China Inc's relentless rise raises red flag

China Inc's relentless rise raises red flag

Not everyone is happy with the growing Chinese influence in Thai real estate, e-commerce and tourism.

With centuries-old ancestral ties and various resources to tap into, Thailand is an enticing target for Chinese investors looking at Southeast Asia's second-largest economy. Chinese capital has flooded domestic industries in the forms of joint ventures or wholly-owned subsidiaries, with blessing from the Thai government.

E-commerce footprint

By Suchit Leesa-nguansuk

Chinese investment flowing into Thailand's e-commerce industry has increased rapidly the past few years.

In 2014, Baidu, China's largest search engine, set up in Thailand. Likewise, Tencent, an internet giant in China, gradually bought shares in Sanook Online, a leading Thai web portal founded in 2010, and branded its wholly-owned subsidiary Tencent Thailand in 2016.

The top two Chinese e-commerce players, Alibaba and JD.com, have also been investing in Thailand the past couple of years as the country proves to be a strategic hub in Southeast Asia, with appealing attributes such as growing middle-class income, good coverage of high-speed internet infrastructure and smartphone penetration of 50 million units in a population of 70 million.

According to the "E-conomy SEA" report from Google and Temasek, Thailand's internet users will have a compound annual growth rate (CAGR) from 2015 to 2020 of around 9%, rising from 38 million in 2015 to 59 million users in 2020.

Thailand's e-commerce market had a value of US$900 million (29.8 billion baht) and the figure is expected to reach $11.1 billion in 2025. E-commerce will account for 5.5% of total retail in 2025 from 0.8% share in 2015, with a 29% CAGR during these 10 years.

Both Alibaba and JD.com have a strong logistics capability and distribution network in China, which are important foundations to expand the e-commerce business.

Alibaba Group Holding Ltd announced in June that it will put another $1 billion in Southeast Asian e-commerce platform Lazada to raise its stake from 51% last year to 83%. The transaction will increase Alibaba's total investment in Lazada to over $2 billion.

Meanwhile, JD.com Inc plans to enter a joint venture with leading retail pioneer Central Group, which is estimated to invest $500 million in the business, according to Reuters.

Mobile payment has also attracted Chinese internet firms. The most notable is Ant Financial, an operator of Alipay, an affiliate under the Alibaba group. Ant Financial acquired a 20% share in Ascend Money in 2016, with the option of purchasing additional 10% stakes under Ascend Group, which is owned by Charoen Pokphand.

Ant Financial Thailand country manager Pipavin Sodprasert said mobile payment in Thailand is a very attractive segment, which continues to gain momentum thanks to the national e-payment scheme.

"I believe that cash still dominates society with 98% [of transactions], but it will fall to 80-70% over the next three years due to efforts by the government and financial institutions," said Ms Pipavin.

Alipay aims to be the medium of payment at 100,000 shops in Thailand, mainly in duty free shops and local stores, and even for Chinese tourists to pay for transport.

Operating through local nominees

By Suchat Sritama

Like in e-commerce, Chinese investors have also poured capital into Thailand's tourism industry over the years and control a wide range of tourism-related businesses, from hotels and travel companies to land transport and tour guides.

Many giant tour operators from China have already formed and operate travel companies in major tourist cities such as Phuket, Chiang Mai and Chonburi's Pattaya. Some even control fleets of buses and souvenir shops, according to Ittirit Kinglake, president of Tourism Council of Thailand (TCT).

"Thanks to their massive capital and marketing power, Chinese travel companies prevail in Thailand nationwide," said Mr Ittirit. "Apart from the key tourist destinations, Chiang Rai has become the newest target for Chinese investors because Chiang Rai will be connected to southern China in the future via a high-speed train and waterways."

Chinese investors have also acquired myriad small hotels in popular tourist cities including Chiang Mai, Krabi, Chiang Rai, Pattaya and Phuket, said Mr Ittirit.

"Operating a business in Thailand is not that difficult. They [Chinese investors] generally use local nominees to run businesses on their behalf to prevent any legal disputes. Many hotels in major tourist destinations already belong to the Chinese, mainly to accommodate Chinese tourists," he said.

Chinese tourist arrivals are expected to reach 10 million this year, representing one third of total foreign visitors. Given the huge number, many travel companies want the government to allow them to use Chinese-speaking tour guides, citing a shortage in Thailand.

