The Chinese government has been cutting back on subsidies to manufacturers of light-emitting diode (LED) chips, a reason some companies are blaming for their poor first quarter results.
This points to a change in approach to policies over the once-hyped sector amid overcapacity and sliding prices, noted a report Wednesday by Global Times.
Chinese listed firms, such as Elec-Tech International, issued a profit warning last month in its first quarter earnings report, the news site said. The company forecast net profits for the first half of the year would drop 30 to 60 percent year-on-year, partly because of a sharp drop-off in subsidy funding it expected
Elec-Tech added government support for LED chip makers had weakened overall with the gradual curtailing or scrapping of payouts for new equipment.
Another LED chip maker Sanan Optoelectronics described a similar situation in its own quarterly report, according to People's Daily. The company blamed lost subsidies as a key factor behind its 29.5 percent profit drop over the first three months of the year.
Global Times cited a report from 21st Century Business Herald that Sanan Optoelectronics received government subsidies totaling 328 million yuan (US$53.3 million) in 2012, 805 million yuan (US$131 million) in 2011 and 2.53 million yuan (US$411,890) in 2010; with these amounts accounting for 40.5 percent, 85 percent and 60.4 percent of its net profits respectively during those years.
For Elec-Tech, it would likely have suffered losses in 2010 and 2012 if not for subsidies, the report pointed out.
Wang Hong, a professor at South China University of Technology, explained the industry underwent a period of consolidation last year, nearly one-third of China's LED chip makers shut down. This may have led several local governments to reconsider their earlier policies and offers.
For example in March, Shenzhen city in Southern China axed a seven-year development plan to turn itself into the largest LED research, development and production center in China.
Earlier this month, China reportedly cut its solar subsidies program by 21 percent to 5.5 yuan (US$0.87) per watt, as compontent prices had plunged making them unncessary. However, this does not rule out other forms of assistance such as tax rebates and property concessions.