3.3% Growth of Export to China Projected on 7.4% Chinese Economic Expansion (Current Issue No. 2489)

Thai exports to China during the first two months of 2014 continued to ebb (-)0.8 percent YoY, partly due to seasonal factors and flagging economic activity there. Exports in February totaled USD2.21 billion, falling (-)0.8 percent YoY. Our weakened economy, caused by lingering political upheaval, has triggered a decline in goods bought from China – mostly materials for production – to a total of USD2.22 billion, tumbling (-)19.8 percent YoY, which is the biggest contraction in four years. Consequently, Thailand logged a smaller trade deficit of USD5.56 million with China – the lowest since October 2011, when we had achieved a trade surplus with China due to a severe flooding.

We should see our exports to China gradually catch up over the remainder of 2014. Performance during 2Q14 may be bolstered by a low 2013 base of comparison, and by China's restructuring policies that are expected to help the nation retain growth of around 7.4 percent, close to the government's 7.5 percent target. We will need to keep a close watch on further stimuli likely to be adopted by the Chinese administration, as well as its 1Q14 GDP – to be announced on April 16. These two factors should help us get a clearer picture of the Chinese economy this year. Although intensive programs implemented to reform China's economy may strengthen national growth, they may indirectly increase risks to the nation's financial sector – the main source of lending to businesses that are part of the current major reform. And that could be a double-edged sword toward the Chinese economy. In view of that, businesses having China as a key export destination will need to track economic developments there closely.

We at KResearch project that China will probably maintain growth of 7.4 percent, a rate close to the target. Under that scenario, Thailand should then be able to maintain exports sent there at 3.3 percent expansion, or a total of USD28 billion for 2014. Growth range is forecast to be around 0.5-6.0 percent, with the total value of USD27-29 billion. Imports from China are conditional to our political uncertainty. Given that a government is successfully formed here by mid-year, production and investment could achieve a turnaround. This forecast assumes a 0.1 percent expansion in imports from China to a total value of USD38 billion; the performance range is estimated to be within (-)3.0 to 2.0 percent, amounting to USD36.6-38.5 billion. Thailand will likely register a trade deficit of approximately USD10 billion with China. –

Forecast on Thai Exports to China

	2555	2556	2557 (forecast)
			Base-Case	Estimated Range
YoY growth of Thai exports to China	2.4	1.4	3.3	0.5 to 6.0
Value (USD million)	26,870	27,238	28,000	27,000 – 29,000
YoY growth of Thai imports from China	21.7	1.6	0.1	-3.0 to 2.0
Value (USD million)	37,121	37,727	38,000	36,600 – 38,500
Trade Deficit (USD million)	10,251	10,488	10,000	9,500 – 9,600

Source: Ministry of Commerce; compiled by KResearch, as of April 2014