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5 Feb 2009

Thai Economy

Chinese Industrial Slowdown in 2009 Impacting Thai Exports (Current Issue No.2138)

China is one of the world's leading manufacturing countries and had previously been showing high economic growth. However, their economy turned sluggish in 2008 with 9-percent growth, after achieving their highest growth in 13 years at 13 percent in 2007. The Chinese economic slowdown can be attributed to lower demand in key markets such as the USA, Japan, and European Union, all plagued with severe economic recession. Chinese export growth in 2008 dropped to 17.2 percent and their imports for production and consumption had grown only 18.5 percent, leading to falling profit in the Chinese industrial sector for three consecutive months (September – November 2008). As the Chinese industrial sector grew only 5.7 percent in December 2008; imports for production declined in tandem. However, Chinese economic stimuli are expected to lead to economic recovery in 2009. Improvements in the Chinese industrial sector may be beneficial to our exports of raw materials, intermediate goods and capital equipment to China.
KASIKORN RESEARCH CENTER (KResearch) views that both Thai business in China and Thai exports may face tough competition there due to flagging demand amid the economic downturn that may last until mid-2009. Therefore, market expansion in China seems difficult. With Chinese factory closedowns due to the impact of global economic downturn, the Thai business sector already hurt by difficult economic conditions may be confronted with intense competition due to an influx of cheaper Chinese products. Emphasis should thus be placed on production efficiency to enhance our competitiveness, cost savings and quality improvements rather than pricing competition. New market expansion is also recommended, especially to those countries that still show satisfactory growth; there are some that are not being hurt much by the global economic crisis and have ample demand for imported products. They would be in Africa, the Middle East, India and Eastern Europe.
Once China's economy improves along with a global economic recovery expected to be seen in 2H09, KResearch views that Chinese consumption demand will resume. To be competitive in the Chinese market, Thai manufacturers should focus on technological advancement, production efficiency to ensure reduced costs, enhanced competitiveness as well as quality upgrades. They should take advantage of the ASEAN-China FTA agreement that comes with tariff reductions and deregulation in the Chinese service sector. In brief, this FTA pact will be beneficial to:
Thai exports to China – Thai products with high potential in China include tropical fruits, cereals, jewelry etc.
Thai businesses – Among the promising business would be Thai restaurants, hotels, medical services, etc.
Thai imports from China – Thailand's imports of capital goods and intermediate goods, such as agricultural machinery, automobiles, auto-parts and transportation equipment will benefit from the tariff reductions granted via the ASEAN-China FTA framework.

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