ASIA: Thailand Uneasy Over China Free Trade Deal

By Larry Jagan Reprint | | Print |

Larry Jagan

BANGKOK , Feb 7 2006 (IPS) - A free trade agreement (FTA) that Thailand signed with China, a little over two years ago, has begun to worry politicians and academics who say it has proved disastrous for this country’s farmers.

The China-Thailand FTA, which took effect in October 2003, was limited to agricultural produce while a more comprehensive deal was deferred until 2010. But there are second thoughts now after a deluge of Chinese fruits and vegetables ruined farmers in the country’s north-east.

”The arrangement has been a huge mistake,” Thai senator Kraisak Choonhaven told IPS. ”Thai farmers cannot compete with Chinese imports like apples, garlic and onions. They are two to three times cheaper… many farmers have been left destitute.”

Although Thailand has diversified economy with a large manufacturing sector, some 60 percent of the labour force is employed in agriculture and the countyry is a major exporter of rice and agricultural commodities such as rubber, sugar rice and processed foods.

Bangkok’s relationship with Beijing is both political and economic, explains Kavi Chongkittivorn, political commentator and executive editor at the English-language daily newspaper ‘The Nation’. ”China wants to make Thailand an economic colony”.

China has long seen Thailand as the gateway to the rest of South-east Asia. At last year’s ASEAN foreign ministers’ summit in the Lao capital Vientiane, China took its strategic relationship with Thailand a step further, and proposed a joint maritime non-military regional exercise.

Thailand has actively pursued free trade agreements with ASEAN, which groups Burma, Laos, Cambodia, Vietnam, Thailand, Malaysia, Singapore, the Philippines, Brunei and Indonesia.

”China is now cash rich and is likely to buy assets that will complement their economic development. You can’t stop Chinese interest in capital movement. They’re doing this as part of their government’s policy. Thailand can benefit through joint ventures so the benefits can be shared,” former Thai finance minister Amnuay Virawan said.

Analysts estimate that China has invested more than 150 million dollars in Thailand. Chinese officials and entrepreneurs have been constantly exploring economic opportunities in the country.

A year ago, a Thai-Chinese industrial estate was established near the northern city of Chiang Rai, some 10 km from the Mekong River with initial construction costs of more than four million baht (100,600 US dollars). A joint-venture company has been set up to run the industrial estate.

Chinese businessmen plan to invest in pharmaceutical products, electrical appliances and textiles in the industrial project. ”There is likely to be more ventures in the future,” says Prof. Sompop Manarungsan of the Chinese Studies Institute at the Chulalongkorn University in Bangkok.

”China has excessive foreign reserves – around 700 billion dollars – and Chinese enterprises are scanning the region for business opportunities. They are particularly looking for investment opportunities in basic commodities- energy, paper pulp, iron and steel, nickel and other metals,” said Sompop.

China is already setting up factories in Thailand producing medicines, many of which already use Thai herbs, and textiles, branded ‘Made in Thailand’ especially for export to India, Japan and the rest of ASEAN and to Europe and the U.S. as well, according to Sompop.

Over the past decade, a handful of Thai businessmen have invested heavily in China as well. One of the first companies to recognise the potential, the CP group, has become one of the largest foreign investors in China.

Thai businessmen are far more confident than farmers that the FTA will, in the long run be beneficial for Thailand.

”The FTA with China will be good for Thailand. China is an enormous market of over 1.3 billion people and their purchasing power is getting stronger every year, but we will have to wait a few years to assess the real benefits,” said vice-president of the Thai-China Business Council, Vikrom Kronsat.

”At the moment, some Chinese goods are flooding into Thailand, like apples from the southern provinces in the past two years, but most of this is seasonal. Thai fruits are selling well in China when they are in season,” said Kronstat. ”The future is only positive,” he insisted.

However, Kronstat warns that doing any business with China carries with it considerable risk.

”Too often, Chinese businessmen do not honour their agreements. The price changes after the agreement. Payment is usually the biggest problem – they take the consignments but fail to pay. They often do not understand a LoC (letter of credit),” Kronstat said.

”The most important thing in doing business with China is to develop connections and build personal networks. This needs to be with the central authorities in Beijing as well as local government officials. Building up personal contacts and relationships with partners and customers is essential. It is also important to understand Chinese culture and language as many Chinese businessmen and government officials don’t speak English,” said Kronstat.

”Everything needs to be written down. The Chinese often are keen to do business on a hand shake. China has just opened the door to the world and is still learning how to deal with foreign businessmen,” he added.

Most businessmen and analysts are cautious about the affect of last year’s official appreciation of Chinese currency – renminbi or yuan. ”The slight change is unlikely to have much impact,” Kronsat said.

But if there is any further appreciation, as Chinese officials have hinted, Thailand’s imports to China will benefit – as they will be cheaper and local products will be more competitive because Chinese exports would become more expensive.

Thailand wants to encourage more Chinese tourists to come to Thailand. Although there was a dramatic fall in arrivals over the past twelve months, authorities hope to attract at least a million Chinese visitors this year.

Others believe that China’s FTA with the ASEAN itself will weaken Thailand’s present privileged position. ”Thailand will no longer remain China’s gateway to the South. While Thailand will remain a good market for Chinese exports, the trade balance is likely to widen,” said Sompop.

”China desperately needs basic commodities and Thailand has few products of interest. In the longer run, resource-rich countries, like Indonesia, Malaysia and Burma will benefit. Even the Philippines may benefit more than Thailand,” Sompop said.