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31 Jan 2008

International Economy

China: A New Wave of Investment in 21st Century(Current Issue No.2032)

Being the world's third largest economy with enormous foreign currency reserves, China has expanded their investments internationally to the point that they have recently emerged as the largest transnational investor among developing countries. Presently, there are around 10,000 Chinese multinational enterprises. As of the 2006 year-end, China's cumulate outward FDI had topped USD70 billion, distributed among more than 8,000 enterprises in 150 countries. Between 2003-2006, around 200 large trans-national Chinese enterprises began ventures in 71 countries. The areas in which China has made overseas investments have been mainly the IT industry, tele-communications, electronics and chemicals. Among the largest Chinese investors have been ZTE, with 31 overseas projects; trailed by Huawei, Lenovo, CNPC and Sinopec. In Thailand, the number of Chinese applied for BOI promotional privileges has jumped sharply over the past few years, from THB2.773 billion in 2005, to THB12.306 billion and THB17.175 billion in 2006 and 2007, respectively.
In the era of 1979-2004, around 70 percent of all Chinese overseas ventures were earmarked for Hong Kong, the ASEAN-5 (Thailand, Malaysia, Indonesia, the Philippines and Singapore), USA, Australia, Russia and Canada, in that order. The main recipients of Chinese investments have been neighboring countries, with Hong Kong, South Korea and ASEAN taking up to 50 percent of Chinese outward FDI. More than half of all Chinese multi-national enterprises operate in energy-related businesses, and the rest are involved in banking, telecommunications, mining, public utilities, transport, chemicals and various IT products.
At present, there are more than 200 companies from China operating in Thailand. The nature of their businesses vary somewhat, e.g., some are strategic investments with a view toward market expansion and brand awareness (Haier and TCL – manufacturers of electrical appliances being distributed in the Thai market), as well as Chinese ventures using Thailand as a manufacturing base to produce consumer goods for export to the third-countries, in order to circumvent trade protectionism (i.e., World Best Holding – a textile manufacturer with several billion baht invested here). Chinese investors are also involved in ventures in other lucrative businesses (such as the All Seasons property project of China Resources), as well as construction and infrastructure-related projects in Thailand and CLMV (Cambodia, Laos, Myanmar and Vietnam) (e.g., China Railway), etc. As most Chinese ventures in Thailand have not applied for BOI promotional privileges, BOI statistics show only a part of the overall Chinese investment in Thailand.
As for those that have submitted applications for BOI promotional privileges, it was found that the investments of these Chinese investors in Thailand have not been high when compared to the entire FDI entering Thailand. In 2007, the value of Chinese projects submitting applications for BOI promotional privileges was THB17.175 billion, on 26 projects, that is, around 3.4 percent out of the entire value of projects submitting applications for investment promotions (totaling USD502.432 billion). Although their total value has not been high, it has been tending toward obvious increase since 2005. The value of Chinese projects submitting applications for BOI promotional privileges rose from THB2.773 billion in 2005 to THB12.306 billion and THB17.175 million in 2006 and 2007, respectively.
Chinese investors in Thailand are typically interested in industrial machinery and agro-processing. The value of these two industries can be counted as roughly half of the entire FDI of Chinese projects submitting applications for BOI promotional privileges within the period of 2002-2006. Other industries are chemicals and paper, electrical appliances, electronic appliances, mining, ceramics and services. Since 2005, Chinese investors have begun to invest in other types of industries.
In the future, it is expected that Chinese-national investments in Thailand will grow rapidly because the Chinese authorities have encouraged their investors to go overseas in order to reduce the pressure on excess liquidity in foreign reserves. In addition, political stability and the recovery of the Thai economy after the general elections in December 2007 will likely foster increased FDI from China. Both Thai public and private sector have to show clear policies to promote Chinese investment in Thailand. They should dispatch high-ranking delegates to visit the target business centers of China, such as Shanghai, Beijing, Guangzhou, Xiamen, Tianjin, Chongqing, Chengdu, and Dalian in order to promote Chinese investors to invest in Thailand.

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