LED industry's current debt chain business environment deteriorates to a critical point

[Source: "High-tech LED lighting market" December issue / reporter Zhang Wei]

Since last year, domestic LED companies have passed the debt chain, that is, the application enterprises have owed debts to packaging companies, and the packaging enterprises have owed debts to chip companies. At present, this debt chain has reached its limit, and the domestic LED industry operating environment has deteriorated to a critical point.

Export into the winter

Since the 2010 G20 summit countries jointly pressured the appreciation of the renminbi, the exchange rate of the renminbi against foreign currencies has continued to rise, causing heavy losses for domestic exporters. Europe, Japan, and the United States are the three major regions for the export of domestic LED lighting products. From August 2010 to November 29, 2012, the RMB appreciated 15% against the euro, 4.9% against the Japanese yen, and 7.6% against the US dollar, making LED exports Businesses are overwhelmed.

At the same time, in April 2011, the world's two major rating agencies, Fitch and Standard & Poor's, lowered the outlook for China's AA long-term local currency credit rating from stable to negative, resulting in the withdrawal of large amounts of funds from China, resulting in significant fluctuations in the RMB exchange rate since 2011. As a result of the appreciation of the renminbi, China’s exports have declined. Since 2011, the scale of the Canton Fair’s exports has been less than one session.

At present, China's LED export enterprises are basically doing OEM work for Europe, the United States, and Japan. Due to the fluctuation of the RMB exchange rate, corporate profits have been greatly reduced. In addition, the financial crisis caused a sharp decline in European orders, forcing a large number of LED companies exporting to Europe to sell domestically.

Ye Jinrong, chairman of the export-oriented LED company Bejing Lighting, told reporters that “the domestic market is more difficult to find than the foreign market. In 2008, the country’s 4 trillion yuan economic stimulus plan was invested, resulting in the domestic production capacity of the house and steel-related industries. Excessive, consumers' purchasing power is not as good as before, LED products are stationed in the terminal market because they are sold at a high price."

Export OEMs have a special feature, the scale of the enterprise will expand rapidly, and the risk is not large, but if you want to do your own brand, you have to face a lot of risks.

Because, in the early stage, investing a lot of money to advertise and build sales channels, due to lack of brand building experience, the effect may not be great. Therefore, since last year, a large number of export-oriented enterprises have turned to domestic sales, and found that it is too difficult to build their own brands, and they have to do OEM for domestic LED brands.

Wanjia enterprise fights domestic sales

In addition to doing OEM work for domestic LED companies, export LED companies have also chosen to take their own brand routes.

Ding Xia, the store owner of Yijia Lighting, a lighting house in Shenzhen, told reporters that “at the end of last year, there were nearly 8 batches of different LED export salesmen selling products on the door every day.”

At present, traditional lighting companies, domestic sales LED companies, export-oriented LED companies are all eager to deepen dealer channels, dealer channels are squeezed by enterprises. In this regard, many lighting dealers expressed that they are very disgusted with the frequent sales of LED salesmen.

For domestic LED companies, it is very difficult to choose to join dealers. Many export companies choose to open brand-operated stores directly in the terminal, but the current terminal market sales are generally weak.

Ye Jinrong, general manager of Bejing Lighting, said, “The main problem at present is not because LED products are too expensive to sell at the terminal, but the entire terminal market is in the cold winter. The major professional lighting market is basically scarce. If no one comes over Buying products, regardless of the lower price of LED products, is basically a display."

According to the data of high-yield research and development, there are nearly 10,000 LED enterprises in China. Since last year, the LED lighting industry has already entered the overcapacity, but there has not been a large number of LED enterprises. Dr. Zhang Xiaofei from the Institute of Advanced Industrial Research and Development said: "Since last year, the LED industry has seen a large number of industrial debt chains, that is, the application enterprises are in debt to the packaging companies, the packaging enterprises are in debt to the chip companies, and the chip companies are in debt to the equipment companies. The debt chain has supported LED companies to the present, but this debt chain has reached its limits."

RMB to the limit of appreciation

In the case of a rapid deterioration of the domestic and foreign markets, domestic LED business operations have been overwhelmed. The renminbi has also reached the limit of appreciation. On November 27th, the Obama administration of the United States said that "the RMB exchange rate is still 'significantly undervalued', but China has not been listed as a currency manipulator." This has made China's manufacturing industry, including the LED industry, relieved.

The United States often used the trade surplus to force the renminbi to appreciate, and the collapse of the manufacturing industry in the year when the yen was forced to appreciate was a testament to the past. In the book "Financial Defeat", Professor Yoshikawa Yoshikawa of the Department of Economics at Kanagawa University in Japan pointed out that in 1985, the United States called the United Kingdom, Japan, France, and Germany to sign a "plaza agreement" at the New York Hotel, and the yen appreciated against the dollar. As a result, the price of Japanese exports has risen sharply, and corporate income has decreased, eventually leading to a complete collapse of Japanese manufacturing.

Yoshikawa Yuzhong summarized the changes in the manufacturing industry's collapse due to the sharp appreciation of the yen as follows:

Appreciation of the yen - reduction in exports / increase in imports - decline in production of industrial and mining enterprises - stagnant labor productivity - rising unit labor costs.

The appreciation of the yen has led to a significant increase in the labor costs of Japanese units, which not only led to the excessive development of “industry hollowing out”, but also caused the import prices to fall, which in turn led to deflationary pressures, making it difficult for Japanese manufacturing to survive.

At present, the operating environment of the domestic LED industry has deteriorated to a critical point, and the renminbi will never be able to appreciate any more. Otherwise, it will repeat the mistakes of Japan's manufacturing industry in the last century.

Lang Xianping, a well-known Chinese economist, said: "Since last year, China’s export-oriented enterprises have suffered heavy losses. In the first half of this year, Zhongxing lost 180 million yuan, and Huawei lost 700 million yuan. These losses have nothing to do with the ability of enterprises to operate, and are purely due to exchange rate losses. At present, domestic enterprises lack a preventive mechanism. Volatile companies caused by exchange rates cannot be hedged, resulting in heavy losses. Therefore, the state should allow domestic enterprises to reserve other countries' currencies and establish a hedging mechanism."

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