Deepening Cross-Strait Cooperation in the LED Industry: How to Use Favorable Policies for Capital Decisions?

With the rapid development of the LED industry, the necessity of investment cooperation between mainland and Taiwanese LED enterprises has become prominent: mainland capital investing in Taiwanese enterprises and cooperating with them can leverage the technological advantages of Taiwanese enterprises to enhance competitiveness, and can draw on their advanced technology management and marketing models to stimulate vitality; joint ventures between Taiwanese and mainland enterprises are conducive to leveraging the channel advantages of mainland enterprises to lay out the mainland market, while wholly-owned factories on the mainland can take advantage of the favorable policy environment to expand scale and capacity. Therefore, expanding investment cooperation between cross-strait LED enterprises is a wise strategy mutually beneficial to both parties. From the overall perspective of LED industry development, if both sides of the strait integrate and utilize their respective advantages (the mainland has manufacturing capabilities and potential huge market advantages, Taiwan has R&D advantages), they will generate tremendous combined force and creativity, and will have the opportunity to compete with LED powerhouses such as the US, Japan, and Korea.

Cross-strait cooperation to expand investment should recognize the economic situation

It is reported that under the strong demand for investment cooperation between cross-strait LED enterprises, cases of cross-strait LED enterprise investment cooperation are increasingly growing, such as Sanan Optoelectronics acquiring shares in Formosa Epitaxy and becoming its largest shareholder; some Taiwanese chip companies have restarted their plans for alliances and mergers with mainland manufacturers, contacting and negotiating with mainland manufacturers, with some joint venture projects with mainland manufacturers already implemented. Moreover, these Taiwanese LED companies have also accelerated their pace of setting up wholly-owned factories on the mainland. Industry insiders predict that investment cooperation between cross-strait LED enterprises will further expand.

　　However, it should be noted that due to certain external uncontrollable factors, investment cooperation between cross-strait LED enterprises will be affected by cross-strait economic and trade relations as well as their respective investment promotion policies. Generally speaking, Taiwan LED enterprises, whether seeking capital cooperation with mainland enterprises or establishing wholly-owned factories in the mainland, all receive policy support from the mainland; therefore, the total invested capital of Taiwan LED enterprises in the mainland is relatively large. Meanwhile, mainland LED enterprises taking stakes in Taiwan enterprises or investing in Taiwan's LED industry is still progressing slowly. Recently, the Taiwan side has frequently released news about loosening restrictions on mainland capital, which will be beneficial to investment cooperation between cross-strait LED enterprises. However, this depends on whether these favorable policies are genuinely implemented. In short, investment cooperation between cross-strait LED enterprises should not only be considered from the perspective of the enterprises' own needs, but should also constantly monitor changes in cross-strait economic and trade relations and flexibly leverage favorable policies on investment promotion, so as to make appropriate capital decisions in line with the principle of maximizing one's own interests.

　　Loosening Restrictions on Mainland Capital May Benefit LED Capital Decisions by Going with the Trend

　　Surveys show that the investment amount of mainland enterprises going to Taiwan is far lower than that of Taiwan enterprises going to the mainland. The reasons are related to the Taiwan side's overly narrow scope of opening, insufficient incentives, and overly strict licensing thresholds. Recently, the Taiwan authorities have frequently released news on loosening restrictions on mainland capital, such as planning to newly open up mainland capital to take equity stakes in lighting component LEDs in Taiwan, and raising the equity stake caps for five key manufacturing industries, namely panels, semiconductors, machine tools, electronics, and semiconductor production machinery and equipment. They also plan to establish a Free Economic Pilot Zone, with a plan clearly stipulating that "mainland capital investment in manufacturing shall be treated the same as foreign investment, i.e., the investment ratio shall not be restricted." At that time, mainland capital investing in seven key industries (LCD panels, LED, solar cells, integrated circuits, semiconductor packaging and testing, metal cutting tools, electronics and semiconductor production machinery and equipment, etc.) will break through the restriction that "no controlling interest is allowed and the shareholding ratio must be below 50%."

　　Industry insiders analyze that LED mainland capital is expected to become the first wave of industrial capital to enter Taiwan after the loosening of mainland capital investment caps. This is undoubtedly exciting news for cross-strait LED enterprises that urgently need to form industrial alliances, especially those mainland LED enterprises that seek to rapidly advance technologically by taking stakes in Taiwan enterprises. Against this backdrop, Taiwan LED enterprise Genesis Photonics and Lextar under the AUO Group have respectively been reported to be privately negotiating equity participation with mainland panel giant BOE and LED epitaxy leader San'an.

　　Stimulated by favorable news, cross-strait LED enterprises need to plan investment cooperation in advance, but should not act in haste. Because while we are optimistically expecting cross-strait LED enterprises to deepen investment cooperation, we should also realistically recognize that the Taiwan authorities' proposed loosening of restrictions on mainland capital is one of the prescriptions offered to solve economic problems under the current difficulties faced by their economic development, and has not yet entered the implementation stage. Before the policy is truly implemented, everything may still be subject to change; if we completely ignore the possible impact of policy changes, the hard-won results of negotiations and cooperation may come to nothing. Therefore, cross-strait LED enterprises must constantly monitor the actual implementation of policies by the Taiwan authorities in order to make appropriate capital decisions.

Flexibly utilizing favorable policies based on your own investment needs

To improve the economic structure and respond to the call for energy conservation and emission reduction, various regions across the mainland are vigorously introducing strategic emerging industries such as LED. Since LED Taiwanese enterprises hold technological advantages, attracting investment from LED Taiwanese enterprises has become an important part of the investment promotion policies targeting the LED industry in some regions. In order to successfully attract investments from LED Taiwanese enterprises, some regions not only offer common preferential conditions (such as tax reductions and rent exemptions) but also provide sufficient supporting services (such as establishing corresponding R&D platforms, formulating reasonable talent introduction mechanisms, and clustering related enterprises and industries). For example, Dongguan has planned a Taiwan High-tech Park of nearly 6.8 square kilometers in Songshan Lake of its high-tech zone, divided into three functional zones: an advanced IT manufacturing and LED optoelectronics zone, a large-scale wafer and panel manufacturing zone, and an R&D and supporting services zone, providing "compound" services for LED Taiwanese enterprises. It is reported that the Dongguan Songshan Lake Taiwan High-tech Park has successfully attracted Taiwan Zhoulai Technology Co., Ltd. to invest in a 6 billion yuan LED project.

If LED Taiwanese enterprises are familiar with and fully utilize the preferential service policies offered by these mainland regions, they can save costs and accelerate their investment deployment process on the mainland, but they need to balance policy support with their own investment needs. It is understood that the main reason LED Taiwanese enterprises choose to invest on the mainland or set up joint venture factories with mainland enterprises is that the mainland will be an important LED consumer market in the future. LED Taiwanese enterprises can fully leverage their technological advantages, expand production capacity and increase their product market share on the mainland. Some executives of LED chip Taiwanese enterprises have stated that they will choose relatively quick ways to enter the mainland market, such as investing in locations where sales channels are easy to expand or cooperating with mainland LED application enterprises. Therefore, LED Taiwanese enterprises can flexibly select local preferential service policies according to their own investment needs and, after comprehensive consideration, make capital decisions that maximize their own interests.