Thai exports to China in 1Q10 posted growth of as high as 70 percent YoY, due partially to a low base effect from 2009, during that period of the lowest Chinese economic growth in 1Q09. Thai exports to China in March showed growth of 48.8 percent YoY, decelerating from the 75-percent growth in February and 94-percent growth in January YoY, because Thai exports in 2009 had continued to improve from their lowest level seen in January of that year.
Exports in March increased 11 percent MoM. It is expected that exports to China over the remainder of this year will likely be boosted by Chinese economic growth, as well as a windfall from the ASEAN-China FTA pact on ‘normal goods' starting in early 2010. This will allow Thai products to enter the Chinese market easier.
Our exports to China this year should grow at least 25 percent, versus the contraction of (-)0.4 percent in 2009, but that will likely decelerate in coming quarters due to the higher base of the final quarters of 2009. The importance of exports to China has increased along with the rising volume sent there, and will help increase our exports overall.
Improving exports are supporting our economic growth; meanwhile, other mechanisms are facing risks from the continued political conflict that is now affecting confidence toward our economy, consumption, investment and tourism sector.
Factors boosting Thai exports to China this year will include fiscal measures there to stimulate Chinese consumption and investment. As a result, Chinese demand for Thai goods should increase. However, it is expected that the Chinese authorities will adopt tighter monetary measures to forestall inflation and bubbles in their real estate sector that are regarded as risks that could erode their economic stability. It is expected that they may raise their key policy rate in 2Q10 at the earliest, which may dampen their domestic consumption and investment in 2H10. However, it is believed that such a domestic deceleration will be slight. Thus, the impact of it on Thailand would be limited.
Meanwhile, Chinese exports should grow this year, which would help increase demand for Thai raw materials and intermediate goods, although Chinese export growth to G3 markets will be lower, because the G3 are being threatened by the risks of unemployment, public debt and high fiscal deficits continuing to erode their purchasing power.
In addition, Chinese exports are facing non-tariff barriers (NTBs) erected by key trade partners, e.g., the USA and EU, and a stronger Yuan (CNY) would reduce Chinese price competitiveness in global markets. However, KResearch expects that the Chinese authorities will likely increase the CNY gradually and only slightly. It would not rise higher than the appreciation of other Asian currencies that have been in the process of adjusting in early 2010. As a result, the stronger Yuan will be unlikely to affect Chinese exports overall. Demand for Thai products will be affected only slightly. Our major export categories that will likely see a bright future there would include computers, related accessories and parts; rubber and products, chemical products, plastic pellets and cassava products, etc.
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