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10 May 2005

International Economy

Sino-Japanese Relations: Impact on Thai Investment

คะแนนเฉลี่ย

The summit between the Chinese President Hu Jin Tao and the Japanese Prime Minister Junichiro Koisumi on April 23, 2005 has helped ease tension somewhat between China and Japan. Still, future Sino-Japanese ties need mending given that they are close economic partners and mutual number one trade partners. The other side of the coin is that the two countries are competing with one another to become the leader of the Asian region foreign affairs and economy. The two-dimensional relationship thus makes it favorable for Japan to maintain its manufacturing bases in ASEAN along with extending relations in trade/investment with China. Thailand is among the ASEAN frontrunners likely to receive greater investment from Japan.

Recently, political conflicts between China and Japan erupted as economic ties between the two countries had burgeoned rapidly over the past two decades, particular, in investment and trade. Currently, the Japanese are listed among the top investors in China, behind overseas Chinese (including those from Hong Kong, Taiwan and Macau) and the US. Japanese cumulative investment in the Mainland has topped USD66 billion, totaling more than 30,000 projects. On the trade front, Japan is China's largest trading partner while China is the largest market for Japanese goods. Aside from this, Japan is also China's largest economic donor, providing China with grants worth over USD20 billion. In 2002 and 2003, Japanese investment in China came in third, after Hong Kong and the Virgin Islands, totaling USD4.190 and 5.054 billion, respectively. A great number of Japanese investors produce consumer goods in China for re-export to their own country. As a result, bilateral trade between the two countries has blossomed swiftly.

In terms of trade, China is currently Japan's largest trading partner and vice versa. While Japan ranks first as China's exporter, it is China's fourth largest market (lagging behind the US, European Union and Hong Kong). In 2004, China imported USD94.37 billion in goods from the Mainland, rising by 27.3 percent, accounting for 16.8 percent of total imports. At the same time, Chinese exports to Japan totaled USD73.51 billion, rising by 23.7 percent. The Japanese market represented 12.4 percent of total Chinese exports. In fact, Chinese imports from Japan have grown remarkably since the 1990s. Consumer products and industrial goods are at the top of the list of goods that Chinese have purchased from Japan.

However, although the short-term economic impacts of the problems between Japan and China are rather limited, being political in nature while rivalry on strategies has caused Japan a lot of anxiety about its future status in China. The above anxiety, coupled with the severity of competition to become the future leader in Asia may incur long term impacts on Japan to maintain its industrial manufacturing base in ASEAN as well as those in China. In 2004, major Japanese industries with Chinese manufacturing bases include chemical products, machinery, electrical and electronic appliances, and automobiles whereas ASEAN and China have equal proportions, with totally 1,157 industrial venues in ASEAN and 1,105 venues in China.

Top-ranked countries that are expected to gain benefits from Japan's maintenance of industrial manufacturing bases in ASEAN include Thailand, Vietnam and Indonesia. From a report of JBIC ( Japan Bank for International Cooperation) in 2004, the medium-term investment target of Japanese investors for the next three years show that Thailand is among the top countries most attractive as investment sources in the world for Japanese investors. From surveys during 2001-2003, China remained number one continuously, followed by Thailand, which moved up from third in 2001 to second in 2002-2003. In 2003, apart from Thailand, ASEAN countries that drew Japanese interest included Vietnam (fourth) and Indonesia (sixth). Surveys in each of four main industries (chemical products, machinery, electrical and electronic appliances, and automobiles) showed results also in line with the above report, as Thailand ranked second as an investment base for all four types of industries, so it is highly possible that Thailand will be benefited from policies to maintain industrial manufacturing bases in ASEAN in conjunction with China.

Considering Japan's request for investment promotions in Thailand, it was found that those figures are consistent with the above investment trend. Japanese investors steadily show interest in investments in Thailand. Japanese investment projects increased from 316 projects in 2003 to 340 projects in 2004. And in the first quarter of 2005, the number of Japanese investment projects increased to 103 projects from the 85 projects in the same period of last year. Although the value of projects requesting investment promotions has increased only slightly in 2004 to Baht101,856 million from Baht106,374 million in 2003, (due to more small and medium investment projects for factories to produce industrial parts entering Thailand as a follow-on to many large factories setting up manufacturing bases here over the past 2-3 years), in the first quarter of 2005, the value of projects from Japan requesting investment promotions had increased significantly by 81.96 percent, and were worth Baht95,817 million, due to large projects in upstream industries and the automobile industry having submitted requests for promotion. It is expected that Japan's investments in Thailand in 2005-2006 will continue this trend.

International Economy

Japan