|
Burgeoning Sino-Thai relations: heightening
cooperation, sustaining economic security.
|
|
|
|
|
| Subject: | Commercial treaties (Forecasts and trends) |
| Author: | Chantasasawat, Busakorn |
| Pub Date: | 03/01/2006 |
| Publication: | Name: China: An International Journal Publisher: East Asian Institute, National University of Singapore Audience: Academic Format: Magazine/Journal Subject: Social sciences Copyright: COPYRIGHT 2006 East Asian Institute, National University of Singapore ISSN: 0219-7472 |
| Issue: | Date: March, 2006 Source Volume: 4 Source Issue: 1 |
| Topic: | Event Code: 010 Forecasts, trends, outlooks; 950 International economic relations Computer Subject: Market trend/market analysis |
| Geographic: | Geographic Scope: China; Thailand Geographic Name: China; China; Thailand; Thailand Geographic Code: 9CHIN China; 9THAI Thailand |
| Legal: | Statute: Free Trade Agreement, 2004, United States-Central America-Dominican Republic |
|
|
|
| Accession Number: | 148768194 |
| Full Text: |
Sino-Thai bilateral relations during the Cold War were formed out
of mutual concerns over security issues. Now they have entered an era of
long-term economic partnership. The political and economic desires of
both countries appear to be mutually beneficial. The China-ASEAN FTA, in
particular, is fostering strong trade ties. Thailand, nevertheless, must
find a balance between its relations with the United States and China,
and also prepare for a flood of cheap Chinese goods. A number of Thai
manufacturing sectors will become vulnerable. Nevertheless, this is an
opportunity for them to improve their efficiency and encourage new
research and development. "To continuously deepen Thailand-China friendship and develop bilateral strategic cooperative relations is not only the Thai Government's unswerving policy but also Thai people's wish." These lofty statements were made by Thailand Prime Minister Thaksin Shinawatra in his speech at the official meeting with his Chinese counterpart Premier Wen Jiabao on 1 July 2005. His visit to Yunnan on 1 July 2005 marked the 30th anniversary of China-Thailand diplomatic relations. These anniversary celebrations were also held elsewhere, including Beijing and eight other cities in China and in the Chinatown districts of major Thai cities. While American dominance is gradually fading from Southeast Asia, China is steadily tightening its relations with Asian countries. Emphasising the establishment of true friendships, China is strategically placing itself as the successor of the US in both the economic and political arenas. The world is witnessing a realignment of power among dominant countries, in particular, from the US and, to a lesser extent from Japan, to China. The opening of China's huge and growing market to ASEAN countries under the ASEAN-China FTA is a good start that will surely strengthen political and economic ties among the F TA members, including those of China and Thailand. In the past, the cordial relations that Thailand had with China hinged on Thailand's pragmatic "bending with the wind" foreign policy. (1) Warm relations were formed out of mutual interest in security concerns during the Cold War period in the 1980s when China promised to come to Thailand's rescue if Vietnam invaded. More recently, China has had opportunities to express its goodwill to Thailand in various different ways. Sino-Thai relations are presently characterised by a multiplicity of long-term economic partnerships. Thai leaders are no longer preoccupied with the fear that China will export communism. Instead Thai politicians and businessmen are busy bonding with China through cooperation in many areas. Prime Minister Thaksin himself thinks that China and India are the most important countries economically for Thailand. (2) This article begins with a brief history of Thailand-China bilateral relations before the establishment of official diplomatic relations and is followed by an analysis of what is contributing to good bilateral relations between the two countries now: the mutual interests of both countries in building prosperity, close ethnic ties, non-traditional security and ongoing cooperation in various areas. The main body examines economic ties, i.e., the growing trade and investment, the China-ASEAN Free Trade Area (CAFTA) and its potential benefits and disadvantages for Thailand, as well as the border trade with Yunnan Province. The final section provides some summary remarks. Brief History of Sino-Thai Relations Before official diplomatic relations were established in 1975, Sino-Thai relations had been rough, mainly due to two decades of military policies. From the late 1940s to 1958, the Thai Government's policy towards China under Marshal Pibul Songkram was largely influenced by the US' anti-Communist policy. During this Cold War period, the Thai Government saw communism as the main security threat. It therefore sought protection from the US. Marshal Pibul ignored any relatively trivial benefits derived from trading with China in favour of large amounts of military and development aid from the US. The Thai Government implemented nationalist policies in addition to the anti-Communist policy. Nevertheless, the Thai Government knew it could not afford to neglect China's presence and secretly attempted to form a relationship. However, due to Thailand's alliance with the US, it was impossible for the Government to publicise its normalisation initiatives with China. The Bandung Conference in 1955 helped set a softer tone for Sino-Thai relations. Zhou Enlai assured the Thai Government of China's non-expansionist policy, and shortly afterwards a number of unofficial direct contacts between official members of both sides were arranged in 1955-6 at the Chinese Embassy in Rangoon, Burma. The discussions centred on agreements for peaceful coexistence and trade cooperation. In 1969, the US began to withdraw its forces from Vietnam and also, generally, its presence in Southeast Asia. President Nixon shifted American foreign policy towards China at the end of the Cold War. However, it