Samsung and LG to make LCDs in China

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Samsung and LG Display, the world’s two biggest makers for flat panels for televisions, have won approval from a key Chinese government body and are set to become the first foreign groups to build advanced LCD panel plants in the country.

Samsung said that it plans to spend 18 months building a Won2,600bn ($2.3bn) plant in Suzhou that will make 7.5-generation LCD panels. LG wants to build a more advanced 8.5-generation site in Guangzhou for $4bn. Final approval for the investments still has to come from China’s commerce ministry, but Samsung said that it was “virtually a done deal”.

The approval, from the National Development & Reform Commission, represents a milestone in the transfer of complex, high-tech production to China. While Chinese companies have long assembled flat-screen TVs largely using Taiwan-made LCD panels, they have lacked the technical expertise to produce large-sized panels themselves.

China is the world’s largest market for LCD TVs and is forecast to account for 30 per cent of the global flat-panel supply by the end of next year. China has eight plants for fifth generation or below LCD panels, but no advanced capacity able to meet the demand for large-size TV panels. It is thus missing out on the most profitable link in the flat-screen TV value chain.

A total of 11 proposals for advanced LCD plants worth $20bn, from both local and foreign companies, are in the pipeline, raising concerns about industry overcapacity.

Analysts say that the NDRC’s worries that an investment spree driven by Chinese local government goals rather than pure business considerations are helping hold back approvals.

“We reckon only half of these plants will see the light of day in the near future,” said Red Tech Advisors, a research firm in Shanghai, in a recent report.

However, the analysts expect China to start being a swing factor in the panel-supply cycle from 2012, when some advanced capacity comes online.

The approvals come as worldwide TV sales growth is slowing after several strong quarters. Third-quarter sales were up just 9 per cent year-on-year, compared with over 20 per cent growth in several previous quarters, according to DisplaySearch. TV sales in China fell
2 per cent in the past three months, against flat growth a year ago.

HP Chang, head of LCD research at Taipei-based Witsview, a research company, said: “The best time for the investment approval was last year, when there was tremendous growth in China because of the government's stimulus package.” Samsung and LGD “may now be more conservative about their investment plans”, in spite of the approval, he said.

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