Classic economics believes in small government and let the market mechanism run its course. Keynesian economics believes in interventions, in particular, government interventions to smooth out the business cycles. Most governments have been practicing a more Keynesian type of economics by providing subsidies to domestic infant industries or to achieve certain targets.
To help the domestic LED industry, the China government has provided subsidies for chip firms to procure MOCVD equipment. Now under its 12th Five-Year Plan, the country aims to increase the adoption of LED lighting. In China, there are more than 100 LED firms and with the market downturn that began in second-quarter 2011, the firms are not doing well and are hoping to find relief from more government subsidies. Now they are anxiously waiting for the China government to announce a list of chosen firms eligible for the first stage of LED lighting subsidies in 2012.
In South Korea, the government has been hoping to increase the percentage of domestic-made sapphire materials. As upstream segments of the LED industry, sapphire crystal growing, ingots, and substrates are quite crucial to the development of the industry. South Korea's government hopes to gain control over the supply of sapphire products from international suppliers such as Rubicon, and Monocrystal. With the government's help, Sapphire Technology Co (STC) has experienced rapid capacity growth of sapphire ingots in the past two years.
The necessity of government subsidies has been debated. Government subsidies can help the growth of domestic firms but can cause oversupply. Firms without subsidies (such as Taiwan-based LED firms) are left to fight for market shares against competitors that are subsidized. The fight seems unfair but the main purpose of subsidization is to level the playing field as each country is endowed with different types of natural resources.
The LED industry has seen strong fluctuations over the past two years. It remains to be seen whether government interventions can stabilize it and direct it towards steady growth.
China government heavily subsidizes LED firms