was not until after President Nixon's visit to China in 1972 that the then Prime Minister, Thanom Kittikachorn, began to revise Thailand's policy towards China. During this period more ties were established through cultural, trade and sports visits, most notably through the famous "ping pong diplomacy". (3) After the military government fell, the civilian government took a less rigid policy towards China. In 1974, China helped Thailand during the oil crisis by supplying oil at a price lower than the market price. When the US gradually reduced its role, Thailand and China realised the importance of each other in terms of security. Thai Pragmatism: A New Era Following the establishment of formal diplomatic ties, relations can be divided into two intervals from 1975-89 and after 1990. International security issues at the height of the Cold War characterised the first period. As the US shifted its policy focus and commitment away from Southeast Asia, Thai policymakers recognised the need to form friendly ties with China, who feared being enclosed by a Vietnamese-Soviet alliance. Thus, there seemed mutual benefit in maintaining diplomatic ties with Thailand. The decision to establish formal relations with China was based entirely on Thailand's security concerns following the Khmer Rouge's overtaking of Phnom Penh. In addition to the political assistance, Thailand received weapons from China at "friendship" prices with a ten-year grace period for repayment either in cash or in kind. (4) Sino-Thai relations entered a new phase after Vietnam's withdrawal from Cambodia. Since 1990, relations have centred on promoting stronger economic cooperation. Thailand would like to foster bilateral cooperation with China in all aspects and has attempted to please China at every opportunity. On many occasions, Thaksin has reiterated Thailand's recognition of China's full market economy status. (5) Economic recovery and growth have been chief objectives of Thaksin's domestic policy agenda since 2001. Thailand's foreign policy is therefore geared towards strengthening economic prosperity and promoting the benefits of strong relations with China. The Government is aware of the rise of China and views the burgeoning economy and massive market size as an engine of growth that can help build Thailand's economy. Thus, the Government and Thai businesses are busy bonding with their Chinese counterparts. According to one study, there were over 1,500 bilateral visits by government officials at all levels in the two years following the Asian Financial Crisis which began in 1997. (6) Upon returning from his last trip to China, Thaksin expressed, in his weekly radio address, his high confidence in China's sheer market size and purchasing power. Having observed the rapid growth in China's large and small cities, he saw enormous potential for Thai products and hoped that Yunnan, due to its proximity, would become Thailand's pre-eminent trade partner. (7) The warm relations have been amplified by frequent high-profile visits, including those by Her Majesty Queen Sirikit in 2000 on behalf of His Majesty King Bhumibol Adulyadej, and numerous trips by Her Royal Highness Princess Maha Chakri Sirindhorn, who is known to be keenly interested in Chinese language, culture and history. (8) The Princess has been an important force in strengthening cultural ties between China and Thailand. By 2004 she had visited every province, autonomous region and municipality in China. Another member of the royal family, Princess Chulaborn, has visited China 12 times and initiated and performed in the "Two Countries, One Family" concert. (9) Deng Xiaoping visited Thailand in 1978, and thereafter every Chinese President and Premier has visited. President Hu Jintao visited the country twice in 2000 (as Vice-President) and in 2003. Likewise, every Thai Prime Minister has visited China. Thaksin has visited China eight times since he became Prime Minister in 2001 (see Table 1 for a listing of all these visits). Thailand adheres firmly to the One-China Policy and other policies pertaining to China's state cohesion. Despite massive investment by the Taiwanese and sizeable importation of Thai labourers, the Thai Government refused to issue a visa to a delegation led by Legislative Yuan Vice Speaker, Chiang Pinkun, and to Council of Labour Affairs Chairwoman, Chen Chu, who were scheduled to visit Bangkok in August 2003. This matter led to Taiwan suspending the import of Thai workers but was later resolved when Thailand issued a visa to Chen Chu in December. (10) In another arena, despite its renowned openness and high tolerance towards all religions and worship, the Thai Government also once blocked the entry of the Dalai Lama and expelled members of the Falungong. (11) China has also upheld good relations with Thailand. Its peaceful rise is reflected in its supportive attitude during the Asian Financial Crisis. The Chinese Government's pledge of USD1 billion and its commitment to maintaining the value of the RMB earned much appreciation from Thai officials. Recently China also expressed its support at the ASEAN + 3 Ministerial Meeting held in Japan for Thai Deputy Prime Minister Surakiart Sathirathai's bid to become the UN Secretary-General. (12) This bid represents Thaksin's fourth major foreign policy push with the support of Beijing. The other three were the early start of the China-Thailand FTA (part of CAFTA), the Asian Bond Fund and the Asian Cooperation Dialogue. In addition, China offered to carry out free DNA testing for Thailand on more than 1,000 tsunami victims. The handover of the results took place in early July 2005 during Mr. Thaksin's visit. (13) Thailand's prodigious interest in China can be seen from the number of government offices in China. Of the ASEAN countries, Thailand has the highest number of representative offices in China and the largest number of its overseas offices is in China. Recently, Thailand has opened consular offices in Chengdu, Xiamen, and Xian and it is considering opening another in Nanning, the capital of the Guangxi Zhuang Autonomous