the relevant departments of the state. In order to avoid the waste of resources caused by the duplicate construction, the National Development and Reform Commission decided to approve the construction of five high generation production lines in early 2010.

At the time, BOE Beijing 8.5-generation line, TCL Shenzhen 8.5-generation line and Kunshan Longfei Opto-electronics 8.5-generation line (last converted to 6-generation LTPS production line) have been approved. There are 2 remaining 5 places. There are five candidates competing for these two places: including the 8th generation line of Nanjing Sharp, the Hefei Xinyin Optoelectronics (BOE-led) 8.5 generation line, the Samsung 7.5-generation line (later upgraded to the 8th generation line), LGD Guangzhou 8.5 generation line, and Chengdu Foxconn 8.5 generation line. In the “Five Entering Two” competition was extremely fierce. At the end of 2010, the National Development and Reform Commission approved the Samsung Suzhou 7.5-generation line and the LG Guangzhou 8.5-generation line project, with Japanese and Taiwanese manufacturers all eliminated.

Objectively speaking, five high-generation LCD panel production lines have been put into mass production to meet the needs of the mainland market for LCD panels. The National Development and Reform Commission approved only five senior generations of experts and scholars to reach scientific and reasonable conclusions. However, after 2012, with the State Council and the ministries and commissions abolishing the authority of the administrative examination and approval project, and following the provincial level local government level, the liquid crystal panel industry that has taken off the curse has skyrocketed. The high-generation LCD panel production line in mainland China has seen a blowout. Eruptions and blossoms throughout the country.

From the aspect of various enterprises, it is impossible to remain indifferent to the big cake of 180 billion US dollars in the domestic LCD panel market. With technology, talent and abundant funds, of course, it will be eager to try. Boeing first entered the BOE with technology and talents as the leader; and TCL's Huaxing Optoelectronics was also rapidly rising with Taiwan’s panel talent plus the Shenzhen government’s financial support; Korean companies Samsung and LGD caught the first wave of construction in the mainland Opportunities for the LCD panels of the next generation have yielded huge profits. China's LCD panel industry is still healthy and orderly. However, when the constraints of the policies disappeared, under the upsurge of investment in building high-generation LCD panels, Taiwan's panel companies shrank, and Korean companies did not invest in new production lines. Japan only wishes to sell technology or technology shares. The most frenzied, even local companies, in order to prepare to build high-generation LCD panel production lines, or to dig up Japanese and Korean Taiwanese or local panel talent, or to purchase foreign related technologies, or to pull foreign panel enterprise technology shares, relying on the rapid expansion of local government funds, the entire The liquid crystal panel industry is like Tang Shengrou, and it goes all in one. As of today, there are nearly 30 high-generation production lines in the 6th and 6th generations of the mainland, and the development of the healthy and orderly LCD panel industry has been disrupted by latecomers, leading to the uncontrolled development of the entire LCD panel industry.

From the perspective of local governments, the introduction of a high-generation panel production line means a multi-billion-dollar direct investment and a huge siphon effect, forming hundreds of upstream and downstream enterprises and industrial-scale clusters of hundreds of billions of yuan, regardless of taxation and employment. Equity income, economic vitality, etc. are all attractive, and every local government will consider it from its own perspective.

Taking the Beijing government's investment in the fifth-generation BOE line as an example, this investment is very cost-effective. The BOE fifth-generation panel production line pays more than RMB 1 billion each year, and the upstream supporting enterprises pay 2.78 billion yuan in taxes. The Beijing government's share price of BOE rose from 2.72 yuan to 12 yuan in the “debt-equity swap”. The Beijing municipal government sold half of its equity to sell 2 billion yuan when its stock price was 10 yuan, and the remaining stock market value exceeded 2.5 billion yuan. In addition to recovering the investment principal, the Beijing municipal government also made a net profit of 1.7 billion yuan. This is not the annual tax revenue of nearly 3.8 billion yuan and a large number of local employees. The competition for LCD panel projects set a benchmark.

Therefore, as long as we hear that panel makers have the intention to invest in new production lines, more than a dozen local governments will scramble. Just as Wikko built and built a 8.6/11-generation LCD panel production line, it contacted governments across the country including Chongqing, Mianyang, Beihai, Kunming, Guiyang and Zhengzhou to negotiate on investment, financing, allotment, land, hydropower, and preferential policies. In order to compete for bigger vested resources. At the same time, various local governments and syndicates are also considering BOE, China Star Optoelectronics, China Electric Panda, and South Korea's Samsung, LGD, Taiwan-funded Hon Hai and other companies. Will China's electronic information industry still have such a large panel capacity? ?

Nowadays, when it comes to investing in new high-generation production lines, the industry's first response is not when the construction starts. It will be that the newly-added production line will not add to the question of excess LCD panels.

