Supported by favorable government policies China’s LED industry initiated a new round of financing during the first half of 2014, according to a Chinese-language report by Consumption Daily. Innovative technology and new products released by the LED lighting industry led to rising developments. Spurred on by strong demands throughout the supply chain, listed LED manufacturers reported high revenues. Investments, mergers and restructures have become the norm as the increasingly diversified LED market continues to grow.

In 2014, China’s LED lighting market delivered stellar performance. The LED lights have expanded at an expeditious rate, as retail prices dropped amidst improving lighting quality. As manufacturers distribution channel performances continue to sink, second tier city market performances have outshone the rest. The commercial lighting market in particular has kept up positive growth trends. Despite impacts from the real estate industry and consumer electronic vendors, lighting product distributors overall have been profitable. Growth rates on average reached above 20 percent while gross profit margin was about 25 percent. In comparison, the peak season in second half of 2014 will be reaching new heights throughout the year.

Complete LED market penetration and transformation

This year marks the first year of wider market penetration rate in China’s LED lighting market, and revenues have soared during this time period. In the first half of 2014, LED lighting retail revenue in stores increased 27.8 percent, according to related statistics. More than 88 percent of distributors reflected LED luminaire sales grew significantly in 2014 compared to 2013, with nearly 30 percent vendors stating growth rates were over 30 percent.

Replacement of conventional light sources contributed to the soaring LED market revenue. Overall, lack of significant growth factors and higher LED market penetration rates pushed the industry into an explosive growth phase in 1H14. As of June 2014, LED lighting products total market penetration rates have reached about 57 percent, up nearly 14 percent compared to the end of 2013.

Explosive growth in second tier cities in central China

Targeting the highly lucrative LED market, manufacturers and distributors have scaled up LED promotions. LED luminaires are already very common in first and second tier cities in China, with third and fourth tier cities trailing closely behind.

From a market and distribution channel perspective, 2014 marks the point of exponential growth for second tier cities, with market penetration rates up nearly 15.5 percent. At the same time, second tier city sales revenue were also up by nearly 30 percent in 2014 compared to the same period in 2013. Growth rates of up to 75 percent of distributors have been above 10 percent. After a year delving into the second tier market, major Chinese lighting manufacturers have finally reaped benefits from their business and market promotion strategies in the region.

Growth rates in first and third tier cities also should not be overlooked. Top cities LED lighting revenues increased 19.27 percent compared to the same period in 2013, while market penetration rates steadily climbed up to 62 percent. The average consumer is also starting to recognize LED products in third tier cities, as many manufacturers strongly promote their products. However, market penetration rates in third tier cities still fall behind top and second tier cities, and on average grew at a rate of 20 percent in 2014.

E-commerce soars and nearly doubles in the last two years

LED lighting product sales are selling out in larger volumes online than from traditional sales channel in China.

Taobao luminaire market has grown at exponential rate. Taobao (including Tmall) revenue for luminaires and light sources reached 5.3 billion Chinese Yuan during the first seven months in 2014. An increase of 144.43 percent YoY, in which light sources sales soared 95.4 percent to RMB 210 million, while luminaire revenues grew 147 percent YoY to RMB 5.08 billion.

In terms of completed transactions, Taobao delivered 23.42 million light source orders. Compared to the same period in 2013, deals completed were up 85.26 percent, with light source orders having grown 98.99 percent to 6.99 million orders. Luminaire orders also had grown 79.88 percent YoY to 16.43 million, while types of products sold reached 330,000.

According to Tabao statistics, LED light source sales (which includes spotlights) from January to July 2014 ballooned 100.59 percent YoY to reach RMB 175 million. Light source product ratio was also about 82.76 percent. As from order volume, accumulated LED light source orders on Taobo in July 2014 was 5.9 million, up 122.14 percent YoY. Another 60,000 LED products were added to Taobao this year, having climbed up 33.22 percent YoY.