Region and Hainan Province. Close Ethnic Ties: "The Chinese and the Thai Are None Other than Brothers" Apart from Government-to-Government cooperation, there are close links between the people of both countries. Chinese migrants and their descendants have always been a crucial component of Thai society. Chinese ethnicity has often been a constraint in other Southeast Asian countries, but not in Thailand. Indeed, Thailand is somewhat of a role model for the rest of Asia in terms of its integration of ethnic Chinese which currently account for 10 to 15 per cent of the population. The Government has encouraged most of those who migrated before the 1970s to become Thai citizens. They are now well assimilated into Thai society partly due to their similar religion and values. Chinese descendents have continued trading since their arrival and playing an important role in fortifying trade and investment cooperation. They have also assumed influential roles in social, economic and political matters and married Thais. They call themselves "Thais" and have adopted Thai surnames. The intertwining of business and political interests has obvious implications for Thailand's foreign policy towards China. Sino-Thai businesses periodically exert political influence on the Government's policy formulation. For example, the Chia Tai Group (Zheng Da Ji Tuan), known outside China as the Charoen Pokphand Group (CP Group), is a Sino-Thai family-started company which has had a long and complicated relationship with the Shinawatra family businesses. It is one of the largest and most influential multi-national conglomerates in Southeast Asia and is an eminent supporter of the CAFTA and an enormous beneficiary of the Early Harvest Program (discussed below). In 1980, the CP Group was the first Thai company to invest in China after it launched its reforms and opened up to the world. (14) The Group remains the largest Thai business in China with an investment there of over USD4 billion. It has 213 CP subsidiaries in the country, more than 80,000 employees and annual sales turnover of more than RMB30 billion. CP's investments are in agribusiness, aquaculture, seeds, telecommunications, retailing, international trade and finance, auto parts, property and land development and petrochemicals. In Mr. Thaksin's first government, Wattana Muangsuk, a son-in-law of the Chairman and CEO of the CP Group Dhanin Chearavanont, was a Deputy Minister of the Ministry of Commerce and a dedicated free trader. The current generation of Thais is enthusiastically embracing Chinese culture. In Bangkok, Chinese culture is in. Out of ethnic pride and pragmatic business sense, young Thais are learning Chinese as an additional foreign language besides English either through their school curriculum or on their own, and many parents are sending their children to schools in China. There are songs that are sung half in Chinese and half in Thai. Being of Chinese origin is increasingly an asset in business, and this cultural acceptance reflects how keen Thai society is to learn more about China. Tourism between the two countries is also gaining momentum. The most popular tourist destinations in China are Kunming, Guilin, Shanghai, Beijing and Guangzhou. Thai tourists to China increased 63 per cent from 1997 to 2003, while Chinese tourists to Thailand increased 77 per cent from 1997 to 2004 (see Tables 2 and 3). The Governor of Thailand's Tourism Authority predicts that the number of Chinese tourists to Thailand will exceed one million in 2006. (15) Nontraditional Security and Common Objectives for Development of the Mekong River The fact that Thailand and China neither share a border nor have territorial disputes in the South China Sea is an advantage contributing to the smooth and friendly cooperative relations between the two countries. Thailand welcomes a larger role for China in regional security matters. Although at present there is no ominous security concern, Thailand is counting on China's aid in curbing drug trafficking from Myanmar. Thai officials were disappointed when in 2005, due to its rising bilateral trade and concomitant reluctance to interfere in Myanmar's domestic issues, Beijing was reluctant to curtail border incursions by Myanmar troops armed with Chinese weapons. (16) Geopolitically, it is in China's best interests to form strategic partnerships with both Thailand and Myanmar for at least two reasons. First, its hunger for energy requires a secure energy supply route from the Middle East. The Kra Isthmus is a potential alternative route to the Straits of Malacca. According to a report by defence contractor Booz Allen Hamilton, a canal project could provide China with port facilities, warehouses and other infrastructure and would enhance Chinese influence in the region. (17) In addition to the canal project, Thailand has proceeded with the Southern Strategic Energy Land Bridge that will include the installation of an oil pipeline across the Kra Isthmus linking the Andaman Sea with the Gulf of Thailand. Second, in seeking increased market access for Yunnan Province, China currently has two main channels: the Mekong River and the Yunnan Highway III (Route 3). The Asia Development Bank-initiated Greater Mekong Subregion Cooperation will further promote joint efforts among the countries along the Mekong River with respect to trade, investment, transportation, tourism, etc. The Mekong River originates in China and passes through Myanmar, Thailand, Laos, Cambodia and finally Vietnam. Throughout the wars in Laos, Cambodia and Vietnam, the Mekong received little attention from China. But now all the countries along the Mekong are actively joining forces to develop it. Although there are some disagreements arising from the environmental impact of dam construction and China's use of explosives when clearing the river for transportation from Yunnan to Chieng San Port, Thailand is keen to forge ever closer economic cooperation. (18) Opened in 2004, Route 3 enables trucks from Mae Sai, Thailand to go through Myanmar and then to Jinghong, Yunnan in only