Commercial LED lighting display demonstrated at a theatrical event at the Shanghai Expo Park on July 11 Photo: CFP

Twenty years after the first commercialization of LED lights, China has emerged as a leading LED market with a domestic penetration rate of 27 percent, in comparison to the global average of about 17 percent. Experts said the LED presence will double in about three years' time.

Industry transformation

At the Beijing Wanjia Denghuo Lighting and Lamps Marketplace, a leading mall with some 600 vendors selling commercial and residential products, LED lamps have virtually replaced conventional incandescent and fluorescent lamps.

"Modern high-power LEDs have a powerful illumination effect and energy-saving feature. The trend has gradually gained momentum since early 2013, and this year it has become so sweeping that LED lamps have become almost omnipresent in our marketplace," a PR manager surnamed Qi told the Global Times Monday.

Zhang Hongbiao, a senior researcher at industry portal gg-ii.com, told the Global Times that LED lamps have become widely adopted in first-tier Chinese cities such as Beijing, Shanghai, Guangzhou and Shenzhen.

"China considers the industry a 'strategic emerging industry.' There are central government support, local government incentives, and the companies' promotional efforts through their sales channels," Zhang said on Monday, noting that China manufactures about 70 percent of the world's LED lighting lamps, components and devices.

Local governments attract LED companies by granting them cheap land and tax reductions. In Chenzhou, the leading city in Central China's Hunan Province in LED manufacturing, the LED industry is so big that the industrial production of the eight major LED companies is worth 2.1 billion yuan ($343.1 million) in 2013, the Hunan Daily newspaper reported on October 2.

As of September 2014, there are ­over 15,000 companies in the LED industry in China and the market penetration rate will hit 70 percent by 2017, read a research report by gg-ii.com.

Mergers and growth

There have been over 100 mergers of Chinese LED companies since 2012, according to gg-ii.com.

In October 2013, Xiamen-based LED chip maker San'an Optoelectronics Co bought a 20 percent stake in Taiwan-based Formosa Epitaxy Incorporation for NT$2.35 billion ($77.3 million).

In May 2014, Shanghai Feilo Acoustics Co acquired Beijing-based Shen'an Lighting Group for 1.59 billion yuan.

Tsinghua Tongfang Co announced plans to secure a 52 percent stake in Hong Kong-listed LEDs manufacturer Neo-Neon Holdings for HK$900 million ($116 million) in March 25.

But Zhang said with endless orders to fill for now, the majority of domestic firms will still be able to maintain their independence albeit with thinning profit margins.

"Until market penetration rate rises from the current level to around 70 percent in 2017, when the LED market becomes saturated, there is plenty of room for growth for domestic companies. After 2017, we would probably see an industry-wide reshuffle as a result of fiercer competition," Zhang noted.

Zhang believed the market would witness the birth of the first domestic player boasting annual sales revenues of over 10 billion yuan this year.

Future trends and developments

In 2013, the sales revenue of the world's top three lighting companies - Philips, GE and Osram - were $11.44 billion, $8.3 billion and $7.19 billion respectively.

In comparison, the sales revenue of the top three Chinese companies - Guangdong-based NVC Lighting Technology Corp, Shanghai-based OPPLE Lighting, and Zhejiang-based Yankon Lighting - were $620 million, $550 million, and $520 million, respectively, the China Business News newspaper reported on October 15.

China has already become a major LED manufacturing base, but so far there has been no domestic company that can set the benchmark for the global industry in terms of R&D and design, reflecting weak innovation, Zhang said.

"Philips has unparalleled influence in this industry and sits on an immensely large market share. The company's new product is the bellwether of the market," Zhang said.

Philips unveiled its Hue smart lighting system in October 2012. The system uses a wireless connection linking personal computers and smartphones to enable its light bulbs to generate millions of colors.

Treating China as a "home market" together with the US and the Netherlands, Philips further unveiled its smart connection lighting concept to the Chinese market in June, and introduced its lighting solutions for road, residential and commercial buidings, a Philips PR manager surnamed Zhang told the Global Times.

The pioneering Hue was followed by similar products offered by other brands such as Osram and China's Xiaomi Technology.

Philips R&D investment surpassed 1.7 billion euros ($2.17 billion) in 2013 with submittals of 1,500 patent applications.

When the domestic LED market becomes saturated in a few years, new growth can only stem from technological innovation, Zhang of gg-ii.com said.

But there was also a silver lining.

"Some Chinese companies have already emerged from being just an OEM and opened up some overseas markets with their own products, mostly in African countries," Zhang noted, adding, "That is a scenario that would have been impossible [previously] in a world dominated by conventional lighting technology."