The Chinese government first began providing LED lighting businesses with subsidies in 2009 which lead to explosive growth within the industry. However, at the time there was a lack in chip manufacturing technology so Metal-organic Chemical Vapor Deposition (MOCVD) units needed to be brought in from abroad. This led to U.S. manufacturer Veeco and German manufacturer Aixtron controlling more than 90 percent share of the domestic MOCVD market.

The majority of subsidies have been taken by U.S. and German manufacturers, which is not conducive for the development of the entire market. MOCVD equipment makes up 40 to 50 percent of the cost for LED epitaxial wafers which is a heavy burden for upstream LED manufacturers. Chinese MOCVD equipment manufacturers have forged ahead, with a Guangdong manufacturer R&D in-house equipment in 2010. However, the company stopped at the start-up stage. Today, China has only around 13 manufacturers who have R&D for related equipment. Although the equipment has a strong competitive edge internationally, receiving trust and approval from manufacturers still needs time.

Chinese manufacturers still have a long wait ahead of them

A surplus in production capacity is the current problem facing manufacturers. The industry points out that Chinese LED epitaxial wafer manufacturers have purchased around 1000 MOCVD units currently, around 35 percent of which have ceased operations. Remaining production capacity utilization rate is only around 80 percent, and the combined production capacity utilization rate for the industry is only around 50 percent. Under these circumstances, the industry is busy eliminating productions which have a surplus of new equipment. The difficulty level for Chinese MOCVD equipment to enter the market has increased.

There is good news however. The elimination of tungsten bulbs in the Chinese LED lighting market clears up room for future growth. However, China still lacks domestic standards and inspection system approved by the industry. With endless standards in the Chinese LED industry, the market does not have a reasonable entry barrier which has led to disorderly competition, ultimately affecting consumer’s approval of Chinese LED lighting products. The future prospects for the turbid market is unclear for both manufacturers who produce LED lighting products and suppliers who R&D MOCVD.