twelve hours instead of the three days required by boat. However, the security of Route 3 is not good as it cuts through different tribal territories in Myanmar. Keeping an Old Friend Happy While Befriending a New One: A Delicate Balance Thailand's relations with China have been very warm since Mr. Thaksin came to power. But has Thailand become too close to China? Does it need to balance relations between its long-standing ally, the US, and the new rising power of China? China is using Thailand as an example for other ASEAN countries. Dr. Julacheep Chinwanno, a China expert at the Faculty of Political Science, Thammasat University, notes that despite differences in political ideology, the two are managing close relations. (19) Mr. Kavi Chongkittavorn, a senior editor of The Nation newspaper group in Thailand concurs, pointing out that for China, Sino-Thai bilateral relations have, in fact, multilateral implications. (20) He says that China is using Thailand as a conduit to step up cooperation with other ASEAN countries. It appears that Thailand is fostering intimate relations with China without forsaking its long historical alliance with the US. The Americans continue to hold annual military training, such as Cobra Gold, as well as other military manoeuvres. Although Thailand refused to sanction the US invasion of Iraq, it later deployed troops there and in Afghanistan. So it seems that it is Thailand's strategy to handle its foreign policy in a way such that it allies itself with neither the US nor China. Dr. Julacheep believes that Thailand-US relations are good and therefore there is no need for Thailand to counterbalance US power with that of China. Mr. Kavi, however, disapproves of Mr. Thaksin's current foreign policy. He is afraid that too close relations with China could jeopardise relations with the US. He remarked: "China exploits commonalities and retains differences, but Thailand not only exploits commonalities but turns all differences into cooperation. Thaksin tilts too much toward China. Instead of being a conduit, Thailand is now China's puppet." In his view, Mr Thaksin does not possess a diplomatic mind set. He believes that Mr. Thaksin is almost exclusively concerned with economic profits, not long-term diplomacy. He goes as far as to say that Thaksin's foreign policy is nearsighted as shown through his seeming lack of appreciation of the non-NATO ally status granted by the US. Mr. Kavi also warns that Thailand's close relations with China may lead other ASEAN members to think that Thailand is a conduit for China's foreign policy: "Thailand sometimes speaks on behalf of China such as during the discussions on the preparation of the East Asian Summit." Trade and Investment with the Economic Powerhouse Sino-Thai trade emerged soundly again in 1978 after the signing of the trade agreement and establishment of a joint Thai-Chinese Trade Committee tasked with overseeing and expediting trade relations. In 1985, this Committee was replaced with a newly established joint Thai-Chinese Committee on Economic Cooperation. (21) In the first year of formal diplomacy, 1975, there was approximately USD24.6 million worth of bilateral trade. This has since grown to about USD15 billion in 2004 (see Table 4). (22) A number of trade- and investment-related agreements have been signed. In 2003, President Hu and Prime Minister Thaksin signed five documents on bilateral cooperation, including an agreement on establishing a Joint Committee on Trade, Investment and Economic Cooperation. Together the two countries have set a bilateral trade target of USD20 billion for 2010. Thailand ranked 14th among China's trade partners in 2004 and third among the ASEAN countries, after Singapore and Malaysia. Sino-Thai bilateral trade accounted for 1.5 per cent of China's trade volume in 2004. This percentage share has not increased much since the beginning of the 1990s. Meanwhile, China has become the third largest trade partner of Thailand, after Japan and the US. The share of Sino-Thai trade in Thailand's total trade has increased from 2.2 per cent in 1991 to 7.5 per cent in 2004. Due to discrepancies in Chinese and Thai statistical data on exports and imports, no conclusions can be drawn about the trade balance. Both sides are claiming that they are running trade deficits with the other partner (see Figures 1-3). [FIGURES 1-3 OMITTED] Changing Characteristics of Sino-Thai Trade China is Thailand's third largest export market. Exports to China amounted to USD7.1 billion or 7.3 per cent of Thailand's total trade in 2004 (see Table 4). Over 60 per cent of the exports to China are in manufacturing and about 20 per cent are in agricultural products. There have been large increases in the exports of computer equipment, components and assemblies (see Figure 4). [FIGURE 4 OMITTED] Computers and parts have become Thailand's most important export to China since 1997, accounting for 20 per cent of the total in 2004. Other key exports in the post-Asian Financial Crisis period have been plastics and plastic articles, chemical and allied industries, rice, rubber, tapioca products, oil (crude and non-crude) from petroleum and bituminous minerals, electronic integrated circuits and micro assembled parts. Imports from China accounted for 8.6 per cent of Thailand's total imports in 2004. China is Thailand's second largest source of imports after Japan. The top imports from China are electrical machinery, equipment and parts, computers and parts, iron and steel, chemicals and allied industries, special woven fabrics, textiles and knitted fabrics. The share of capital goods in Thailand's imports has risen from 20 per cent in 1991 to above 40 per cent in 2003. Major commodities that have gained the largest share over the years are mechanical equipment, electronics and electric appliances. Imports of textiles and leather, categorised as intermediate goods, are among those that have declined drastically but may make a comeback with the implementation of the CAFTA (see Figure 5). [FIGURE 5 OMITTED] A substantial component of Sino-Thai trade is