Who will pay for China's panel overcapacity?

The ZTE incident has aroused people's concern about the future of Chinese chips, and they have brushed wechat circles and microblogs to express their views; China's display industry is also worried about the overcapacity of LCD panels, and has also made suggestions. When Huike Electronics (Shenzhen) Co., Ltd. invested in the construction of the 11th generation LCD panel production line project in Zhengzhou and the 8th.6th generation LCD panel production line project in Mianyang, people in the industry are more worried that the development of China's LCD panel industry is out of control, and the orderly and healthy development of the domestic LCD industry will bury multiple hidden dangers, not just overcapacity.

According to statistics, in 2013, the global market share of self-produced panels in mainland China was 11.4%, and the self-sufficiency rate of TV panels exceeded 35%. By 2016, it will nearly double, with a shipping area of about 57 million square meters, and the market share of global shipping volume exceeds 30%, ranking second in the world. By the end of 2017, China's large-size LCD panel production capacity will account for 35.7% of the world, surpassing South Korea, a traditional large-size LCD panel manufacturing country. China has become the focus of the global panel industry.

Although China has become the center of gravity of the global panel industry, local panel enterprises are competing to enter the Mako generation LCD panel production line. The result of rushing into mass action is obvious, that is, overcapacity. According to the statistics of industry associations and third-party research companies, the actual effective supply of global LCD TV panels will exceed the demand by 12% ~ 13%. In 2017, 156.7 75 inch global TV panels were shipped, accounting for 0.6% of the total market. It is expected that the shipment of 75 inch global panels will reach 2.6 million in 2018, with a year-on-year increase of more than 50%.

Take the current BOE Hefei 10.5 generation TFT-LCD production line as an example. In the early stage, it mainly produces 65 / 75 inch 8K ultra-high resolution LCD, with a design capacity of 120000 glass substrates per month. Compared with the 8.5 generation line, the 10.5 generation line (the size of the glass substrate is 2940mmx337mm) has obvious advantages in cutting large-size TV. For example, when cutting 65 inches, the 8.5 generation line can cut only 3 pieces, while the 10.5 generation line can cut 8 pieces, and the cutting efficiency can be as high as 95%. 70 inch or 75 inch, 10.5 generation wire can be cut into 6 pieces.

According to statistics, BOE has only one generation 10.5 line, with an annual output of 11.52 million 65 inch LCD panels; 8.64 million 70 inch or 75 inch LCD panels. Based on the 70% yield of the 10.5 generation line officially announced by Hefei BOE, it has reached more than 8 million pieces and more than 6 million pieces respectively. Based on the 90% yield target of Hefei BOE 10.5 generation line this year, the production capacity is greater. Based on the TV panel Market increment of more than 65 inches this year, the output of a boe generation 10.5 panel can be fully covered.

In the next two to three years, as the 10.5/11 generation LCD panel production lines under construction, such as BOE (Wuhan), Huaxing Optoelectronics (Shenzhen), Hon Hai SDP (Guangzhou) and Huike (Zhengzhou), are put into operation successively and all are mass produced, it is estimated that the annual production capacity of LCD panels over 65 inches will reach 38 million ~ 50 million, not counting the production capacity of LCD panel production lines below 8.5 and 8.5, How to solve such a huge capacity?

Probe into the root of LCD panel surplus

The development of LCD panel industry to the current situation still needs to start from BOE.

In 2008, BOE and Hefei government reached a cooperation intention and invested in the construction of a 6-generation LCD panel production line. In 2009, it invested and built the 8.5 generation high generation line with Beijing. The news immediately shocked the global panel industry. Then, Samsung, LGD, sharp, Youda and Qimei (now qunchuang) applied to the mainland for the construction of high-generation LCD panel production line. So far, BOE's catfish effect has broken the monopoly and blockade of panel enterprises in Japan, South Korea and Taiwan on the mainland's high-generation LCD panel production line, and solved the problem of "lack of core and less screen" in China's electronic information industry.

BOE's breakthrough is naturally a good thing for China's large-scale LCD industry. It is understandable that BOE has found a model suitable for its own development. However, from the development of China's overall LCD panel industry in recent years, it is a little out of control.

Why is there nothing wrong with BOE's development model?

Because the annual import of LCD panels was 180 billion US dollars (mainly large-size LCD panels), the government had a real willingness to support local enterprises to replace imports. In China, only BOE had technology and was willing to occupy this market, but BOE was short of money. An 8.5 generation LCD panel production line needed an investment of 230 billion yuan, and BOE could not take the money anyway. Therefore, it can only be properly solved by the government. Local governments can not directly give money to BOE, but indirectly support it in the form of capital injection and re-entry of shares.

