China Set to Raise LCD Duty to 5%

The Chinese government is expected to increase import tariffs on semi-finished LCD products to about 5 percent next month, rather than doubling the tax as some had speculated, in the hopes of increasing the incentive for Taiwanese and South Korean LCD makers to build plants in China, market researcher DisplaySearch said.

To protect Chinese LCD panel makers, such as BOE Technology Group Co, which are market latecomers with weaker technological abilities, the Chinese government was mulling a hike in import duties on semi-finished LCD products.

However, because a dramatic hike in import duties would increase costs for panel makers and weaken their pricing power, LCD companies jostled to obtain one of five licenses to produce TV panels in the world's biggest LCD TV market last year, before the weak global economy started to take a toll on the industry.

The latest forecast from -DisplaySearch now indicates that Beijing will probably hike import duties on LCD cells used by LCD panel makers in the products they export from the current 3 percent duty to 5 percent, while leaving duties on finished LCD modules unchanged at 5 percent.

The 5 percent duty "might not be big enough to drive Taiwanese and [South] Korean panel makers to build factories in China. -According to our cost analysis," Display-Search vice president David Hsieh said on the company's blog on Dec. 1, 2011.

The less-than-expected tax hikes come amid strong opposition from Chinese TV makers to any drastic increase in import duties because the tax hikes would curb imports from their major panel suppliers — Taiwanese and South Korean LCD panel makers, Hsieh said.

Taiwanese and South Korean LCD panel companies provide better quality flat panels, a more stable supply and a diverse selection compared with Chinese panel companies, Hsieh said.

Because Chinese panel makers "cannot currently provide this [wide] range of panels, raising import duties increases costs for the TV companies," Hsieh said.

Last month, Taiwan's two biggest LCD panel makers — Chimei Innolux Corp and AU Optronics Corp (AUO) — accounted for 54 percent of the LCD panels bought by China's six biggest LCD TV brands, led by Hisense Electric Co and TCL Corp and Skyworth Group, according to Taipei-based research house TrendForce Corp.

Leading its local rivals, AUO received -permission to enter the Chinese market via a joint venture, with China's Longfei Optoelectronics Co to build an 8.5G LCD factory.

Construction of the factory was put on hold this summer after AUO incurred massive losses because of oversupply and stagnant demand. AUO posted losses of NT$40.59 billion (US$1.34 billion) in the first three quarters of this year.

Hsieh said raising import duties to 5 percent was "a compromise between Beijing's intention to protect domestic panel makers and the cost structure of the domestic TV brands."