intermediate goods. Particularly, computers and parts and electronic integrated circuits and microassembled parts (all under the same HS chapter) rank among the top ten on export and import lists. (23) This suggests a strong production linkage between the two countries. The Sino-Thai FTA: A Head Start With the Early Harvest Programme The FTA between China and Thailand is part of the China-ASEAN FTA cooperation. It covers trade in goods and services, investment and economic cooperation. The CAFTA initiative reflects the Chinese Government's desire to promote economic partnership in the region. China is working diligently to regain its influence while also catching up with Japan and the US, whose trade and investment in the East Asian region are far more established. These efforts are not going unnoticed by Japan and the US who do not wish to be superseded by the Chinese. The Japanese and Americans themselves are currently undergoing FTA negotiations with Southeast Asian countries including Thailand. As well as representing a consumer base as large as 410 million people, ASEAN has abundant raw materials. However, the FTA is not driven purely by economic reasons. This is especially true for China given that its trade with ASEAN is only eight per cent of its total trade. In fact, the true motivation for the Chinese is politics. Feasibility studies for the FTA were ordered only after the FTA was proposed. China advocates multipolarism, and CAFTA is one of the best tools to foster stronger regionalism, show its sincere desire to grow together with other Asian countries and to dilute US unilateralism.24 Dr. Julacheep contends that a rising China would rather avoid creating hostile reactions and prefer to share prosperity with its Southeast Asian neighbours. For Prime Minister Thaksin, capitalising on the FTA promotes Thailand as a centre linking China and Southeast Asia. He played a chief negotiating role for the CAFTA, thereby increasing Thailand's role in regional affairs. (25) An essential element of the China-Thailand FTA (as well as CAFTA) is the Early Harvest Programme (EHP), which accelerates tariff elimination in HS Code 01-08 products. (26) Under the Programme, China and Thailand have opened up their vegetable and fruit markets (HS 07-08) since 1 October 2003, and other agricultural sectors (HS 01-06) since January 2004. The tariff reduction schedule on other products is identical to that of the CAFTA. The EHP is an attractive inducement, especially for ASEAN countries whose comparative advantage is in agricultural products. It speeds up the FTA process by first reducing tariffs only on agricultural products while allowing the negotiation of other products to continue in the interim. The EHP was set to begin in January 2005 for other ASEAN countries. However, Thaksin was successful in arranging with Premier Wen Jiabao to give it a head start, i.e., in early October 2003. (27) This first-mover advantage enabled Thailand to be a few steps ahead of Vietnam, Indonesia, Philippines and Malaysia, which are also exporting agricultural products to China, in capturing the Chinese agricultural market and establishing a strong consumer base. Through the EHP, Thaksin sent an important political signal to the region demonstrating his strong political will in pushing ahead with the CAFTA. Both Chinese and Thai customs statistics indicate that Thailand is running a trade surplus in fruits and vegetables, though the actual numbers differ. In 2004, according to the Chinese statistics, Thailand had a surplus in this area of USD393 million and total trade in HS 01-08 increased 77 per cent over the year. However, according to the data from Thailand, this surplus was only USD192 million, and total trade in HS 01-08 increased by only 26 per cent. While trade in HS 01-08 has risen and Thailand still has a surplus against China, the surplus size is declining. Penetrating the Chinese Market: A Mission (Im)Possible Breaking into China's market is not as easy as some might think. The market size of 1.3 billion people can be deceiving if one does not realise how fragmented it is by different consumer preferences and rules and regulations on imports in each province. Despite zero tariff rates, Thai agricultural products have had a difficult time penetrating the Chinese market due to non-negotiated non-tariff barriers in the EHP, such as safeguard measures, anti-dumping, counter-veiling, dispute settlement mechanism, bureaucratic red tape, repeated customs procedures and food safety regulations. In addition, China levies a 17 per cent value added tax on general imports and a 13 per cent tax on agricultural products exclusive of import tariffs. (28) Thai products are also not well known and fairly expensive, despite tariff reduction, relative to local products. Thai fruits and vegetables are warm weather products which are fragile and easily perishable. Rapid transportation is imperative. However, much of the inter-provincial logistic businesses are still under the control of state enterprises. Outside urban areas, shipments across provinces are still cumbersome due to a lack of technology. For products such as garlic, onions and carrots, China and Thailand are competing directly with each other. Thailand is likely to be at a disadvantage due to lower or no economies of scale and higher labour costs. Nevertheless, some complementarities exist between China's cold-weather crops and Thailand's tropical fruits and vegetables. Apples, pears, garlic and shitake mushrooms are among the top imports from China. These have increased drastically in recent years and greatly benefited Thai consumers. (29) Effects on the Manufacturing Sector Tariff reductions in the manufacturing sector took effect from 1 July 2005. Products on the "Normal List" will have tariffs reduced and eliminated by 2010 whereas those on the "Sensitive List" will be eliminated by 2018. In the "Highly Sensitive List", tariffs must be reduced to 50 per cent or less by 2015 though the reduction will not start until 2012. Domestic and foreign manufacturers in Thailand are at