Thailand Economy: Looking To Japan And China To Boost Prosperity

10-May-2019 Intellasia | Forbes | 6:00 AM Print This Post

Thailand in late March held its first elections since 2014. Whatever its shortcomings, the vote ensured that elected representatives in parliament have some measure of accountability and provided a legitimate outlet for dissent. However you look at it, it will be an improvement over the past few years.

Thailand now has to focus on improving its economy. Despite its incredibly successful and resilient tourism sector, Thailand’s economy has been underperforming, with annual GDP growth between 2015 and 2018 averaging 3.6 percent, according to the IMF, well below the 6.2 percent average for the members of Asean (minus Singapore) over the same period.

Even as global trade and developed economies slow, Asia’s consumer markets are booming. China-centric manufacturing supply chains are being overhauled, and Thailand’s neighboursVietnam in particularare jockeying to become stronger manufacturers. China’s Belt and Road Initiative (BRI), furthermore, is fostering the economic integration of the Mekong Delta region by promoting investment in the region’s transportation and logistics infrastructure.

Thailand cannot afford to stand idly by. The only way for it to move forward is to climb the value-added ladder. Thailand is uniquely placed in Asia for stronger growth because it is already closely connected to Asia’s two largest economies, China and Japan. Thailand can succeed if it synergises those linkages to upgrade its manufacturing and infrastructure. If Thailand becomes more competitive globally and more productive domestically, better jobs and higher incomes at home will follow.

Take Thailand’s auto manufacturing sector: While a successful supplier of car parts and the most powerful driver of Thai exports, Thailand’s auto industry is undergoing transformation as electric vehicles gain market share, particularly in the world’s largest auto marketChina. Design and technology are changing fast in conventional vehicles, let alone in cutting-edge, self-driving, electric cars. Thailand cannot retain its strength in auto parts manufacturing without massive injections of new know-how and upgraded technology.

Simultaneously, global manufacturing supply chains are shifting away from China in response to both the China-US trade war and Beijing’s own Made in China 2025 programme, which aims to make China’s technology among the best in the world. Equally important, China’s domestic demand is rapidly supplanting exports as a driver of growth and development. As a consequence, many global companies are relocating their more labour-intensive and export-oriented production facilities to Southeast Asia, while customising products and services to target China’s expanding consumer market. Accordingly, Thailand will need to reposition itself as a productive node in these reconfigured supply chains, and as a competitive supplier to growing import demand by China’s consumers.

Japanese investment and technology transfer will be critical in upgrading Thailand’s industries. Japanese FDI in Thailand has been rising, reaching $6.7 billion in 2018, representing 4.2 percent of all Japanese fixed investment abroad, up from a 2.8 percent share in 2017. Within Asia, Thailand ranks third as a destination of Japanese FDI, after Singapore and China, by value. And Japanese FDI in Thailand is increasingly technology intensive, consistent with Japan’s aim to support the development of the next-generation auto sector in Thailand, according to the Japan External Trade Research Organisation.

Thailand is well-positioned to take advantage of these technology transfers. World Bank data show that Thailand’s labour force is the most highly educated in the Mekong region, and has one of the highest female labour participation rates in Asean. Thailand also has more science and engineering students as a proportion of tertiary graduates than India, Indonesia, Malaysia or Vietnam.

To stay globally competitive, Thailand also needs to upgrade its infrastructure, investment in which has been hindered by weak government spending, persistent fiscal deficits and rising public debt. Unless it improves its logistic efficiency, Thailand won’t be able to play a leading role in integrating the economies of the Mekong Delta. China’s BRI is channeling funding to a wide range of infrastructure projects in the region, from rails to ports to highway networks. That investment represents an opportunity for Thailand to invest in domestic infrastructure projects that not only improve domestic efficiency, but also boost connectivity with its neighbours and with southern China.

An even more powerful outcome can be achieved if Thailand is able to make its close economic relations with Japan and China mutually supportive. A case in point is the Eastern Economic Corridor (EEC) development project, a cornerstone of the Thai government’s “Thailand 4.0″ strategy. The EEC could attract tens of billions of dollars in investments in new industries, from smart electronics to robotics. If Thailand coordinates its EEC with China’s BRI, not only would development be accelerated, but the EEC would attract more private sector investment from Thailand and abroad. With world-class logistics, the EEC would in turn become a magnet for Japanese FDI and the vital new technology that would come with it.

A rejuvenation of the Thai economy could open a new chapter of investment opportunities and wealth creation for Thai businesses and entrepreneurs. Traditional sectors like construction and properties as well as innovative tech startups all stand to benefit. Many established conglomerates could get a shot in the arm, while young and talented entrepreneurs could take off. Now is the time for Thailand to act.


Category: Thailand

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