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UNCLAS SECTION 01 OF 03 GUANGZHOU 000018 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM; EEB/CIP; EEB/TPP; INR/EAP; S/P 
USTR for China Office 
TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP 
TREASURY FOR IMFP -- SOBEL/CUSHMAN 
USDOC FOR ITA DAS KASOFF, MELCHER, MAC/OCEA 
STATE PASS CEA FOR BLOCK 
STATE PASS CFTC FOR OIA/GORLICK 
 
E.O. 12958: N/A 
TAGS: ENRG ECON SENV ETRD EINV TNGD PGOV CH
 
SUBJECT: (U) Energy Efficient LED Lighting Has Bright Future in 
South China 
 
REF: A) 09 BEIJING 00808, B) 09 CHENGDU 000320 
 
GUANGZHOU 00000018  001.4 OF 003 
 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. Not for release outside U.S. government channels. Not 
for internet publication. 
 
¶1. (U) Summary and comment: China will invest in energy efficient 
LED (light emitting diode) lighting on a massive scale in the next 
three to five years, according to leading south China LED 
manufacturers.  Guangdong province, which currently produces 
approximately half of China's LEDs, stands to reap substantial 
benefits from the government's efforts to promote the industry, 
including RMB 500-600 billion (about US$74-88 billion) in stimulus 
spending.  Government spending will go to financing purchases of LED 
lighting and to research and development (R&D), but south China 
manufacturers believe that the R&D funding might be inadequate or 
misallocated.  Other challenges facing the industry include scarce 
financing, lack of energy savings standards and low consumer 
awareness.  China's investment in the LED industry may benefit U.S. 
buyers of LED lights in the form of lower prices and greater product 
choice, but could also lead to stiffer competition for U.S. firms in 
the industry.  End summary and comment. 
 
Government Takes Big Steps to Promote LED Industry 
--------------------------------------------- ------ 
 
¶2. (SBU) The world's conversion to LED lighting is inevitable, 
according to Steve Kelley, the chief operating officer of Cree Inc. 
Cree, the largest U.S. manufacturer of LED chips, is set to open a 
new US$50 million dollar facility in Huizhou, Guangdong.   "Anyone 
who can do a cost benefit analysis can see using LED lights makes 
sense, not just because it saves energy but because it saves money," 
Kelley said.  But the Chinese government's role in promoting the LED 
industry is speeding up China's transformation from traditional 
lighting to LED lights, Kelley commented.  "The Chinese government 
has basically decreed they will have LED street lighting.  They are 
accelerating the process of moving toward LED lights with 
incentives." 
 
¶3. (SBU) China's LED industry already includes approximately 3,800 
companies, according to Shenzhen Quantum Optoelectronic Co. Ltd., a 
leading packaging company with over 1,000 employees.  Twenty-six of 
these companies are high-end LED companies that manufacture LED 
chips, 1,950 are middle-end companies focused on taking the chips 
and "packaging" them with the necessary parts to make LED bulbs, and 
1,480 companies make LED applications such as street lights 
containing hundreds of the individual LED bulbs.  Guangdong province 
makes half of the LEDs produced in China.  Industry contacts 
estimate that the LED market exceeded RMB 30 billion (about US$4.4 
billion) in 2008 and has the potential to grow five-fold. 
 
¶4. (SBU) The money the Chinese government plans to spend on LEDs is 
impressive.  About RMB 500-600 billion (US$74-88 billion) out of the 
2009 stimulus package was set aside for developing the LED industry, 
according to Liu Zhen, the president of Shenzhen Quantum 
Optoelectronic Co.  He explained that the government would invest 
most of these billions to light parts of China's underdeveloped west 
in the next five years.  Much of that money will go to converting 
existing street lamps to LEDs or installing new outdoor lighting, he 
said. 
 
R&D Too...But Not Enough 
------------------------ 
 
¶5. (SBU) Support will come not only from government purchases of LED 
lighting but also in funds for R&D.  Companies can apply at the 
 
GUANGZHOU 00000018  002.4 OF 003 
 
 
local, provincial and even central government level for grants to 
support research or environmental projects, according to Martin Lee 
CEO of Shenzhen Ledman Optoelectronic Co., Ltd., another leading LED 
packaging company.  However, Lee commented these funds were hard to 
secure and disbursed in small amounts.  With an estimated 99 percent 
of the LED companies focusing on packaging and applications and only 
one percent investing significantly in R&D, the R&D base is weak, 
Lee said.  Most companies just copy the products others develop, 
according to Andy Roddam, a Vice President at Guangzhou Yajiang 
Photoelectric Equipment Ltd., whose outdoor LED lights were used 
almost exclusively at China's 60th anniversary celebrations and are 
set to light the Eiffel Tower.  In addition, because of the large 
number of LED manufacturers, research funds do not always go to the 
company with the best product or idea but more often to the company 
with the most political clout, Lee said. 
 
¶6. (SBU) The industry in China also suffers from a lack of domestic 
LED chip manufacturing capacity.  In conversations with three south 
China manufacturers, each one complained about the high cost of 
imported chips.  The United States, Korea, Taiwan and Japan still 
have the technological upper hand in the LED industry as producers 
of quality LED semiconductor chips, according to local industry 
experts.  China's strength lies in its low cost of labor to 
"package" these chips with the necessary components to make LED 
bulbs.  China's success in developing a domestic LED chip 
manufacturing industry is yet to be seen, commented Cree's Kelley: 
"Making chips is as much art as it is science and the Chinese can't 
figure out how to do it by reading our patents." 
 
Other Challenges: Financing, Standards and Awareness 
--------------------------------------------- ------- 
 
¶7. (SBU) Other major challenges continue to face China's LED 
industry.  Financing is still a problem for small- and medium-sized 
LED application manufacturers, according to industry insiders.  "The 
banks won't lend to you unless you have a government contract or a 
purchase order from a foreign client," claimed Miu Xiaoping, 
Operating Director of PONI Energy Saving Limited.  He commented that 
some companies, including his own, had difficulty just finding 
financing for day-to-day operations.  (Comment: Consolidation of the 
industry appears likely as companies who cannot find financing go 
out of business or join forces to compete.  End comment.) 
 
¶8. (SBU) In addition, there is currently no standard for the LED 
energy savings.  A similar standard to the United States' 
Environmental Protection Agency's "Energy Star" in the United States 
should be established, Roddam from Guangzhou Yajiang said.  He 
pointed out that two LED lights with the exact same voltage can 
produce vastly different amounts of light.  Roddam explained that, 
without standards, only an expert could tell the difference and 
consumers wouldn't know what they were getting. 
 
¶9. (SBU) LED sales will take off within three to five years, 
according to all four of the LED manufacturers Congenoff met with. 
But those sales will be mostly to the government and businesses 
because of the higher price of LEDs, Kelley predicted.  He believes 
that lack of energy standards and consumer knowledge about LEDs' 
potential energy savings means sales to consumers will take much 
longer -- five to fifteen years. 
 
Comment - Benefits and Costs for U.S. Interests 
--------------------------------------------- -- 
 
¶10. (SBU) China sees the LED industry not only as an opportunity to 
achieve manufacturing dominance in a newly emerging industry but as 
a way to realize many of its core goals in one stroke: increasing 
 
GUANGZHOU 00000018  003.4 OF 003 
 
 
GDP and creating jobs, developing high-tech industry, and protecting 
the environment.  Consumers in the United States also will likely 
benefit from lower LED prices as manufacturers scale up.  However, 
Chinese policies to develop the LED industry could lead to increased 
Chinese dominance and tough competition for U.S. companies. 
 
JACOBSEN