In his speech at the 12th National People’s Congress this year, President Xi Jinping encouraged Chinese men and women to dare to have the Chinese Dream. While the dream means different things to different people — be it higher education, greater career opportunities, or economic and social advancement — it is as much a dream of the Chinese individual as that of the whole nation.
All this comes at an important juncture when China is undergoing macroeconomic rebalancing domestically while also facing a new set of challenges internationally.
What is it in China that needs rebalancing?
Premier Li Keqiang, in his remarks at this year’s Summer Davos Forum in Dalian, said: “China is now at such a crucial stage that we will not be able to achieve sustained economic growth without structural transformation and upgrading. In readjusting the structure, the most important aspect is to expand domestic demand.”
China’s middle class has been growing rapidly, and with it comes the benefits of greater consumption potential. Yet, consumption makes up only 45% of China’s GDP, while in Thailand the figure is more than 60%. This is despite an urbanisation level in China that already exceeds 50%, much higher than Thailand’s 34%.
The question then is, why are Chinese consumers not spending as much in the overall economy as their Thai counterparts?
The answer is that China lacks a social safety net. Thai consumption has been supported, among other things, by well-defined pension and provident fund systems as well as a social security programme. In addition, the service sectors have been flourishing in Thailand with the help of a booming tourism industry and a service-minded culture. One can also say that the values of Buddhism serve as a cushion for Thai society.
A counter argument to this would be that Thailand has not invested enough in urban and rail transport infrastructure systems — hence the contribution to the economy of investment is disproportionately low.
In either case, as China moves into the future, the reform of its household registration system, which will allow migrant workers living in urban areas to obtain official residency and enjoy the benefits of public services, has been highlighted as one important task to unlock the spending power of more than 250 million people.
The difference in macroeconomic structures is reflected in daily life. Cai Yuchen, a Bangkok-based Chinese journalist, wrote in a Bangkok Post article that when asked about the differences between living in Bangkok and Beijing, she would say that living in Bangkok was more comfortable and that she would have less pressure when considering whether to buy or rent an apartment.
This is particularly true given that the average price for a flat in Beijing is around 30,000 yuan (150,000 baht) per square metre. Moreover, there are signs that more and more Chinese professionals have started pursuing their dreams in Thailand.
In 2012, the Thai Department of Employment issued more than 12,000 work permits to Chinese nationals working in Thailand — a more than 20% increase from the previous year. The trend is also reflected in the education system, where four out of every 10 foreign students in Thailand are from China.
The “Go Out” policy is another answer to the Chinese government’s plan for industrial transformation. The first wave of Chinese businesses venturing overseas focused on securing resources in African countries. In return, China provided those resource-rich nations with much-needed infrastructure.
However, this has hardly satisfied the upgrade and transformation portion of the policy mandate. So far, Chinese outward direct investment (ODI) stands at only US$87.8 billion, though policymakers expect the figure to jump to $150 billion by 2015. This means that a new wave of Chinese ODI will take shape at a much faster speed and with more diverse motivators. These will include new markets, brand building, technology acquisition, cost reduction, addressing the labour shortage in China, avoiding anti-dumping levies, or simply having too much money at home.
From the policy point of view, why would the Chinese Communist Party want to boost ODI? With huge foreign-exchange reserves concentrated in US Treasuries, ODI would help diversify asset concentration risk. It would also take some pressure off renminbi appreciation. In addition, the larger agenda is to internationalise the renminbi as a gradual step toward capital account liberalisation. According to tracking by the financial publication Asiamoney, the amount of renminbi deposits outside of China now exceeds RMB900 billion, which represents a multifold increase over the recent years.
Likewise, according to the interbank payment network Swift, the Renminbi has recently become the eighth most traded currency worldwide; however, it still accounts for less than 1% of global payments. It is safe to say that Chinese trade and ODI will continue to have robust upward momentum in the future.
In consideration of China’s transformation, Thailand has a lot to offer. Chinese businesses can view Thailand as a strategic gateway to the Mekong region where low-cost manufacturing and abundant resources are the advantages. Thailand has a sound logistic infrastructure that supports development in the automotive, food, agriculture, and segments of the electronics industries.
Thailand’s 2-trillion-baht infrastructure programme, if properly executed, will change the face of the country’s transport system and urbanisation landscape. Wealth will be more diversified into rural areas, which will bring more opportunities for development and connectivity with neighbouring Mekong economies.
As China embarks on its path to realise its dream of becoming a modern domestic consumption economy and secure its continued growth, expanding its horizons to Thailand in terms of investment, trade, and cross-border knowledge exchange will prove to be a natural choice.
Fulfilling China’s dream with Thailand will naturally bring benefits to both countries as the world moves closer toward an Asian-based economy. As a gateway and logistics hub for the Mekong region, Thailand can become a crucial partner in making the Chinese dream a reality.
Manop Sangiambut is executive vice-president and head of international banking business with Siam Commercial Bank. For more information, please contact SCBinter@scb.co.th