Power and money draw gov’t subsidy for China’s LED industry; 20% of the domestic LED lighting companies might file for bankruptcy by the end of this year

Power and money draw gov’t subsidy for China’s LED industry

Staff Reporter

2013-08-07

Private companies have to maintain a good relationship with government officials and do everything possible in order to acquire government subsidies, the owner of a private company said. Li Xinghua, head of the Guangdong Provincial Department of Science and Technology, is currently being investigated for having close relations with the LED industry. Based on statistics compiled by the National Audit Office, an LED company in Anhui had cheated the government by filing fake documents to get 9.9 million yuan (US$1.6 million) allocated as investment for construction.In addition, the Guangdong-based Cnlight, an LED manufacturer, deceived the local government to get subsidies worth 3.46 million yuan (US$565,000), while Perfect Science and Technology in Dongguan had fraudulently obtained subsidies worth 232,000 yuan (US$38,000).

The GDSTC had allocated a considerable budget to boost the development of the LED industry. During the 12th five-year-plan, the Guangdong finance ministry allocated 450 million yuan (US$73.5 million) of funds every year for LED industry.

In addition, the Guangdong government plans to promote the use of LED products across the province. According to a provincial plan released in May 2012, Guangdong wants LED lighting to be used in public places, government organizations, state-run companies and state-invested construction.

Based on the plan, the scale of the LED industry in Guangdong is projected to touch 500 billion yuan (US$81 billion) by the end of the 12th five-year plan.

The China Business News reported that these policies have had a positive impact on promoting the development of the LED industry. But companies are using unfair means to get access to the government’s allocation for the LED industry.

“This subsidy frankly indicates two things — power and money. Companies that have both power and money can obtain favors from the government,” a man in charge of sales at a private company pointed out.

He added that the first step when applying for subsidies was to form a good relationship with government officials.

In fact, some companies are still able to get government support despite their inferior industrial technology.

A senior source from the LED industry told the News that there were at least 6,000 LED manufacturers in Guangdong, but only about 3% had gotten subsidies, and these mostly included listed or state-owned companies.

Another industry source stated that if the government kept supporting the LED industry without considering the consequences, the industry might meet the fate of the domestic photovoltaic industry, where enormous government financial support led to excess capacity.

Some people in the industry even predicted that 20% of the domestic LED lighting companies would file for bankruptcy by the end of this year.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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