China investments in Thailand on the upswing as trade war drags on

[BANGKOK] Chinese foreign direct investment (FDI) has been on the rise in Thailand since the start of the US-China trade war five years ago, and this trend looks set to continue as the kingdom becomes a key manufacturing hub for electric vehicles and electronic parts.

Between 2018 and 2022, Chinese project applications at Thailand’s Board of Investment (BOI) amounted to 450.1 billion baht (S$17.4 billion). This was much higher than the 320.4 billion baht in applications from Japan, 122.3 billion baht from Singapore and 107 billion baht from the US.

The BOI is a government agency under the Prime Minister’s Office and its mandate is to promote direct investment in Thailand by coming up with investment policies.

In the first half of 2023, the total number of FDI applications at the BOI increased 33 per cent year on year to 507 projects worth 304 billion baht, of which Chinese FDI took the lead again with 132 projects and investment pledges of 61.5 billion baht, primarily in the electronics sector.

“There has been a lot of Chinese FDI in electronics, especially in printed circuit boards (PCBs),” said BOI secretary-general Narit Therdsteerasukdi in an interview with The Business Times.

PCBs are crucial components found in hundreds of consumer electronic devices such as computers, notebooks, automobile parts, communication devices and medical devices.

Thailand has been a production hub for PCBs for decades.

“Companies that move to Thailand from China are mainly using the supply chains that are already established in Thailand,” said Narit.

“I understand that they are under pressure from their customers to have an alternative location outside of China.”

The repercussions from the US-China trade war have been particularly hard felt on the manufacturers of products that pertain to personal and national security, such as anything which uses the cloud, artificial intelligence and data storage.

For fear of import restrictions in the US and other Western markets, US computer giants have been shifting some of their offshore production outside of China, with South-east Asia their preferred destination.

For instance, HP recently announced plans to shift some of its PC production to Thailand, following earlier moves by Dell and Apple to use Vietnam as an alternative production base to China.

The production shift applies mainly to the suppliers of these US giants, such as Taiwan’s Foxconn, Quanta Computer and Inventec.

Chinese suppliers of computer parts, such as PCBs, may also be hoping to avoid trade barriers in the US and Western markets by moving production to South-east Asia, but their shift may also be part of a trend to seek new overseas markets in an increasingly bipolar world, economists said.

“For electronics, there will be two standards down the road – one for the US and Western countries, and the other developed by China with comparable products but used mostly in the Chinese market or Chinese-friendly markets,” said Charl Kengchon, executive chairman of the Kasikorn Research Center think tank.

He noted that Chinese companies will need to seek out new markets if they wish to expand, as their domestic market gets saturated and Western markets face barriers.

“They cannot rely on their own purchasing power because at the moment the Chinese market is cooling down. They know they have to look for other markets, otherwise they have to shut down their factories, creating more unemployment at home,” he said.

Chinese companies will also need to increase their investments abroad to benefit from regional free trade agreements and improve market access, as many Chinese automobile manufacturers are already doing.

“(Chinese auto manufacturer) BYD likes Thailand for its strategic position (in the region), especially (as the country) uses right-hand drive vehicles,” said Kunat Tharasriuthi, an automotive expert at Global Data.

“Last year, BYD was the top seller of battery electric vehicles worldwide, but 99 per cent of their sales were in China. That’s why they are trying to expand their market, and Thailand is part of their plan.”

BYD announced plans to set up a factory in Thailand last year and will start production in April 2024.

Observers said that Thailand has been treading gingerly in the ongoing US-China spat, which has helped attract Chinese companies to South-east Asia’s second-largest economy.

“They like Thailand because it offers safety and resiliency,” said Narit. “Safety means that we play a neutral position in the geopolitical tensions. We are a safe zone for the investors. For resiliency, apart from the strong supply chains, Thailand also has a skilled workforce, excellent infrastructure and policy support from the government.”

Attracting Chinese FDI may, however, also be a matter of necessity for Thailand over the long haul.

“We have no choice, we have to welcome the Chinese,” said Charl. “Thailand knows that our competitiveness is declining. We are becoming an ageing society, the labour force is getting older and the market is shrinking. We have to welcome anyone who wants to invest.”