"Chinese firms are trying to control the entire business. If they are successful, Thailand's overall tourism sector will experience a hefty loss," said Mr Ittirit.

Realising such threats, the TCT is trying to convince Thai operators to upgrade the way they do business by using sophisticated technology and online services to reach a wider range of customer base. Operators are also suggesting investing more in finance technology such as Alipay, or Zhifubao in Chinese, a third-party mobile and online payment platform, to serve Chinese tourists.

The Thai government is also being urged to continue cracking down on illegal tour guides and foreigners illegally operating tour guide services.

Real estate ventures

By Kanana Katharangsiporn

In the real estate sector, projects being developed this year by Chinese investors -- either through joint ventures with Thai partners or wholly-owned subsidiaries -- will have a total value of at least 120 billion baht.

The largest will be the Trust City World Exhibition and Trade Centre, worth over 100 billion baht, covering 2.5 million square metres with retail space, convention halls, hotels and serviced apartments on Bang Na-Trat Road.

The project will be developed by Hydoo Best Group Co, a joint venture firm between Chinese developer Hydoo International Holding Ltd, Thailand's Best Group Ltd and private equity group W Ventures Hong Kong.

MAI-listed developer J.S.P. Property Plc and Zhongtian Construction Group started phase-one construction at a mixed-use project worth over 10 billion baht on a 160-rai plot in Pattaya after signing a joint venture agreement late last year.

Zhongtian was a few years ago a contractor for some of JSP's condominium projects before the Chinese company expanded to invest in property development.

"Chinese investors bring on Thai partners not only for funding, but also customers from their home country," said Surachet Kongcheep, associate director of property consultant Colliers International Thailand.

According to SCB's Economic Intelligence Center (EIC), Chinese investment in Thai real estate sector became more prominent in 2013 with the establishment of about 80 joint venture firms a year until 2015, and new project launches worth over 10 billion baht annually.

The EIC reported that Chinese outbound investment in global properties was induced by volatile property prices in many big cities in China and its government's policy to promote investment overseas.

Mask of goodwill policies

By Phusadee Arunmas

Experts and industry officials agree that China has gradually spread its range of influence in Thailand through international trade and investments, masked under its "outbound investment" and the "One Belt One Road" initiative, the last in a series of policies used to justify China's increasingly dominant economic position in the region.

Now is not the time for Thailand to pause and ponder whether it should resist or comply with Chinese influence. China Inc is a global trend, and is probably here to stay. For Thais and the government, time would be better spent seeking alpha and avoiding beta: looking for ways to gain the most from the trend, while limiting exposure and disadvantages inherent in it.

While China did not exert excessive influence in the Regional Comprehensive Economic Partnership (RCEP), it did play a major role in the creation of the cooperation, said Commerce Minister Apiradi Tantraporn.

RCEP is a proposed free trade agreement (FTA) between the 10 Asean member states together with Australia, China, India, Japan, South Korea and New Zealand.

The idea of a RCEP is not new. It is about organising major FTAs, which potential member countries like Thailand can hardly afford to miss out on. Regardless of the urgency of these organisations, member countries should strike a balance between measures that allow them to benefit from free trade, and policies ensuring that, moving forward, their industries will be in good competitive standing in the free trade arena.

"If the RCEP is sealed, cooperation will pave the way for Thai goods to penetrate the billion-plus Chinese market," said Ms Apiradi.

Aat Pisanwanich, director of the University of Chamber of Commerce's Centre for International Trade Studies, agrees Thailand cannot avoid the current Chinese influence on trade and investment, and it has its advantages.

For instance, Chinese involvement in agriculture-related business has helped raise prices of farm products, as well as Thai farmers' incomes, he said. "We should not resist China, but we should prevent Chinese businesses from taking advantage of Thai farmers," said Mr Aat.

Despite the apparent bias favouring Chinese investments into Thailand, Deputy Prime Minister Somkid Jatusripitak defends the Thai government's policy to promote foreign investment, saying it is offered on the same treatment basis.

"The government's policy doesn't mean to favour any countries," said Mr Somkid. "The ultimate goal of the government's investment promotion policy is to ensure the balance of the development."

 

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