For example, BOE Chongqing 8.5 generation LCD panel production line needs a total capital of 32.8 billion yuan. BOE issued 10 billion additional shares in a directional way and sold them to the company injected by the government at the market price of 2.1 yuan. It obtained 21 billion yuan and raised 11.8 billion yuan from the syndicate. The required funds will be solved. After an 8.5 generation LCD panel production line is put into operation, it can form an output value of 50-60 billion yuan a year. After making money, the syndicate can recover the principal and interest, and the local government can also sell shares to recover the funds, forming a win-win situation.

This development model supported by the government has appeared in South Korea and Taiwan, and the effect is good, although the ways and methods are different. Therefore, the subsequent 6 / 8.5 / 10.5 generation LCD panel production line invested and built by BOE has gradually developed into today's scale with the help of the local governments such as Hefei, Fujian, Beijing, Wuhan, Chengdu and Chongqing.

With the strength and market capacity of Korea and Taiwan, the Korean government and Taiwan authorities can support two or three panel enterprises. It is very appropriate for them to be placed in Chinese mainland, but the volume of the whole market is different. After BOE broke through the 8.5 generation LCD production technology, sharp, Samsung, LGD, Youda, Qimei (now qunchuang) and local enterprises TCL and Longfei optoelectronics applied for the construction of high-generation LCD panel production lines one after another.

In order to avoid the waste of resources caused by repeated construction, the national development and Reform Commission decided to approve the construction of five high-generation production lines in early 2010.

At that time, BOE Beijing 8.5 generation line, TCL Shenzhen 8.5 generation line and Kunshan Longfei optoelectronics 8.5 generation line (finally converted to 6 generation LTPS production line) had been approved. There are two of the five places left. There are also five candidate projects competing for these two places: Nanjing Sharp's generation 8 line, Hefei Xinsheng Optoelectronics (led by BOE) generation 8.5 line, Samsung Suzhou's generation 7.5 line (later upgraded to generation 8 line), LGD Guangzhou generation 8.5 line, and Chengdu Foxconn generation 8.5 line. At the end of 2010, the national development and Reform Commission approved Samsung Suzhou 7.5 generation line and LG Guangzhou 8.5 generation line projects, and all Japanese and Taiwan manufacturers were out.

Objectively speaking, after the mass production of five high-generation LCD panel production lines, it can meet the needs of the mainland market for LCD panels. The national development and Reform Commission only approved five high generation lines, and reached scientific and reasonable conclusions after demonstration by relevant experts and scholars. Chinese mainland's high inhibition LCD panel production line has blowout and blossom everywhere in China after 2012, when the State Council and ministries abolished the authority of the administrative examination and approval project and went down to the provincial level local government level.

From all aspects of enterprises, it is impossible to be indifferent to the $180 billion cake in the domestic LCD panel market. With technology, talents and strong capital, of course, you will be eager to try. BOE, the first to enter the game, has technology and talents, which should be the leader; Meanwhile, Huaxing optoelectronics under TCL has also risen rapidly with the support of panel talents from Taiwan and funds from Shenzhen government; Korean companies Samsung and LGD seized the opportunity of building the first wave of high-generation LCD panels in the mainland and obtained rich profits.

The development of China's LCD panel industry is still healthy and orderly. However, after the policy constraints disappeared, under the upsurge of investment and construction of high-generation LCD panels, Taiwan panel enterprises retreated, Korean enterprises are not investing in new production lines, and Japan is only willing to sell technology or take shares in technology. Even the most crazy local enterprises, in order to prepare for the construction of high-generation LCD panel production line, or poach Japanese, Korean and Taiwan or local panel talents, or buy foreign related technology, or pull foreign panel enterprise technology into shares, with the rapid expansion of local government funds, the whole LCD panel industry is like Tang raw meat. As of today, there are nearly 30 high-generation production lines of 6 generations and above in mainland China. The healthy and orderly development of LCD panel industry has been disrupted by latecomers, resulting in the development of the whole LCD panel industry out of control.

From the perspective of local governments, the introduction of a high-generation panel production line means tens of billions of direct investment and huge siphon effect, forming hundreds of upstream and downstream enterprises and industrial scale clusters of 100 billion yuan. Whether it is taxation, employment, equity income, economic vitality, etc., it is very tempting, and every local government will consider it from its own perspective.

Take the Beijing government's investment in BOE 5th generation line as an example, this investment is very cost-effective. BOE's 5th generation panel production line pays more than 1 billion yuan in profits every year, and upstream supporting enterprises pay 2.78 billion yuan in taxes. The share price of BOE in the hands of the Beijing government rose from 2.72 yuan in the "debt to equity" to 12 yuan. The Beijing municipal government realized and sold half of its equity at 10 yuan, and the market value of the remaining equity also 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, not counting the annual tax of nearly 3.8 billion yuan and a large number of local employees. It can be said that it made a lot of money, which set a benchmark for local governments across the country to compete for LCD panel projects.

