China will ramp up the production of LCD screens dramatically during the next few years, new research predicts.

The country's LCD manufacturing capacity will grow 35 per cent next year and 50 per cent in 2008, according to a report from SEMI, a global semiconductor manufacturing industry association. 

"To date, there has been very little production of TFT-LCD materials or components in China," said Mark Ding, SEMI's president in China.

"However, the influx of Chinese and foreign-owned companies establishing local facilities is helping to significantly grow this market, and will ultimately help establish China as a global market centre for TFT/LCD materials and components."

Makers of smaller, low-cost LCD screens have been hit by intense competition and falling prices, forcing mergers between medium-sized players in Taiwan.

Profit margins have become slim, or even negative for some smaller manufacturers, discouraging further investment.

SEMI believes that investment in display production facilities will fall in the rest of the world, and that China will be ready to take up the slack.

Members of the industry association include all major vendors of semiconductor manufacturing equipment, and SEMI predicts that China's LCD factories will be an increasingly important market for these companies.

Chinese manufacturers will be spending between $4bn and $5bn a year on LCD production equipment and materials in 2007 and 2008, the association forecasts.

China already has two fifth-generation LCD plants in operation, with one more about to start production and another on the drawing board.

SEMI noted that there are a number of other LCD fabs in the planning stage, including two sixth-generation facilities. China also has some factories using older technology to produce smaller and less advanced LCDs.

China still lags far behind the cutting edge of display technology. LCD market leaders like Sharp, Sony and Samsung are currently manufacturing display panels in so-called seventh-generation plants, and are just beginning operations at eighth generation-facilities. 

Later generation plants are more suitable for large TV-sized displays, and can provide brighter, sharper images.