risk of being driven out by cheaper Chinese products. Some of these companies have reportedly been unable to compete in the low-end market and have had to move up to the middle-and high-end markets. (30) Thai producers of electrical appliances, textiles and leather shoes will be affected most from the tariff reduction, warned Winichai Chaemchaeng, Deputy Director-General of the Trade Negotiations Department. (31) This will inevitably lead to unemployment in such sectors. Meanwhile, the sectors that are benefiting from the FTA, i.e., Thailand's main exports to China (plastics and articles thereof, and chemical and allied industries, and electronic integrated circuits and micro assembled parts), will expand and require more capital and labour. Therefore, allocation of resources will shift in this direction. Since the CAFTA will facilitate exports to Thailand and other Southeast Asian countries, the FTA may entice foreign manufacturers in Thailand to relocate to China to profit from the more friendly investment and tax laws and cheaper labour costs. On the bright side, investors who seek to diversify risk may choose Thailand as their alternative or additional production base. Provided that businesses understand the market, a large market is full of opportunities. With so many FTAs signed in the past few years, Thailand must improve its competitiveness and ensure that its investment environment is developing in a meaningful way in order to sustain, as well as expand its export sectors and investment. Producers who export fruits and vegetables are already competing with Chinese imports and must change their strategies and improve their product quality. As long as sufficient time and supporting measures for adjustment are provided to farmers and businesses that are adversely affected, the impact of the FTA should not be too detrimental. The poorest farmers are often the hardest hit and have the most difficulty in finding other opportunities since they lack education, skills, training and resources. In the past, the Thai Government has been criticised for lacking advanced research in the social and economic impacts of such agreements, and for producing only vague details about the priority points under negotiation. As of now, the CAFTA will take effect only on trade in goods and not trade in services, the sector from which Thai businesses have high potential to benefit. Border Trade with Yunnan Province Northern Thailand (Chiang Rai) has officially conducted border trade with southern China (Yunnan Province) since 1994. Due to monitoring difficulties, registered official border trade is generally less than the real value. Thailand currently runs a border trade surplus with Yunnan. However, since the goods and commodities coming from Laos and Myanmar can be of Chinese origin, the actual surplus is likely lower than what is reported (see Table 5). The China-Thailand FTA has yielded mixed results for border trade. There has been a significant increase in imports from Yunnan. However, Thai exporters have had to ship their products to China via Laem Chabung deepsea port near Bangkok instead of via the usual channel, the Mekong River because officials in southern China are not well informed of the tariff reductions under the EHP and are still collecting import taxes, which have in fact been eliminated. Data from the Bank of Thailand indicate that border trade in 2004 declined over 2003: imports from China increased while exports did not. Traders must currently use either the Mekong River or the Yunnan Highway (Route 3). The Mekong can be used only to transport goods on a 3-day basis because China diverts water from the river to fill its two dams in Yunnan. The situation may worsen in the future as three more dams are under construction and three more are underway. The Yunnan Highway is essential for Thai tropical fruits and vegetables, which can perish on a three-day boat trip up the Mekong River. Other alternatives in consideration include Route 3 East (the East-West Corridor)--a joint cooperation between China, Thailand and the Asian Development Bank--and railways, which will link Yunnan with Chiang Rai, both through Laos. With better means of transportation and deeper collaboration through multilateral initiatives such as the Greater Mekong Subregion Economic Cooperation, border trade is expected to expand. Investment Thailand's investment in China has been increasing, though it is still fairly small, particularly when compared with investment from Japan, Taiwan, Singapore and the Republic of Korea. As of 2003, there were 3,264 investment projects in China and USD6 billion worth of investment in stocks. From January to June 2004, China's realised foreign direct investment (FDI) was USD34 billion, of which USD105 million came from Thailand. Thai investments in China include the production of animal feed, agricultural cultivation, food processing, light industrial products, chemicals, paper and plastics and metal products. (32) Table 6 provides the indices of China's used FDI and other investment by country or territory. Recently China has become a significant source of outward FDI. In 2003, China's outward FDI reached USD2.85 billion, an increase of 5.5 per cent from 2002. Half was directed towards Asia, with Hong Kong receiving USD1.15 billion. (33) China's outward FDI has increased rapidly for several reasons. First, growing demand for raw materials has prompted the Chinese Government to encourage both state-owned and private companies to invest abroad in projects that have strategic importance for the country. Second, rising competition within the domestic market has also motivated Chinese companies to search for new markets to strengthen their survival. Technology transfers through FDI have further improved the competitiveness of Chinese firms in foreign markets. China's FDI in Thailand includes textiles, light industrial goods, rubber, chemicals, potash mining, food processing, non-ferrous metal smelting, banking, insurance, commodity inspection, hotels, restaurants and real estate. (34) In 2004, it amounted to