Monday, August 3, 2009

Rising china dents thai markets in the region

By Achara Pongvutitham
The Nation

As it has around the world, the "Rising China" phenomenon has been felt strongly in the Asean region, affecting Thailand's market-leader status in a number of the bloc's member states.

The emergence of China has caused jitters in every region of the globe, with both traditional and emerging markets fearing negative impacts. For its part, Thailand is losing competitiveness in terms of both market share and leadership in three emerging Asean markets: Laos, Cambodia and Burma.

As one of the world's major economic powerhouses, the expansion of China has been felt strongly not only in terms of resources but also in the markets for almost all goods. China is currently engaged in its third move since 1980 to link with networks of overseas Chinese through trade and investment expansion, after acceding to the World Trade Organisation in 2001.

Speaking at the Thailand Research Fund's recent roundtable, "Impact of Emerging China Through Asean-China Free Trade Agreement", experts on China shared the view that it is an important goal of China, which has huge foreign reserves of US$2.13 trillion (Bt418.6 trillion) to sweep up assets globally, as well as taking stakes in banks around the world.

In addition, Beijing has learned from its previous problems with food safety, chemical residues in products and poor production quality, the experts said. China has improved its manufacturing controls to produce standard-quality goods to serve not only domestic demand but also the export market.

Roundtable participants pointed out that China's domestic market now demands high-quality products in line with their increased purchasing power, while the international market needs quality goods at a reasonable price due to a drop in purchasing power brought on by the global financial crisis.

Participants agreed that Thailand should think about how to get the most benefit from China through trade partnerships, both at the regional level and at world forums.

Sompop Manarungsan, an expert on China and a lecturer at the Faculty of Economics at Chulalongkorn University, said the Chinese government has a clear policy to support investors in exploring opportunities overseas. This is aimed at exploiting the country's huge foreign reserves as well as balancing its economic growth and export competitiveness in the long run, Sompop said.

As a result, Chinese investors have diversified their investment from US bonds into real sectors everywhere.

"It is very clear that China has turned from an inward trade and investment outlook to that of an outward investor," Sompop said.

This has key implications for Thailand, particularly in its trade and investment relationships with Laos, Cambodia and Burma.

China now has strong influence in those markets, turning what was once seen as a potential "baht zone" into a likely "yuan zone" market, the lecturer said. Markets along those three countries' borders with Thailand have long accepted baht, but are now also accepting Chinese yuan.

China has also launched an Overseas Development Assistance policy, which offers not only financial assistance but also infrastructure development to potential markets, Sompop said.

"This assistance will allow China to become a big player not only in Asia but also in countries in other regions," he said.

An official from the Thai Foreign Trade Department who concentrates on Laos said Thai goods traded at Bo Keaw had dropped from 90 per cent to 40 per cent of the market total due to increasing imports of Chinese products.

"It is an important sign that Chinese goods will replace Thai goods in the future," the official said.

Pisanu Rienmahasarn, vice president of Huachiew Chalermprakiat University, said cheap goods from China are not the main threat to Thailand's competitiveness. Rather, he said, the threat came from improvements in China's manufacturing sector, which now had the ability to produce high-quality goods.

"The government should concentrate on how to establish close relations with China, as we [Thailand and China] have many areas that can be synergised," Pisanu said.

Thailand should focus more on a Cross Border Trade Agreement to boost trade between the two countries, the academic said. In particular, the development of infrastructure in the North of Thailand linking Burma, China, Laos and Vietnam would create huge trade and investment possibilities, Pisanu said.

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