Changing Cambodian Market Pressuring Exports Stiff Competition from China and Vietnam (Current Issue No. 2866 Full Ed.)

Thai exports to Cambodia have risen over the past decade (2008-2016), recording an average growth of 12.6 percent YoY, excluding exports of refined petroleum products and gold because those prices are volatile in nature. However, it is noteworthy that the growth rate over the past five years (2012-2016) had slowed to 2.2 percent annually, a significant deceleration versus the 18.6 percent average of the previous period. (2007-2011). This trend likely reflects changes in Cambodia's economic structure, and perhaps, some worrisome prospects for Thai exports toward competitiveness in the Cambodian market.

Cambodia's manufacturing and investment sectors have gained more prominent roles in their broad-based economy, leading to higher imports of intermediate goods to serve their manufacturing activities, especially for textile and garment industries. In addition, expanding investments, together with Phnom Penh's plan to accelerate infrastructure development, has created higher demand for capital goods. This changing pattern in Cambodian imports has thus become a test for Thailand toward remaining competitive, though we have generally been Cambodia's main source for imported goods. Key Thai exports to Cambodia now include energy, consumer goods and other product categories, such as automotive vehicles. Although Thai exporters are likely to continue selling intermediate goods and capital goods to Cambodia, e.g., plastics and machinery, other trade nations are catching up, given their export potential and products that better respond to changing business and import infrastructures there.

Considering current trade with Cambodia, China and Vietnam emerge as serious contenders. At present, they are not only the second and third largest sources of Cambodian imports after Thailand, respectively, their exports to Cambodia also show good future prospects mainly because of their investments and linkages with Cambodia via supply chains. Most Chinese and Vietnamese exports to Cambodia are intermediate goods or capital goods, at 85 percent and 50 percent of their total exports to Cambodia, respectively. Their close trade links with Cambodia have become a catalyst creating demand for new intermediate products used there, posing a challenge to Thai exports.

But, major Thai exports sent there include consumer products that are still competitive in the Khmer market. In addition, Cambodia is likely to have greater demand for intermediate goods and capital goods later, and Thailand still has the potential to supply those needs in some categories. KResearch thus views that Thai exports to Cambodia should grow around 6.5 percent in 2017, achieving a value of USD4.977 billion. If Thailand can overcome the above challenges, we should be able to maintain our top spot in Cambodia.