USD110 million (see Table 7). Chinese investors have also paid much attention to engineering projects, contracting and labour service cooperation. Some of these projects are infrastructure construction, water conservation, roads, bridges, ports, steel works, chemical plants, textile mills, hospitals and residential housing. (35) In 2004, the Board of Investment of Thailand signed a memorandum of understanding on investment cooperation with branches of the China Council for the Promotion of International Trade in Beijing, Yunnan, Shanghai, Sichuan and Jiangsu. The memorandums are meant to create a network of investment cooperation between Thai investors in China and Chinese investors in Thailand as well as to set target industries that have high potential for the investors. Thailand wants to attract Chinese investment for its rubber, automobiles and electronics industries. (36) Thailand and China have bilateral investment treaties that focus only on investment protection, not investment liberalisation. The CAFTA negotiations are still ongoing. There is hope that both sides can agree on more open and favourable treatment in the investment environment. ASEAN is bargaining with China for regional investment liberalisation, specifically "pre-national treatment". However, the negotiations could be lengthy due to the non-unified investment treatment among the Chinese provinces. Conclusion The present amicable relations between China and Thailand are primarily a result of the common objectives of both countries to create prosperity. The CAFTA coincides with China's desire to foster East Asian regional integration to counter US unilateralism, and with Prime Minister Thaksin's plans to promote Thailand as a regional hub for Southeast Asia and boost Thailand's leadership role in regional affairs. However, Thaksin must find a balance in relations among China, the US and the neighbouring ASEAN countries. Will the drive for economic profits, which has been the main objective of Mr. Thaksin's policies, cause Thailand to lose ground in the international arena? It may very well spark American and ASEAN dissatisfaction. Economic cooperation is currently the foundation of Sino-Thai relations. On one hand, China will be one of Thailand's most important engines of growth. Nevertheless, the CAFTA might backfire on Thailand's competitiveness in the agricultural sector if it is too slow in improving technology in this area. There is also widespread fear that Thailand can expect to see a flood of cheap Chinese manufacturing products. Industries will have to strategise their survival plans carefully. Despite the looming possibility that China's manufacturing products may wipe out some Thai industries, there is no stopping China's inexorable economic rise. Inevitably, Thailand will find that it is increasingly dependent on the Chinese economy. (1) See John Wong, The Political Economy of China's Changing Relations with Southeast Asia (London and Basingstoke: Macmillan, 1984), pp. 150-78 for more in-depth discussion of the relations between China and Thailand from the 1950s to 70s. (2) Melinda Liu, "Divide and Conquer", Newsweek (International Edition), 7 Mar. 2005 issue at (3) John Wong, The Political Economy of China's Changing Relations with Southeast Asia, pp. 169-71. (4) For a more in-depth review of China-Thailand relations after 1979, see Chinwanno, Chulacheeb, "Thailand-China Relations: From Strategic to Economic Partnership", International University of Japan Research Institute Working Paper, Asia Pacific Series, no. 6. (5) PRC Embassy in Thailand, Economic and Commercial Counsellor's Office, "Premier Wen Jiabao Meets with Thai Prime Minister Thaksin Shinawatra", 22 June 2004 at (6) Bradley Mathews, "Bangkok's Fine Balance: Thailand's China Debate", in Asia's China Debate, Asia-Pacific Center for Security Studies, Special Assessment, Dec. 2003. (7) "Thailand and China Enjoy Close and Cordial Relations", PM Talks, Thailand Government Public Relations Department, 11 July 2005 at (8) The King and Queen had made no official visits in more than 30 years prior to this. State visits normally occur only once in the King's reign. His Majesty King Bhumibol Adulyadej visited China in 1967. (9) "Sino-Thai Ties Enhanced", China Daily, 1 July 2005, p. S1. (10) Trung Latieule, "Care Needed with 'Go South' Policy", Taipei Times, 11 Feb. 2003. From Taiwan Security Research at (11) Anthony Smith, "Thailand's Security and the Sino-Thai Relationship", China Brief 5, no. 3 (1 Feb. 2005). The Jamestown Foundation at (12) "China Backs Thai DPM in bid for UN Post", China Daily, 8 May 2005 at (13) "China Ready to Strengthen Strategic Cooperation With Thailand", Xinhua Economic News Service, 1 July 2005. (14) Chia Tai Group homepage at (15) "Thailand to Expect More than 1 Million Chinese Tourists Next Year", Xinhua, 3 July 2005. (16) Anthony Smith, "Thailand's Security and the Sino-Thai Relationship", China Brief, 5, no.3 (1 Feb. 2005). The Jamestown Foundation at (17) Bill Gertz, "China Builds Up Strategic Sea Lanes", Washington Times, 18 Jan. 2005 at (18) The water level now fluctuates unpredictably when China diverts water to fill its dams. The dams have also caused the water temperature and environment around the river banks to change, killing large number of species. Downstream countries which used to depend on river fishing for their main source of dietary protein have had their way of life destroyed. Thai local fishermen now work as labourers at the busy Chieng port, carrying loads of Chinese products from Yunnan. The Thai Government is now opting for road transportation to avoid dealing with the problem of uncertain water level. (19) Telephone interview with Dr. Julacheep Chinwanno, July 2005. (20) Telephone interview with Mr. Kavi Chongkittavorn, July 2005. (21) PRC Embassy in Thailand, Economic and Commercial Counsellor's Office, "The Long-Stream Friendship between Thailand and China", 30 Nov. 2004 at (22) As there are discrepancies between the bilateral trade statistics of the two countries, it was decided that the Thai statistics would