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30 Nov 2007

International Economy

Thai-Taiwanese Trade, 2007: Exports Slowing…Competing Head-on with China (Business Brief No.2078)

Over the first nine months of this year, Thai exports to Taiwan were quite worrisome as they had decelerated from the same period of last year. Among the products that have shown marked slowdowns were computers, accessories and parts thereof (peripherals); machinery, mechanical equipment, electrical appliances, chemicals and organic materials which were challenged by tough competition from Chinese products. This slowdown could be attributed in part to the appreciating Baht that has caused Thai-made products to become more expensive in the currencies of importers. Weaker demand for some products, e.g., electrical appliances and machinery in the Taiwanese market was also to blame. Based on an analysis of the changing export outlook on certain Thai exports to Taiwan and China such as computers and peripherals, ebbing export shipments from Thailand to Taiwan may also be due to Taiwan relocating their manufacturing bases from Thailand to China. As a result, exports of these products from Thailand to China rose over the first nine months of this year, inversely to Thai shipments to Taiwan. At the same time, exports of Thai chemicals to Taiwan have also shown signs of sluggishness with decelerating growth to both the Taiwanese and Chinese markets. The higher base of comparison of last year has exacerbated this. More intense rivalry from China has affected Taiwan, too. This is because China has attracted numerous Taiwanese producers into China thanks to their advantage of lower production costs.

With these worrying signs toward exports to Taiwan, KASIKORN RESEARCH CENTER (KResearch) holds some views on this issue summarized in the following:

1. The deceleration of Thai export goods to Taiwan is a warning sign for the government to expedite solutions to cope with the challenges that may intensify in the future due to many reasons that affect Thai exports. For instance, there are the problems in the Baht's volatility, rising production costs along with higher domestic inflation and competition from overseas, i.e., China. Therefore, the government should provide support to producers by pushing for fully integrated production clusters, providing scholarships for research and development as well as to develop personnel skills and increase competitiveness. In addition, the government should improve on the tax breaks to industry that limit Thailand's export competitiveness, so that we can promote sustainable growth in it.

2. The above changes in the export overview indicate that in the long run China will have a more significant role toward trade regionally and globally. Those reasons also suggest that China is not only Thailand's trade rival to be watched as such, but is also a trade partner that we should place importance on in the building closer trade relations that would afford us further opportunities for future economic growth. Therefore, improving trade relations and strengthening cooperation between the two countries may be considered as vital to the long-term benefit of Thailand.

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International Economy