There's a lot of talk between the Indian and Chinese plastics industries about mutual cooperation, about how the two largest emerging economies in the world can work together.
But there's also tension, and one place that's shown up is in the machinery sector.
I recently attended the Plastivision trade show in Mumbai — India's second-largest city — and wanted to explore the impact of the Indian government's decision back in 2009 to put tariffs as high as 223 percent on many injection molding machines from China.
The decision was controversial at the time because India is one of the world's rapidly growing markets for plastics.
Chinese machine makers naturally didn't want to lose out on that, while their domestic competitors in India worried about a flood of Chinese machines rapidly gaining market share.
From my conversations, the tariffs did accomplish what the Indian government wanted: They basically shut out China.
I'm sure that's helped India's machine makers. The larger ones I spoke with at the show — L&T Plastics Machinery, Ferromatik Milacron India, Windsor and Electronica — are all making significant investments in their capacities, in some cases doubling them.
Of course, India's plastics market is booming right now, growing 15-20 percent a year, so those capacity expansions could have come even if India didn't put up tariffs.
That's exactly what many of the Indian firms told me — that the tariffs were not a factor in their investment decisions. They argue that they are responding to the market's overall strength. India's market for injection molding machinery is about 4,500 machines a year now, up from 3,100 in 2007, and it's growing fast.
There's merit to that argument, but here's the flip side: Does shutting out China hurt the Indian molding industry, the companies that buy the machines, by closing off a source of lower-cost supply and therefore making them less competitive in world markets?
That is harder to gauge. I heard different stories on whether prices have gone up, and whether Indian machine makers have more pricing power.
Some said the tariffs brought in more machines from Taiwan and Korea and created an opening for used machines from Europe — the first time there was a significant aftermarket for secondhand European machines there. That would suggest less pricing power.
Imports are now about 22 percent of the Indian market for presses, according to L&T. That's down from 37 percent in 2008, before the tariffs, but up from only 11 percent in 2002. In 2008, over half of the imports were made in China, which suggests that China was grabbing a lot of the growth.
Indian companies like L&T (which filed the initial tariff complaint
in 2008 and is part of the politically powerful Indian conglomerate Larsen & Toubro) argued that Chinese companies benefit from a web of government benefits, and that China's currency is underval-
ued and fixed by the government, making exports cheaper than they should be.
Chinese firms say their highly competitive industry isn't subsidized, and argue that, because that industry's largest companies like Haitian and Chen Hsong are publicly traded in Hong Kong, their books are open and their figures transparent.
And they argue that their scale, not subsidies, gives them advantages. China's injection molding machine market is about 10 times the size of India's, and Chinese firms make about 25 percent of the world's plastics equipment.
Haitian, China's largest machine maker, told me it would probably have built a factory in India with its local partner, Electronica, if not for the tariffs. Instead Haitian chose to build a factory in Vietnam.
That's because Haitian officials found the Indian government's reasoning hard to understand, and that has left some Chinese firms reluctant to invest there.
It remains a sore point between the two countries.
A Chinese diplomat in India took the unusual step of using his opening remarks at Plastivision to criticize the tariffs publicly and ask for them to be lifted, even as he, too, noted there are many opportunities for the industries in the two countries to work together.
As an American in China watching this debate, I see this argument as a reminder that China's trade conflicts are not limited to developed economies in Europe and North America. And as a reminder of why it's smart for China to continue pushing domestic consumption rather than exports for economic growth — or, fairly or unfairly, it is going to have to manage even more of these problems.