be used here. (23) HS refers to Harmonised System Codes for Commodity Classification. (24) For a detailed discussion of China's political motives, see Sheng Lijun, "China-ASEAN Free Trade Area: Origins, Developments and Strategic Motivations", ISEAS Working Paper, International Politics & Security Issues Series, no. 1, 2003. (25) Thailand has been fervently active in negotiating bilateral FTAs. Besides China, other ongoing and completed negotiations include those with Australia, Bahrain, India, New Zealand, Peru, Japan and the US. Like many countries impatient with the snail-paced multilateral trade negotiations under the WTO, Thailand proceeded directly to bilateral negotiations. The Government hopes to draw on the country's geographical location as a sub-regional economic hub, in which multinational companies can establish logistical gateways to third countries in South and Southeast Asian destinations as well as Australia and New Zealand. The FTA, therefore, is an essential instrument in attracting more FDI and trade. However, it is unclear how persuasive this idea can be because (1) Singapore's role in this regard has been well-established; and (2) even without Singapore, it is doubtful whether Thailand would be a more convenient logistic and production hub than China where transport costs no longer account for a large proportion of total costs. (26) HS code chapter and description--01: Live Animals, 02: Meat and Edible Meat Offal, 03: Fish, 04: Dairy Produce, 05: Other Animal Products, 06: Live Trees, 07: Edible Vegetables, 08: Edible Fruits and Nuts. (27) Thaksin and Wen agreed to do this on 29 April 2003, and the official agreement was signed on 18 June 2003 by Thailand's Minister of Commerce, Adisai Bohdiramik and Commerce Minister Lue Fuyuan, at the Diaoyuthai State Guest House in Beijing. (28) Phusadee Arunmas, "Thai Exporters Need to Do More Homework on China", Bangkok Post, 30 May 2005. Obtained from FTA Watch Group at (29) This, however, creates trade diversion for other trade partners. Ever since the implementation of the FTA, Thailand's imports of apples from the US, South Africa and New Zealand have decreased. Importers have switched to cheaper Chinese apples. (30) Thailand, Ministry of Commerce, "Chinese Products Are Taking Up Thai Markets in 33 Manufacturing Sectors", 6-8 May 2004 at (31) Phusadee Arunmas, "ASEAN-China Tariff Reduction Details Finalised", Bangkok Post, 17 May 2005. Obtained from FTA Watch Group at (32) PRC Embassy in Thailand, Economic and Commercial Counsellor's Office, "The Long-Stream Friendship between Thailand and China", 30 Nov. 2004 at (33) "China Pours More Money Overseas", People's Daily Online, 22 Oct. 2004 at (34) PRC Embassy in Thailand, Economic and Commercial Counsellor's Office, "The Long-Stream Friendship between Thailand and China", 30 Nov. 2004 at (35) Ibid. (36) Thailand, Ministry of Industry, Marketing Division, Board of Investment, Press Release 71/2547, 24 May 2004 and Press Release 129/2547, 30 July 2004 at Busakorn Chantasasawat (busakorn@gmail.com) is currently studying Chinese in Beijing. She did her PhD in economics at the University of California, Santa Cruz. Her main research interests include trade and investment in East Asian economies and Thailand-China relations. Table 1. High-Profile Visits
Visits to China by Thai Royal Family Members Since 1975
Her Majesty Queen Sirikit 2000
His Royal Highness Crown Prince 4 times in the past 24 years
Maha Vajiralongkorn
Her Royal Highness Princess Maha 20 times in the past 24 years
Chakri Sirindhorn
Her Royal Highness Princess 12 times
Chulabhorn
High-Profile Visits between China and Thailand Since 1975
Year China
1975
1978 Deng Xiaoping
1978
1979 Deng Yinchao
1980, 1982
1981 Zhao Ziyang
1982 Peng Chong
1983, 1987 Wu Xueqian
1985 Li Xiannian
1986 Tian Jiyun
1987 Wan Li
1987 Rong Yiren
1988, 1989
(twice)
1988, 1990 Li Peng
1991 Yang Shangkun
1991
1993, 1999
1992, 1994 Qian Qichen
1995 Li Ruihuan
1996
1996, 1999, Li Peng
2002
1997
1998 Li Lanqing
1999 Jiang Zemin
1999 General Fu
Quanyou
2000, 2003 Hu Jintao
2000 Luo Gan
1996, 2001 Zhu Rongji
2001 **, 2002, 2003 **, 2004 **,
2005
2003 Li Lanqing
2003, 2005 *** Wen Jiabao
2004 Tang Jiaxuan
Year Thailand
1975 M.R. Krukrit Pramote
1978
1978 General Kriangsak Chomanan
1979
1980, 1982 Prem Tinsulanond
1981
1982
1983, 1987
1985
1986
1987
1987
1988, 1989 General Chatichai Choonhavan
(twice)
1988, 1990
1991
1991 Anand Panyarachun
1993, 1999 Chuan Leekpai
1992, 1994
1995
1996 Banharn Silpa-Archa
1996, 1999,
2002
1997 Chavalit Yongchaiyudh
1998
1999
1999
2000, 2003
2000
1996, 2001
2001 **, 2002, 2003 Thaksin Shinawatra
2004 **, 2005
2003
2003, 2005 ***
2004
Year Position
1975 Prime Minister
1978 Vice-Premier
1978 Prime Minister
1979 Vice-Chairwoman of the
NPC Standing
Committee
1980, 1982 Prime Minister
1981 Premier
1982 Vice-Chairman of the
NPC Standing
Committee
1983, 1987 State Councilor and
Foreign Minister
1985 President
1986 Vice Premier
1987 Vice Premier
1987 Vice-Chairman of the
NPC Standing
Committee
1988, 1989 Prime Minister
(twice)
1988, 1990 Premier
1991 President
1991 Prime Minister
1993, 1999 Prime Minister
1992, 1994 Vice Premier
1995 Chairman of the CCPCC
1996 Prime Minister
1996, 1999, Chairman of the Standing
2002 of the NPC
1997 Prime Minister
1998 Vice-Premier
1999 President
1999 Chief of the General Staff
of the Chinese PLA
2000, 2003 Vice-President (2000)
President (2003)
2000 State Councillor
1996, 2001 Vice-Premier (1996)
Premier (2001)
2001 **, 2002, 2003 Prime Minister
2005
2003 Vice-Premier
2003, 2005 *** Premier
2004 State Councilor
Notes: ** Prime Minister Thaksin visited China twice that
year. *** Premier Wen Jiabao is scheduled to visit Thailand to mark
the 30th anniversary of Sino-Thai diplomatic relations in December
2005.
Source: Xinhua General Overseas News Service; PRC, Ministry of Foreign
Affairs, "Bilateral Relations" at
http://www.fmprc.gov.cn/eng/wjb/zzjg/yzs/gjlb/ 2787/default.
htm> [10 Oct 2005]; "Thailand and its Relations with China" at
|
| Gale Copyright: | Copyright 2006 Gale, Cengage Learning. All rights reserved. |