» Biz Commentary
LCD fines a warning, not a solution
ONE of the hottest topics in China's tech realm this month is the 353 million yuan (US$56 million) in fines levied on Samsung, LG and four other overseas makers of liquid crystal display panels, or LCD panels, for price manipulation.
The action, announced by the country's top economic planning agency early in the new year, marked the first time that offshore businesses have been fined for price-fixing on the Chinese mainland.
The Chinese media was quick to note that the punitive act would restore fairness to the market and make TVs and computers with LCDs more "affordable" in the future.
I partly agree with that opinion. At least the action was a step in the right direction.
Still, consumers who were the victims of price-fixing haven't been compensated, and China hasn't yet developed a core of domestic LCD giants with the technologies to challenge foreign domination. What's to prevent all this happening again when LCD panels are in short supply?
Between 2001 and 2006, South Korea's Samsung and LG, and Taiwan-based AU Optronics Ltd, Chi Mei Corp, Chunghwa Picture Tubes Ltd and HannStar Display Corp held 53 meetings in South Korea to reach agreements on LCD panel pricing, the National Development and Reform Commission investigation concluded.
Under their price-fixing scheme, 5.1 million LCD panels were sold to TV manufacturers on the mainland, adding to the cost of televisions. Most of the panels were sold by LG and Chi Mei, the commission said.
In addition to a special fine of 144 million yuan, the companies were ordered to pay back 172 million yuan to Chinese television makers who were overcharged. The commission said authorities also seized 36.8 million yuan from the companies, raising the total fine to 353 million yuan.
LCD screens are widely used in televisions, computers and mobile devices. The panels accounted for between 70 percent and 80 percent of the cost of a television back in 2006. They still account for more than half of the cost.
Did you buy a computer notebook, computer monitor, or big-screen TV anytime between late 2001 and 2006? If so, odds are you paid too much for it, according to the commission's findings.
The fines at least partially compensate TV makers for overcharges, but consumers stung by manipulated prices get nothing.
The People's Daily published a commentary advising TV makers to contribute part of their compensation back to consumers.
There has been no comment to date from any TV manufacturers.
I appreciated the newspaper's idea, but it doesn't sound very practical.
Instead, I think TV makers and their industry association should establish a research fund with the money to improve the whole industry by upgrading technologies.
My neighbor, whom we all call Uncle Zhang, spent 14,000 yuan on a 46-inch TCL LCD TV in 2006. The same set today costs 3,999 yuan in online electronics shops like 360buy.
"I don't expect to get my money back, but I really did expect to get good after-sales service," said Zhang, who had to dip into his own pocket and spend another 2,000 yuan for three repairs to his set.
It's heartening to see the national regulator making moves in the right direction, but more needs to be done.
The commission is requiring the six makers of LCD TV panels sold in the domestic market to extend their free warranty periods from 18 to 36 months, starting this year. The warranty extension is expected to save TV makers 395 million yuan in after-sales repairs annually.
The six LCD companies also were taken to task by US and European regulators for anti-competitive practices. The US fined them US$1.2 billion, the European Union got them for 648 million euros (US$845.3 million) and even the South Korean authorities stepped into the fray with fines of 194 billion won (US$182.5 million), Xinhua said.
The fines, however, are only a fraction of the huge profits these companies reap from monopolistic pricing.
Even on conservative estimates, the six price conspirators sold US$23.5 billion in price-fixed panels destined for the US, according to US regulators.
Samsung, LG, AU Optronics and Chi Mei are the world's top LCD panel makers.
Global sales of LCD TVs are expected to rise 7 percent in 2012 to 220 million units from 2011, according to DisplaySearch, a US-based research firm.
The business landscape of the LCD industry hasn't changed much, which means there is still potential risk for all Chinese TV makers that lack core LCD panel technologies.
It's been said over and over: Chinese TV makers need to upgrade their technologies and try to expand into the mainstream LCD panel sector.
Tracking down price-fixers is a costly and time-consuming process. By developing domestic technologies and reducing dependence on imported LCD panels, the risk of more such shenanigans can be reduced.
Chinese consumers deserve an honest marketplace where the money they spend isn't manipulated to their disadvantage.
Meanwhile, the fine will help the home-grown industry to grow from infancy stage to a mature level in the next 10 years, according to Mei Xinyu, researcher of the Ministry of Commerce. Mei also expected China to become the world's No. 1 LCD panel manufacture region within 10 years.