The solution of excess liquid crystal panel

Ouyang Zhongcan, an academician of the Chinese Academy of Sciences, said that current TFT-LCD ultra-high generation investment is overheated and guidance should be strengthened. Nowadays, in many places, whether or not there are technologies that are investing in high-generation lines, we must guard against excessive investment and avoid repeating the mistakes of previous years' surplus photovoltaics. In this regard, China's enterprises must fully assess risks when building their lines, local governments must exercise caution, and countries should strengthen guidance and management.

It is undeniable that China's display industry will become the world's number one by 2020 and become the focus of the world. However, there is a risk of excess liquid crystal panels in mainland China. Data from third-party research companies and industry associations predict that from 2018 to 2020, as panel makers continue to increase production capacity, the capacity growth rate will exceed the demand growth data. The ratio of supply and demand in 2019 will increase significantly to 8.3%, 8.8% in 2020, and 9.3% in 2021. It can be judged that the risk of oversupply of LCD panels may increase from 2019 to 2021, and the risk of structural overcapacity may increase.

For the current status of the domestic LCD panel industry, how to deal with the upcoming issue of surplus? The author believes that it can be resolved from the following aspects.

1. Rely on the power of the market for effective resource allocation and win the fittest in the competition.

LCD panels are a high-capital, high-tech, and high-risk three-high industry. Once they enter the game, they can hardly survive. The panel companies must be rushed to the bottom in technical innovation, talent training, and mass production scale. From the current LCD panel industry, the 10.5/11 generation LCD panel production line has been mass-produced or planned for construction in China, and the competition between companies to build high-generation production lines has come to an end. If there is competition in the AMOLED panel field. In the area of LCD panels, the current competition among enterprises is the competition for volume production time, the rate of increase of yield, and the ability to develop various application terminal markets.

Of course, overcapacity will inevitably lead to vicious competition in the industry. The price war will be unavoidable. From mainland China to the world, the market price war will be ubiquitous. Through market forces, resources in the LCD panel field will be effectively allocated and eliminated in the competition. Lagging production capacity, products and businesses.

2. State-level local governments should establish early-warning mechanisms for major project risks.

The investment in LCD panel projects is huge. Careful consideration should be given to various factors, an effective early warning mechanism for major project risks should be established, risks should be effectively prevented, and the risk awareness and sense of responsibility of project leaders should always be reminded. At present, the country has introduced a life-long accountability system for major projects. As a result of major losses of state-owned assets, local leaders will be held accountable and fundamentally eliminate the decision-making problem of brain-raising.

On November 14, 2016, the General Office of the State Council issued the “Preliminary Plan for the Local Government-based Debt Risk Emergency Response”, which clearly stated that the central government would not provide a debt for local governments to use. The local governments were responsible for repaying their borrowed debts.

3, policy and funding tilt and support

In planning for the development of emerging industries, the state will have to tilt upstream in key equipment, materials, and EL display areas in terms of funding, policies, etc., gradually reduce subsidies for LCD panel companies, and shift funds to upstream key equipment, materials, and EL display areas. Therefore, under the power of review and approval, national policies cannot continue to be weak, and they should use policies to guide local governments. Although this guiding policy has limited hard impact on local interests, it is at least a risky reminder.

4. The panel factory outside the mainland repeatedly applies for construction and investment.

Unless there are technical differences or more advanced display technologies, investment construction is not approved. Like Taiwan-owned Hon Hai's SDP Guangzhou 11th generation LCD panel production line, the Japanese factory using the 10.5 generation of IGZO technology to produce 8K ultra-high-definition image LCD panels; again, such as Guangzhou LGD 8th generation OLED production line to build; After the Chinese mainland's LCD panel companies are fully competitive, the rising local LCD market will not require the repeated application of panel makers outside the mainland. According to industry sources, mainland China has long stopped the approval of high-end LCD panel production lines, so after BOE's first 8.5-generation LCD panel line, the first wave of LCD boom, Taiwan-funded panel companies have the opportunity The future hopes that the more ambiguous, when the BOE to build 10.5 generation line, Gou Mingming repeatedly declared that after the production of high-generation line after the mainland has not gone, playing in Guangzhou really, because he held the Handan plant Trump card, with confidence.

5. National top-level design to encourage mergers, bankruptcies, mergers, and transformations

In the event that national policies fail to be softened, the industry still hopes to have a comprehensive plan, as in the case of the merger of state-owned CSR and CNR into CRRC, to merge the panel industries of the background of state-owned enterprises and phase out backward production lines. , transfer (refers to the change of production product category), transformation (the company has set aside to create AMOLED production line), etc., competes with foreign panel companies with stronger strength, and realizes panel companies