China’s planned focus on domestic economy ‘will hit Thai exports badly’
Thai exporters will face the biggest challenge once China shifts its focus to its domestic economy as a result of is trade war with the United States.
In an interview with Nationmultimedia Group, Chinese Ambassador to Thailand Lyu Jian confirmed that though China with continue supporting multilateral trade under the World Trade Organisation, it will at the same time put more emphasis on domestic economy.
Though the envoy said he foresees a good economic relationship with Thailand and Asean by linking its Belt and Road Initiative with the Thailand 4.0 and Eastern Economic Corridor projects.
However, Sompop Manarungsan, president of the Panyapiwat Institute of Management, said China’s focus on its domestic economy, combined with slower growth and the ongoing trade dispute, will pose serious challenges to Thai exporters.
He said Thailand should also focus on its domestic economy and stop relying too much on exports. Currently, the annual export value is about 60 per cent of the gross domestic product, which is too high, he said, adding that this should be reduced to about 30 per cent.
The other factor affecting Thai exports will be China’s economic slowdown. Sompop said China’s economic growth will be less than 5 per cent in the next decade from the current 6 per cent, while in the 2030s the growth is expected to be less than 2 per cent.
A recent study on economic reform conducted by China’s State Council and the World Bank also showed that China needs to introduce changes in three key areas, namely the labour market, the financial market and state enterprises. China’s labour and financial markets are not efficient, resulting in a low total factor (TFP) productivity rate, which is about half that of developed countries.
Plus, he said, the West is also suspicious about some of China’s companies. The US government accuses China's government interferes in the management of Huawei, a top provider of information and communications technology, but Huawei's executives insist that Huawei is a private company and assure that there is no interference from the Chinese authorities.
Sompop added that apart from facing challenges from the trade dispute with the US, China will also find it difficult to integrate with the global economy, because as China pursues market-based socialism driven by state enterprises under the ruling China's Communist Party , developed economies wholly embrace capitalism.
“The banning of Huawei products in the US is an example that developed countries do not trust some enterprises in China,” Sompop said.
He also added that China’s business system dominated by state-owned firms will find it difficult to integrate with global markets, which are driven by private firms. Besides, he added, China’s centralised political system is the opposite of democracy in the West.
Sompop added that if China is unable to successfully integrate its economy with that of the world, then it could get decoupled on three fronts – trade, finance and digital technology. Plus, he said, both China and the US will implement protectionism measures against each other.
Meanwhile, Chao Kengchon, managing director at Kasikorn Research Centre, said that though China has the fiscal space to boost its domestic economy, it will face the important task of making its economic development sustainable. He said like Thailand, China is entering an ageing society due to low birth rates, which will lead to dwindling market forces and rising welfare cost.
Pimchanok Vonkorpon, director-general of the Trade Policy and Strategy Office, however, remains optimistic, saying that though manufactured goods have been affected by the trade war, China’s import of fresh fruits has been rising in recent years. For instance, she said, durian, mangosteen and longan still remain very popular among Chinese consumers.
“What worries me is their quality and logistics,” she said.
She said that Thai farmers and exporters may export low-quality product to meet high demand from China, so the authorities have to ensure the quality of the products is maintained. Also, she said, Thailand needs to improve its logistics because goods heading for China still have to go by road via Vietnam.
According to the Commerce Ministry, Thai exports to China from January to August this year was worth US$18.9 billion (Bt576.4 billion), down 6.92 per cent year on year, while exports to the US stood at $21.1 billion, recording a jump of 14.89 per cen. Exports to Japan were worth $16.5 billion, down 0.77 per cent.
