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The new China Syndrome

It would be easy to blame China, but the coronavirus outbreak is hitting an economy already weakened by air pollution, sinking productivity, the worst drought in 40 years, and the delay in the budget bill.

Olivier Languepin

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Originally,  “The China Syndrome” refers to a nuclear meltdown scenario in the U.S., so named for the fanciful idea that there would be nothing to stop the meltdown tunneling its way to the other side of the world. 

Today this metaphoric apocalypse seems like a distant nightmare of the 70’s, however, today it is the Chinese economy itself that could trigger some sort of global economic meltdown.

China has become a global powerhouse that just can’t fail without chilling consequences in every other country.

Thailand could be the first country to be hard hit by the new China syndrome, not because of the coronavirus outbreak in the country which has been so far limited, but because of its dire economic consequences.

Thailand’s economy has lagged its Southeast Asian neighbors for some time, and the coronavirus outbreak could tip Southeast Asia’s second-largest economy into recession by hitting the tourism and export sector.

In the first quarter of 2020, with the coronavirus outbreak continuing, China’s economy is expected to expand by less than 6% and Thai tourism and exports could also contract because China is a major market for these two real sectors of Thailand’s economy.

Thailand’s over-reliance on China comes at a price

Experts expect Chinese arrivals to fall by about 50% over the next few months due to the tour group ban enforced since January 27th. About 800,000 Chinese travel to Thailand monthly on average spending about 50,000 baht ($1,630).

Over-reliance on external demands as a source of growth makes it difficult for the Thai economy to adjust to shocks

BANDID NIJATHAWORN – VISITING PROFESSOR, HITOTSUBASHI UNIVERSITY, TOKYO,
FORMER DEPUTY GOVERNOR, BANK OF THAILAND (SPEAKING AT A FOREIGN PRESS MEETING)

Chinese visiting Thailand via group tours totalled 3.1 million in 2019, making up 28% of total inbound Chinese tourists in Thailand, according to the Association of Thai Travel Agents.

In total, 11 million Chinese tourists visited the Land of Smiles last year, bringing in spending worth 544 billion baht.

Thailand is estimated to lose 80-100 billion baht in income, mainly from tourism, because of the virus outbreak, said Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce.

The loss could shave 0.5-0.7% off Thailand’s GDP growth this year, he said.

Blame China? Not so fast

But that’s not all : Bangkok has been shrouded in toxic smog for several months, and budget troubles have delayed much-needed fiscal stimulus. Blame China, but the coronavirus outbreak is hitting an economy already weakened by several other factors.

“The recent growth slowdown has highlighted Thailand’s long-run structural constraints, with slowing investments and low productivity growth. In the last decade, Thailand’s productivity growth has fallen to 1.3 percent over 2010-2016 from 3.6 percent over 1999-2007.” said the World Bank in its latest country report.

In the end the coronavirus may also be an opportunity for Thailand to question its over reliance on external factors like tourism and exports, and start lifting constraints that prevent new firms, especially foreign firms, and skilled professionals from entering the domestic market.

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