Therefore, as soon as we hear that panel manufacturers have the intention to invest in and build new production lines, more than a dozen local governments will compete. For example, Huike's investment and construction of the 8.6/11 generation LCD panel production line has contacted the governments of Chongqing, Mianyang, Beihai, Kunming, Guiyang, Zhengzhou and other parts of the country to negotiate in terms of investment and financing, allotment, land, hydropower, preferential policies and so on, so as to compete for greater acquired resources. At the same time, local governments and syndicates are also considering whether China's electronic information industry can accommodate such a large panel capacity after BOE, Huaxing optoelectronics, CLP panda, Korean enterprises Samsung, LGD, Taiwan funded Hon Hai and other enterprises?

Now, when it comes to investing in new high-generation production lines, the industry's first reaction is not when to start construction, but whether the new production lines will aggravate the question of LCD panel surplus?

Solution of excess of LCD panel

Ouyang Zhongcan, academician of the Chinese Academy of Sciences, said that at present, the investment in TFT-LCD ultra-high generation line is overheated, and guidance should be strengthened. At present, many places are investing in high-generation lines regardless of technology. We should beware of over investment and avoid repeating the mistakes of photovoltaic surplus in previous years. In this regard, Chinese enterprises should fully assess the risks when building lines, local governments should invest cautiously, and the state should strengthen guidance and management.

The Chinese Mainland shows beyond all dispute that the industry has become the world's first and the center of gravity in the world in 2020. But there is an excess risk of Chinese mainland LCD panels. The data of third-party research companies and industry associations predict that from 2018 to 2020, due to the continuous expansion of production capacity of panel manufacturers, the growth rate of production capacity will be greater than the demand growth data. The supply-demand ratio will increase significantly to 8.3% in 2019, 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, especially the risk of structural oversupply may increase.

In view of the current situation of domestic LCD panel industry, how to deal with the upcoming surplus problem? The author believes that it can be solved from the following aspects.

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

LCD panel is a three high industry with high capital, high technology and high risk. Once it enters the market, it will be difficult to ride the tiger. Panel enterprises must rush to the end in terms of technological innovation, talent training and mass production scale. In terms of the current LCD panel industry, the mass production or preparation of generation 10.5/11 LCD panel production line in China, and the competition between enterprises to invest in and build high-generation production line has come to an end. If so, it is the competition in AMOLED panel field. In the field of LCD panel, the current competition among enterprises is the competition of mass production time, yield climbing speed and the ability to develop various application terminal markets.

Of course, excess capacity will lead to vicious competition in the industry. Price war will inevitably be inevitable. From Chinese mainland to the world, market price war will be everywhere. Through the power of the market, we can effectively deploy resources in the LCD panel area and eliminate backward production capacity, products and enterprises in competition.

2. National local governments should establish a risk early warning mechanism for major projects

The investment of LCD panel project is huge. We should carefully consider various factors, establish an effective risk early warning mechanism for major projects, effectively prevent risks, and constantly remind the project leader of his risk awareness and responsibility awareness. At present, the state has introduced a lifelong accountability system for major projects. If heavy losses of state-owned assets are caused, local leaders will be held accountable and fundamentally put an end to the decision-making problem of patting their heads.

On November 14, 2016, the general office of the State Council issued the emergency response plan for the risk of local government debt, which made it clear that the central government would not find out the bottom for the local government's debt, and the local government was responsible for repaying the debt it borrowed.

3. Policy and fund preference and support

When planning the development of emerging industries, the state should tilt to the upstream key equipment, materials and EL display fields in terms of funds and policies, gradually reduce subsidies to LCD panel enterprises, and shift funds to the upstream key equipment, materials and EL display fields. Therefore, under the power of examination and approval, the national policy can not continue to be soft. We should use the policy to guide the local government. Although this guiding policy has limited impact on the consideration of local interests, it is at least a risk hint.

4. Panel factories outside the mainland repeatedly applied for construction and stopped construction

Unless there are technical differences or more advanced display technology, the construction is not approved. For example, the SDP Guangzhou 11th generation LCD panel production line of Taiwan funded Hon Hai adopts the Japanese factory 10.5 generation to import igzo technology to produce 8K ultra-high precision image LCD panel; Another example is the 8-generation OLED production line invested and built by Guangzhou LGD; Therefore, when Chinese mainland LCD panels are fully competitive, the rising domestic LCD market will not require repeated applications from outside the mainland.

According to the industry, Chinese mainland has stopped approving the production lines of high generation LCD panels abroad. So when BOE first built the first 8.5 generation LCD panels, the first wave of LCD boom, Taiwan funded enterprises have opportunities to face the future. When BOE invested in the construction of the 10.5 generation line, Gou Taiming played seriously in Guangzhou after repeatedly claiming that he would not be able to put the high generation line into operation in all parts of the mainland. Because he held the trump card of the factory in his hand, he had the confidence.

5. The national top-level design encourages merger, bankruptcy, merger and transformation

In the case that the policies at the national level are soft, the industry still hopes to have a comprehensive overall planning, just like the merger of state-owned enterprises CSR and CNR into CRRC, to merge the panel industry with the background of state-owned enterprises