Capital from China is coming to Thailand

In July 2009, after Thai and Chinese businessmen met for a large-scale meeting in Pattaya, the Minister of Industry estimated 53 business conclusions, with networking arrangements amounting to 211,000 million baht and 9 memorandums of understanding (MOU); most significantly between Saha Farms Co., Ltd and New Hope Group, with a 7,000 million baht chicken farming investment with Saha Farms Co., Ltd., increasing their production capacity in processed export chicken from 500,000 to 1,000,000 chickens per day.

China’s investment in Thailand ’s economy is good news to stimulate employment and boost eventual domestic consumption in Thailand . But, while China ’s government has increased its support for Chinese business investment abroad, one may ask what makes them encourage this, when China should instead encourage domestic investment?

The answer is that Chinese business investment abroad not only helps China ’s businessmen, but also benefits China ’s economy by indirectly regulating the Chinese Yuan.

Rapid export growth has been a long-term growth engine for China , also greatly boosting substantial surplus trade. While superficially making good economic sense to generate a surplus, without control policies, the Thai Baht will appreciate in value even above that of the last four or five years.

Previously, China ’s government tried to prevent Chinese Yuan-escalation from high capital inflow by letting capital “outflow” in huge US government bond purchases. But China’s government intervention in buying US government bonds will be risky for China, due to declining confidence in the US economy, with the recent financial crisis and excessive US balance of payment deficit.

If China ’s government gives incentives to support Chinese business investment abroad as a good economic policy for all, I believe that Thailand ’s investment can increase and business opportunities expand and benefit alongside China ’s, as China ’s macro economy will also indirectly improve due to Chinese Yuan regulation.

In fact, due to Thailand ’s investment attractiveness, even now; I anticipate an increase to China ’s capital flow with a continuous, increased flow of Chinese business to Thailand , alongside increasing Chinese government support. But, what should Thailand ’s government do to promote more investment from China ? Though Thailand may seem attractive to foreign investors with its agricultural sector strengths and basic infrastructure, especially its superior highway system, I think that Thai government preparations must be made to support China ’s soon-coming investment. For example:

Firstly, Thailand ’s government must resolve a political situation that could destabilize or immobilize its policies. Secondly, though the Chinese language is currently more popular, few Thai are fluent in Chinese because Thailand’s language teaching rarely enhances the capability of Thai people in doing business internationally.The High School Art-Language programme is quite conservative. Students only study French or German, which are now considered of fairly low economic value.

Four languages should be taught more in schools for the purpose of broadening international business languages; Chinese, Indian, Russian and Brazilian Portuguese because these four economies are growing and strengthening and Thailand must surely associate more with these four countries in the future.

When the world is turning faster, we also have to walk faster.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com