2024 RT Amination Banner.gif

China Daily

Asia Pacific> Asia Weekly> Content
Monday, May 15, 2017, 14:44
Investors venture back
By Haky Moon in Hong Kong
Monday, May 15, 2017, 14:44 By Haky Moon in Hong Kong

Thailand FDI plunged in the first half of last year, but inflows have picked up and China is becoming a key player

Mechanics work on Japanese carmaker Honda’s assembly line in Prachin Buri, central Thailand. Japan is a long-standing investor in Thailand, mainly in the automotive parts and electronics sectors.  (PATTANAPONG HIRUNARD / BANGKOK POST)

After a difficult year, things are looking up for Thailand. With an economy that is stabilizing and expected to grow by as much as 3.5 percent this year, the country has also regained some of its appeal for foreign investors. 

Japan, Singapore, the Chinese mainland, Hong Kong and the Netherlands were among the biggest contributors of new capital last year. And gaining ground most rapidly among them was the Chinese mainland. Now the second-largest foreign investor in Thailand, it could soon surpass Japan as the country’s most important investment partner. 

“It’s hard to pin down the number, but I won’t be surprised if FDI (foreign direct investment) from China to Thailand doubles or even triples in the next one or two years,” said Prinn Panitchpakdi, country head for Thailand at brokerage and investment firm CLSA.

For Thailand, 2016 was marked most deeply by the death of long-serving monarch Bhumibol Adulyadej on Oct 13 at the age of 88 after 70 years on the throne. 

FDI into the country was hit over the last couple of years by a combination of political turmoil and natural disasters such as flooding.

In 2015, Thailand attracted US$10.8 billion in FDI, three times as much as in 2014, when total FDI crashed to just US$3.5 billion. 

However, the flow of investment fell again in the first half of 2016 before gaining traction in the second half. All told, Thailand attracted US$8.6 billion in FDI in 2016, according to the Thai Board of Investment (BOI). 

The Thai government, alerted by the drop, rolled out plans to attract back foreign investment. By most accounts, the positive results were rapid.

“FDI flows from China to Thailand are very strong. A lot of Chinese companies are willing to expand and invest in Thailand,” said Panitchpakdi.

Thailand moved to woo foreign companies through a large-scale economic zone developed with US$42.8 billion in public and private infrastructure funds. 

The government is also moving forward with legislation to let foreigners own land in this zone and receive other benefits, with the measures to take effect by the second quarter of this year.

Investment sentiment toward Thailand improved significantly through the end of 2016 and the beginning of 2017. 

In April, Thailand was listed in 19th place in consultancy AT Kearney’s FDI Confidence Index for 2017, up two places. 

Much of the credit goes to the country’s 12th National Economic and Social Development Plan, which “aims to strengthen the economy and enhance the country’s competitiveness”, according to Chua Soon Ghee, head of Southeast Asia at AT Kearney. 

For its part, China has been showing greater interest in Thailand’s attempt to increase its value chain. Last year, China contributed 54 billion baht ($1.55 billion) to 106 projects.

Beijing has been pushing to expand overseas investment and bilateral trade, and the Thai government’s introduction of incentives for Chinese investors has made the kingdom more attractive than other Southeast Asian nations. 

Chinese investors have remained active in deploying capital offshore into global real estate assets. 

According to CBRE, a commercial real estate services firm, Chinese investors dominated Asian outbound real estate investment last year at 47 percent, or $28.2 billion. 

Alongside Japan, China is one of the countries that has remained upbeat despite Thailand’s turmoil. Chinese State-owned enterprises and private businesses have largely viewed the downturn as an opportunity. 

Also, Chinese holidaymakers are pivotal to Thailand’s tourism sector. Despite political instability and an August 2015 bombing in Bangkok that killed 20 people, Chinese tourists last year accounted for a large proportion of the 30 million foreign visitors to the country.

According to the Department of Tourism, the number of Chinese tourists, mostly from the mainland, has increased steadily in recent years and hit a record 8.75 million in 2016, up 10.34 percent from the previous year.

“Depending on conditions at home in both countries, as well as in Thailand of course, it is conceivable that China will surpass Japan one day as the biggest investor,” said Jayant Menon, lead economist in the economic research and regional cooperation department at the Asian Development Bank. 

“China has recently switched from an importer of capital to a net exporter, and it is likely that its investments in Thailand will only grow over time,” he said. 

It will take a while for China’s FDI in Thailand to surpass Japan’s, he said, adding that in Hong Kong, the Chinese mainland’s role has been increasing. 

“Hong Kong has been increasing its investments in the services sector, mainly in banking and finance and related areas,” Menon said.

Japan has been a long-standing investor in Thailand, mainly in the automotive parts and electronics sectors. Large corporates like Toyota, Isuzu, Nissan and Honda all have considerable manufacturing and assembly operations in Thailand. 

In 2016, Japan was the leading country of origin for FDI into Thailand, with 284 projects that contributed 80 billion baht.

“Japanese investment has accounted for around 30 to 40 percent of the FDI,” said Chokedee Kaewsang, deputy secretary general at Thailand’s BOI. 

“China is catching up, but I cannot see it overtaking Japan even in the next three to four years. The gap between China and Japan may be narrower, but I still believe Japanese investment will be No 1 for the next five years.”

Although some have moved to other countries where production is cheaper, major Japanese companies have built up large bases of operations in Thailand. 

Meanwhile, FDI from other countries in 2016 included the Netherlands’ 29 billion baht, the United States with 25 billion baht and Australia investing 20 billion baht. 

With Thailand’s targeted US$40 billion in infrastructure investment by 2022, industries such as logistics, warehousing and e-commerce are expected to see phenomenal growth as major projects come to fruition.

Key focus areas for investment in 2017 under the country’s Thailand 4.0 strategy are broad, covering the digital economy, infrastructure, agricultural reform and local economic development.

But while FDI is returning, challenges remain.

“Production cost is going up, labor cost is going up. It’s not possible for companies to produce everything in Thailand, so we need to diversify the investment projects and complement the ASEAN region in the process,” said Kaewsang, reffering to the Association of Southeast Asian Nations.

Share this story