From the Indian government's gleaming public relations effort at the World Economic Forum to President Bush's recent visit to the south Asian country, India has jumped into the spotlight - seemingly shoulder to shoulder - with its neighbor China. Meanwhile, the recent Plastindia 2006 trade show also helped to spotlight India's booming plastics industry prospects.
The general-interest media's headlines read ``Slowing growth in China'' and ``Soaring market in India'' on the same page. But is that really the case? To get a better idea for our purposes, let's put up a plastic filter and refocus on those headlines.
Well-placed Chinese and Indian sources often offer widely differing sets of numbers as ``official'' statistics related to consumption and production. But here are some drawn from various high-ranking experts: China consumes 48.5 pounds of commodity plastics per capita and India 8.8 pounds, while the world averages 55 pounds. Annually, China makes $47.4 billion worth of plastic products and India $8.5 billion.
Of course, China does not produce that much for itself. In 2004, it exported $12.8 billion of plastic products, whereas India exported $600 million worth. And as far as imports for the same period, China brought in $7.1 billion in plastic products, while India's imports totaled $400 million.
A similar comparison applies to processors. Frank Zhao, senior research analyst at Houston-based Chemical Market Resources Inc., said in a phone interview: ``Although both countries have numerous small processors, the standards are different.'' China classifies 80 percent of its plastics processors as small, or those making less than $600,000 annually. Three in every four processors in India fall into the country's official category of Small Scale Industry, meaning companies with fixed assets below $230,000.
``There are more large-scale processors emerging in China than in India,'' Zhao said. The largest 700 Chinese processors, all with annual sales exceeding $10 million, represent about half of the entire market. By contrast, using Chinese standards, the largest 60 processors in India account for only 15 percent of industry sales.
China vs. India
Less than 10 percent of medium and large Chinese processors are state-owned. State-owned firms tend to be larger, so for an unbiased comparison, let's stick with China's privately owned firms. Why did China's less-than-30-year-old market economy yield more giants than the Indian system? Because the Indian SSI policy has dwarfed domestic business sizes.
``The [Indian] government reserves a list of products exclusively for the small-scale sector,'' Zhao said. ``Companies with more than $230,000 in fixed assets simply cannot participate in the production of those products.'' The most up-to-date list, effective since last March, includes close to 60 categories of plastic products, ranging from combs, key chains and handles to large-volume products like polyethylene bags, PE and PVC flexible hoses as well as polypropylene and high density PE woven sacks.
When India protects small domestic workshops with policy restrictions and high tariffs, foreign investment floods to China, where incentives favor foreign ownership. China is 15-to-1 ahead of India in foreign direct investment, which contributes to more than half of the country's exports.
``The plastics industry is one of the early movers to China, starting with low-tech products such as toys,'' said Kent Kedl, executive director of Technomic Asia, a consulting firm with staffs of about 20 in both China and India. The consultancy has helped 200 U.S. companies, 80 percent in manufacturing and 20 percent in services, move to China. He said China is its largest market in terms of business volume.
The Indian government, aware of the drawbacks of SSI policies, has been trimming the reserved list. At the same table with China, craving the cake of foreign investment, India has lowered tariffs and is pitching its lower cost and English-speaking workforce.
Vying for investors
It is the nature of capital to flow wherever the largest profit margins sit. But cost is just one parameter of the equation. Openness, infrastructure and government efficiency are vital for Western investors, industry analysts say.
The Chinese government has been investing in roads, airports, buildings and phone lines during the past few decades. Modern infrastructure is in place, especially in southeast China, where the plastic processors concentrate.
``In India, the poor transportation infrastructure coupled with thousands of small converters makes the distribution of bulk plastic resin almost a mission impossible,'' Zhao said.
Power supply is a bigger problem in India. Zhao cited World Bank data that Indian factories suffer an average of 17 power outages a month, compared with five in China.
India passing China?
Majesty Jiao, a Shanghai-based industry veteran with Alaris Consulting, said the Chinese and Indian plastics industries will cooperate and codevelop, rather than compete directly or at every level.
Jiao said India's plastics industry base is lagging behind China. ``The most fundamental are resin and machine-making industries, including tooling.''
Perhaps most importantly, Jiao believes the capital diversion is ``good for China.'' Having admitted India's sweetening policies in courting investment and advantages in labor costs and language, he said, ``It has impacted foreign investment in China to some extent, but I see it as the beginning of streamlining and restructuring for the Chinese plastics industry.
With the labor-intensives moving out of China, it will catalyze the upgrade of the industry.'' He believes the industry emphasis is moving toward the auto, electronics and medical markets.
Nevertheless, China also sees foreign investment migrating west to its inland ``where labor cost is not at as much of a disadvantage from India,'' Jiao said.
Kedl offered a more positive view: ``China will remain the center of manufacturing, at least for a number of years. I don't think India can catch up with China any time soon.''
Sun is an Akron-based staff reporter and Asia specialist for Plastics News.