Samsung, LG Win Chinese Approval to Build LCD Plants

Samsung Electronics Co. and LG Display Co., the world’s two biggest makers of liquid-crystal displays, said they received the Chinese government’s approval to build LCD factories in the country and meet surging demand.

Samsung spokesman James Chung and Son Young Jun at LG said today the companies received notices from China about the decision last week. Japan’s Sharp Corp., which had also sought permission to build a display factory in the country, hasn’t received any such notification from the Chinese government, spokeswoman Miyuki Nakayama said.

The approval paves the way for the two South Korean companies to build multi-billion-dollar factories in Suzhou and Guangzhou to meet Chinese demand for flat panel displays used in televisions and computers. Setting up the plants will enable the companies to be closer to the assemblers and reduce costs, Seoul-based analyst Choi Do Yeon said.

“China is a market where a very large number of households haven’t switched to LCD televisions yet,” said Choi, an analyst at LIG Investment & Securities Co. “Even though it’s the fastest growing market in the world, it still has a lot of growth potential. The new factories can be beneficial in terms of securing distribution channels.”

China Japan Tensions

Samsung, the world’s largest LCD maker, expects to start operating the factory in about a year and a half, Chung said.

The company’s shares rose 4.8 percent, the biggest gain in a year, to close at 859,000 won and LG Display gained 1.3 percent to 40,500 won in Seoul, outperforming the 1.1 percent gain by Korea’s benchmark Kospi stock index.

China became the largest LCD-TV market in the third quarter, surpassing the U.S., according to Soh Hyun Cheol, an analyst at Shinhan Investment Corp. in Seoul. About 39 million units will probably be sold in the country this year, and sales are estimated to increase to 46 million next year, he said.

Sharp is lagging behind the Korean companies in receiving approval amid heightened tensions between China and Japan.

A Chinese fishing boat collided with two Japanese Coast Guard vessels on Sept. 7 near islands claimed by both sides. China cut off ministerial talks after Japan detained the captain of the trawler for 17 days. The clash also reportedly prompted Beijing to cut off exports of rare earth minerals used in the manufacture of hybrid car batteries and wind turbines.

Sharp Approval

“There is no reason for China to only deny Sharp an approval,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “The political situation between China and Japan will make things a little late, but in the end it won’t be just Samsung and LG there because from China’s point of view, there’s no merit in only doing that.”

Sharp, Japan’s largest LCD maker, said in August last year it reached a preliminary agreement with China Electronics Corp. to form a venture to make LCDs based on 8G technology. The company also said it will sell LCD manufacturing equipment to China.

Samsung’s proposed 2.6 trillion won ($2.3 billion) plant in Suzhou will be based on the so-called 7.5-generation LCD technology, while LG Display’s $4 billion factory will use eighth-generation technology. 8G plants are designed to make displays measuring more than 40 inches diagonally.

AU Optronics

The South Korean government approved the companies to go ahead with the projects last December, while asking them to find ways to prevent technology leaks. According to Korean law, the government has the option of blocking the transfer of technologies deemed strategic.

China’s government accepted the applications of LG and Samsung in February, according to Chung and Son.

AU Optronics Corp. in March became the first Taiwan maker of liquid-crystal displays to apply to the Taiwan government for approval to set up a panel factory in China after the government relaxed restrictions. That application has not yet been approved by the Taiwan government, AUO spokeswoman Yawen Hsiao said by phone today.

“We have to get Taiwan government approval before we can take the next step” of applying to China, Hsiao said. Emile Chang, spokesman for Taiwan’s Investment Commission wasn’t available at his office today when contacted by Bloomberg News.

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