Death of a Lighting Manufacturer Highlights Two Issues in China’s LED Industry

News Source: 
hqlednews.com

Unable to pay back creditors, a bankrupt decorative luminaire manufacturer from Henglan Town in Zhongshan City, Guangdong Province, China chose to end his life by jumping off a building. Videos of the manufacturer leaping to his death have been widely circulated on the Internet. Rumors surfaced that the company declared insolvency after receiving a bad check for several hundred thousand Chinese Yuan. The information has not been confirmed, though.

China has launched all types of incentives to promote LED industry development. Despite all the investments pouring into the LED industry, lack of industry regulations, and overflow of cheap low-quality products has resulted in LED manufacturers insolvency waves in Zhangshan City.

Images of a bankrupt Chinese LED lighting manufacturer in Zhongshan City, minutes before leaping to his death were widely circulated on the Internet recently.

According to HQEW.com analysis, the recent suicide case reveals two major issues in China’s LED industry:

1)      Long term checks become bad checks

Several LED suppliers were affected when LED Lighting Factory Zhongshan Hung Kee (雄記; Hung Kee), a top LED manufacturer based in Zhongshan City shutdown. Despite having assets worth millions of Chinese Yuan, Hung Kee declared bankruptcy in 2013. One supplier claimed to have shipped LED products worth several hundred thousand Chinese Yuan to the company, but was paid in check. The supplier nearly committed suicide after learning the head of Hung Kee went missing. Component suppliers and distributors suffered the most in this incident, with suppliers having to absorb some of the insolvent manufacturer’s debts.

2)      Low-pricing strategies disrupt lighting industry

Zhongshan City is China’s largest luminaire production base and retail market. The city has more than 10,000 LED manufacturers. In 2012, the decorative lighting industry total market value was RMB 15.81 billion, or more than 60 percent of the national LED market share. The city’s industry supporting infrastructures is fairly mature, with many people setting up simple workshops. Many have setup workshops by renting a factory, acquiring a few soldering irons, and procuring all other required components in town. Simple LED assembly can even be conducted from home.

According to the town’s official statistics, there are more than 10,000 registered manufacturers. To sell their products, these small enterprises have engaged in a vicious price cut cycle. Manufacturers are trying to lower costs, while remaining profitable at the same time. As a result these manufacturers have shifted their attention to lowering costs either by purchasing low-priced components, or in some cases omitting certain manufacturing procedures.

One supplier revealed, at first the company’s luminaire prices were more reasonable. For instance, a 3W LED bulb sold at RMB 5 per bulb was still profitable, but when retail prices are slashed to RMB 3.8 it is not enough to cover production costs. These kind of products are labeled as “junk” in the industry and there are no product quality guarantees.

Some manufacturers vying short-term profits will jump from one product to the next, but these low pricing strategies will only push the lighting industry into a new abyss. Guzhen Town’s reputation as a “Luminaire Town” will become tarnished if low-priced and low-quality products become increasingly widespread.

The above listed issues can be found in many LED industries. From a long term development perspective, a manufacturer cannot be after profits alone, but must find its own market position and product development direction. At the same time, to ensure positive business developments companies must control their business finances, instead of blindly expanding.

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