How China’s economy slowdown affects Thailand
China’s economic slowdown has been a topic of concern for many global leaders and economists. While the country’s economy has experienced significant growth over the past few decades, recent data suggests a decline in growth rates. This has led to discussions around the impact of the slowdown on the global economy and potential strategies to address the issue.
Key Takeaways
- The slower growth in China’s real estate sector and debt problems could potentially lead to an economic crisis impacting both the global and Thai economy.
- China’s growth is being impeded by factors such as slowing investment, drop in domestic consumption, strict restrictions on imports and exports, high public debt, and the risk of deflation.
- Thailand’s export sector is already slowing down due to global recession and geopolitical uncertainty, and China’s slowdown will further reduce revenue from trade and tourism.
- Concerns are growing over the potential contagion effect of China’s economic slowdown, with Hong Kong and Singapore being the most exposed due to their dependence on Chinese demand.
- Other Asian countries, including Australia, Vietnam, Malaysia, and Thailand, are also experiencing negative repercussions from China’s economic malaise, leading to slower growth rates and declining exports.
The results of a recent Reuters poll conducted from September 4th to 11th among 76 analysts, both within and outside mainland China, suggest that the country’s economy is projected to grow by 5.0% this year. This forecast is slightly lower than the 5.5% growth rate that was predicted in a previous survey conducted in July. The range of forecasts provided by the analysts varied between 4.5% and 5.5%.
China’s struggling property market is causing downward revisions in economic growth forecasts, posing risks to both the domestic and global economy. The current situation in China’s real estate sector is causing a ripple effect on other areas of the economy, as 70% of Chinese household wealth is invested in real estate.
The Chinese economy’s retreat into deflation has intensified worries about soft consumption, a weakening currency, and excessive local government debt. The Chinese manufacturing sector contracted for the fifth consecutive month in August.
Thailand has been warned to be cautious about the impact of China’s economic slowdown on its own economy. The warning comes as China’s real estate sector faces debt and liquidity problems, leading to slower growth. Thailand, heavily reliant on exports, will likely see reduced revenue from trade and tourism due to China’s slowdown and the global recession.
The impact on Thai exports
China’s economic slowdown is affecting Thailand’s exports, especially chemical products and plastic pellets that are used in the real estate sector. According to the Trade Policy and Strategy Office (TPSO) of the Commerce Ministry, the liquidity crunch in China’s real estate sector is a major concern for the economy, hampering its recovery.
Thailand’s exports of chemical products and plastic pellets to China
Thailand’s exports of chemical products and plastic pellets to China have declined by 9.4% and 8.7%, respectively, in the first half of 2023 compared to the same period last year. These products are mainly used in the construction industry, which has been hit hard by the real estate crisis. The TPSO expects that Thailand’s exports to China will grow modestly by 3.5% in 2023, down from 5.5% in 2022.
Real estate businesses in China mostly utilise extensive borrowing for a high volume of projects, and created a dangerous property bubble. Earlier this year, the People’s Bank of China announced the “Three Red Lines” criteria aimed at reducing the risk of a property bubble and restraining the expansion of debt in the real estate business. Only 6.3% of Chinese real estate businesses met these criteria, making it nearly impossible for most businesses to borrow more money to operate.
Job losses
Combined with reduced sales during the pandemic, many businesses faced severe financial difficulties, including major player Evergrande, which filed for bankruptcy earlier this month. The real estate slump has also impacted the labour market, as the construction sector is a major job provider of over 62 million positions. These jobs may be subject to elimination while new job opportunities have dwindled, especially for new graduates who have suffered due to reduced real estate investments since 2022.
The impact on tourism arrivals
China’s economic slowdown is also affecting Thailand’s tourism sector, which relies heavily on Chinese visitors. According to the TPSO, the financial status of the Chinese population has been affected by the plummeting real estate prices, which lead to significant financial losses. Around 70% of urban residents invest in real estate for income and investment.
The TPSO projects that tourist arrivals from China will reach 4.5 million in 2023, down from 9.8 million in 2019 pre-covid. However, tourism may still remain a growth driver for Thailand’s economy, as other markets such as Europe, India, Russia and America are recovering from the pandemic and resuming travel activities.
The outlook for Thailand
The TPSO has adjusted its Thailand GDP forecasts for 2023 to 3% and for 2024 to 3.5%, owing to a slowdown in the Chinese economy. However, it also noted that there are some positive factors that could support Thailand’s economic recovery, such as:
- The US may avoid a soft-landing scenario, and China could implement stimulus policies to drive growth, mitigating issues related to problems of corporate debt and property bubbles.
- Government stimulus policies aimed at injecting cash into low-income households and stimulating consumption could be implemented by the end of 2023 or the second quarter of 2024.
- Foreign direct investment (FDI) may rise thanks to political stability and improved investor confidence. FDI could relocate to Thailand from China due to lower production costs and better infrastructure.
Considering the potential impact of the Chinese economic slowdown on Thailand’s economy, it is crucial for the Thai government to implement effective strategies to mitigate the negative consequences. Here are some possible measures that could be taken:
- Diversify Export Markets: With the decline in exports to China, Thailand should focus on expanding trade relationships with other countries. This could involve exploring new markets in Southeast Asia, Europe, and the Americas. By diversifying its export destinations, Thailand can reduce its dependence on the Chinese market and enhance its resilience to economic shocks.
- Support Domestic Industries: Thai government could provide support and incentives to other industries, such as manufacturing, technology, and services. This would help create new job opportunities and stimulate economic activity. Additionally, promoting entrepreneurship and innovation could foster the growth of small and medium-sized enterprises, which are essential for sustainable development.
- Boost Domestic Consumption: Thailand could implement policies to encourage domestic consumption. This could involve measures such as income tax cuts, targeted subsidies for low-income households, and incentives for consumer spending. By boosting domestic demand, Thailand can reduce its reliance on external markets for economic growth.
- Strengthen Tourism Recovery: With the decline in Chinese tourists, Thailand should focus on attracting visitors from other countries. This could involve marketing campaigns targeting key markets, improving infrastructure and services to enhance the tourism experience, and implementing health and safety measures to restore traveler confidence. Additionally, developing sustainable tourism practices can help diversify revenue streams and promote long-term growth in the sector.
Overall, while the Chinese economic slowdown presents challenges for Thailand, it also provides an opportunity for the country to reevaluate its economic strategies and diversify its sources of growth. By implementing proactive policies and fostering resilience, Thailand can navigate the current situation and position itself for sustainable and inclusive economic development.
About the author
Bangkok Correspondent for Siam News Network. Editor at Thailand Business News
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