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China has become the leading source of foreign direct investment (FDI) in Thailand, especially in the sectors of electronics, electric vehicles and data centers. However, Vietnam is also attracting a large share of Chinese investment, thanks to its favorable trade agreements and lower labor costs.
- China has become the leading source of foreign direct investment (FDI) in Thailand, but Vietnam is also attracting a large share of Chinese investment due to lower labor costs and favorable trade policies.
- Thailand can attract and retain FDI from China by improving its infrastructure, logistics, and digital connectivity, while not raising its minimum wage too high to remain competitive with Vietnam.
- Thailand needs to address challenges such as improving ease of doing business ranking, enhancing innovation capacity, diversifying its economy, and upgrading human capital to boost its FDI potential.
According to the Industrial Estate Authority of Thailand (IEAT), China accounted for 23.68% of the total FDI of 14.76 billion baht in Thai industrial estates in February 2023, followed by Singapore (12.41%), Japan (11.65%), India (6.39%) and Taiwan (6.02%). China also topped the FDI chart for 2022 with 77.3 billion baht of the total 433 billion baht.
Trade tensions with the United States and the COVID-19 pandemic
The IEAT governor Veeris Ammarapala said that the trend of Chinese businesses moving their manufacturing bases to Southeast Asia started in 2019, due to the trade tensions with the United States and the COVID-19 pandemic.
Thailand and Vietnam were among the most popular destinations for Chinese investors, especially in the high-tech industries such as smart electronics, electric vehicles and medical devices.
Another factor that boosted Chinese investment in Thailand was the cooperation agreements signed between the two countries at the Apec Summit in 2022, which aimed to promote joint investment under China’s Belt and Road Initiative and Thailand’s 4.0 policy. Veeris said that he expected more Chinese investors to establish their factories in Thailand this year, as China lifted its travel restrictions and the IEAT offered incentives for target industries.
However, some Thai industrial developers said that Vietnam was also receiving a lot of Chinese investment, especially in the renewable energy sector, which benefited from more favorable free trade agreements with other countries.
Viboon Kromadit, chief marketing officer and executive director at Amata Corporation, said that Chinese clients now accounted for nearly 50% of the company’s sales, but an even larger amount of Chinese investment was going to Vietnam.
Viboon said that Thailand should not raise its minimum wage too high, as this would increase its production costs and make it less competitive than Vietnam. He also suggested that Thailand should improve its infrastructure, logistics and digital connectivity to attract more FDI from China and other countries.
Why China invests in Thailand
China’s investment in Thailand has increased significantly since 2013, when the two countries signed a memorandum of understanding on cooperation under the Belt and Road Initiative (BRI), a massive infrastructure and trade project that aims to connect China with Asia, Europe and Africa.
Some of the major sectors that China invests in Thailand include manufacturing, real estate, energy and transportation. For example, China Railway Construction Corporation (CRCC) is involved in the construction of a high-speed railway linking Bangkok with Nakhon Ratchasima, which is part of a larger project to connect Thailand with Laos and China. China’s e-commerce giant Alibaba also has a presence in Thailand, with a digital hub called Alibaba Cloud Innovation Center.
How Vietnam competes with Thailand
While Thailand remains an important partner for China in Southeast Asia, it faces increasing competition from Vietnam, which has emerged as a rising star in the region. Vietnam has attracted more FDI from China than Thailand in recent years, especially in the manufacturing sector.
One of the reasons why Vietnam has become more attractive for Chinese investors is its lower labor costs and land prices than Thailand. Vietnam also has a large and young population, a stable political environment and a favorable trade policy. Vietnam is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), two major free trade agreements that give it access to a large market.
What Thailand can do to attract and retain FDI from China
Thailand still has many advantages that can help it attract and retain FDI from China and other countries. For instance, Thailand has a strong industrial base, a well-developed infrastructure and a skilled workforce. Thailand also has a strategic location at the heart of Southeast Asia, serving as a gateway to other markets in the region.
However, Thailand also needs to address some of the challenges that hinder its FDI potential. These include improving its ease of doing business ranking, enhancing its innovation capacity, diversifying its economy and upgrading its human capital. Thailand should also pursue more regional integration and cooperation, such as joining the CPTPP, and strengthening its ties with other ASEAN countries.