With the escalating trade dispute between the United States and China over the past two years, it has certainly induced an economic slowdown across the globe. While the trade tension stems from persistent growth in US trade deficit with China as well as the growing technological competition between the two major economies, this led to a series of tariff impositions to tackle the deficit which is mainly driven by electrical and electronics parts.
The ASEAN region is particularly challenged by the negative spillover from the destruction of trade and severe impacts on supply chains, especially Thailand’s economy that is trade dependent and reliant on US and China as its key markets. In 2019, Thailand’s exports to China have seen a decrease of 3.8%, a decline for the first time in four years, with companies believed to be buying less parts for their Chinese production hubs.
However, there may be a silver lining to Thailand’s current situation – Thailand gained from trade diversion effects, with exports to the US having increased by 11.8% last year as American importers increasingly sought for alternatives to Chinese-made products. With foreign companies increasingly seek to relocate their production bases out of China due to the rising cost of production, Thailand’s exports are expected to benefit and recover once these factories ramp up their production. Coupled with the effects of Covid-19, manufacturers’ relocation has accelerated as businesses intend to reduce future supply chain risks.
The Kingdom has long been an attractive destination for foreign investments due to the availability of skilled labours and its capacity to produce high-value goods. Last year, Chinese investments in Thailand has surged to $8.6 billion, representing 5 times increase from the previous year and overtaking Japan as its largest source of FDI for the first time.
Specifically, the automotive and electronics industry are some of the players gaining from the relocation of manufacturing base due to the country’s proximity to China and the relatively fragmented auto and electronics export market. Google has reportedly preparing for the production of its smart-home products in Thailand, while other players that have relocated to Thailand include Casio Computers, Daikin Industries, Sony, Sharp and Delta Electronics to name a few.
Perhaps what is driving the jump in foreign investments is not only the competitiveness of some Thai industries, but also the government’s initiatives to lure investments from manufacturers seeking to escape US tariffs on imports from China. In light of the US-China trade war, the Thai government played a crucial role in taking strategic moves to assist businesses that were affected.
Among some of the actions taken was “Thailand Plus”, a stimulus package that contains various measures and incentives reportedly designed to improve the ease of doing business for companies looking to relocate full or part of their operations. Thailand’s Eastern Economic Corridor (EEC) along with the government’s Thailand 4.0 development plan have also attracted numerous projects application as it encourages investments into value-based, digital and innovation-driven industries by offering incentive packages such as tax reductions and holidays.
Thailand, being the leader in global automotive, electronics and electrical appliance industries, is poised to rise with readily available infrastructure and increasing investments that is able to support continuous adoption of advanced technology, specifically in the tech manufacturing space that is mainly driven by automation and robotics technology. Nevertheless, the future of Thailand remains uncertain as it is exposed to risk factors such as political instability, that might turn the investors away as they lose confidence.
About RHL Ventures
Founded in 2016, RHL Ventures a multi-family private investment firm headquartered in Malaysia that champions growth for the best businesses in Southeast Asia. Currently led by Rachel Lau, Raja Hamzah Abidin, and Jo Jo Kong, the firm pools its extensive regional experience in investments, corporate advisory, and capital markets to drive transformative growth for ASEAN-linked start-ups as well as small and medium-sized enterprises.
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