Get past the Thai-China trade deficit

Get past the Thai-China trade deficit

People buy durian imported from Thailand at the 'Qingdao Thai Fruits Golden Months 2021' event in Qingdao, China. (Photo: Commerce Ministry)
People buy durian imported from Thailand at the 'Qingdao Thai Fruits Golden Months 2021' event in Qingdao, China. (Photo: Commerce Ministry)

This is not a China bashing article. The idea for today's article started when the Minister of Foreign Affairs and Speaker of the House cautioned Thais, the press, and members of parliament against criticising Chinese Covid-19 vaccines as it might upset the Thai-China relationship.

Moreover, I stumbled on a comment on social media pointing out that upsetting China could result in economic repercussions, like the disappearance of much-needed Chinese tourists. These comments got me thinking about the economic value of the Thai-Chinese relationship. Does Thailand significantly depend on China for its economic wellbeing? Or do Thais just assume that because China is the world's second-largest economy and has a market of 1.4 billion consumers that we have no choice but to bend to China's will? Let's look at the data.

Yes, China is Thailand's largest customer both for goods and services. In 2019, we exported 0.971 trillion baht's worth of goods to China, or about 12% of our total exports, while 5.2 million Chinese tourists, contributing another 0.24 trillion baht to the economy, visited Thailand in the same year.

By the way, I do have more recent data from 2020 and 2021, but both years are pandemic years where trade and tourism data is distorted. Thus, 2019 would be a better reference year. Export proceeds and Chinese tourist spending combined were about 1.2 trillion baht, equivalent to 7.6% of GDP. So, China is the most important trading partner of Thailand without a doubt.

Although China contributed 1.2 trillion baht to the economy, it also took 1.6 trillion baht from the economy through imports. The relationship is not one-way. In 2019, we imported almost 1.58 trillion baht's worth of goods from China, or about 20% of our total imports. Therefore, in 2019, Thais, on a net basis, actually paid 0.4 trillion baht (equivalent to 2.5% of GDP) to the Chinese economy. Without Thai-China trade and the service gap, our GDP growth in 2019 would be 2.5% higher and about 1.7 million more Thai workers would be employed.

Again, this is not a China-bashing article. This massive trade gap between Thailand and China is not China's fault but entirely Thailand's fault. China is just being a great big economy with high-efficiency production capability while Thailand adopts a "loser" mentality of one who would never put up counter-strategies. To see what kind of a loser Thailand is, let's look at the evidence.

First, the Thai-China trade deficit has been going on for over a decade, not just in 2019. However, the gap keeps widening. In 2010, the Thai-China trade gap was equal to 0.9% of GDP but this gap widened to 4% of GDP in 2019.

We were delighted that our exports to China grew an average of 3.3% per year but ignored the fact that imports from China grew three times faster. The economy had 10 years to adjust to counter this widening gap, but there was no action.

Second, this might shock many, but China is not a low wage-country, particularly compared to Thailand. According to World Bank statistics, China's per capita income per annum is US$10,500 (345,000 baht) while Thailand's is $7,189. In other words, Chinese human capital cost is 31.5% more expensive. But yet Thailand imports cheaper and better goods from China. Are Chinese manufacturers 30% more efficient or are Thai manufacturers 30% less efficient?

The third point is most disturbing. How do Thais pay for rising Chinese imports? Using 2019 figures, the country received 1.2 trillion baht of payments from China in the forms of export and tourism income, but paid 1.6 trillion baht for imports from China. How did Thai consumers come up with 0.4 trillion baht in the payment gap? The answer was borrowing.

Thai consumers have been borrowing to finance Thai-China trade deficits for over 10 years. Household debt rose from 57.9% of GDP (5.6 trillion baht) in 2009 to 80.2% of GDP in 2019 (13.5 trillion baht) -- an increase of 7.9 trillion baht. Some 4.4 trillion baht of that was used to finance the decade-long Thai-China trade gap. Without such a trade gap, Thai consumers would have household debt a little over 60% of GDP instead of over 90% like today.

I have been pondering why Thailand keeps losing its domestic market to China. The explanation is that Thais have a loser mentality. We do not fight back. Actually, we are not even aware there is a problem. We just enjoy things that are given to us without asking questions. One example came to mind.

China was Taiwan's largest pineapple buyer. Two days before the pineapple cultivating season began, China cancelled all orders, citing pest problems. This was a major disaster for Taiwan's pineapple farmers. Thailand experienced the same pest problem with our longan exports to China, causing longan prices to be at their lowest in 30 years. Same problem, but different solutions producing different outcomes.

Thailand apologised and pleaded for Chinese importers to resume longan imports, to no avail. There was no significant increase in imports from China and longan prices remained at a low level. Thai longan farmers let the fruit rot on trees as it was not economical to cultivate them. Some even cut down their trees; a sad ending.

Taiwan pleaded with Chinese importers with no success too, but instead of letting pineapple prices drop and the pineapples rot in the fields, the government found an alternative market in Japan. That year was the best export year ever for Taiwanese pineapple growers; a happy ending.

In Thailand, we can never win if we think that we are inferior, while the facts are to the contrary. Instead of fearing China, we should keep in mind that, on trade, Thailand has the upper hand as we are contributing trillions of baht to the Chinese economy. And with this upper hand, it is to our benefit to negotiate what is best for Thailand.

After the pandemic this year, the Bank of Thailand projected that we could have 3.4 million unemployed and under-employed workers and the economy could remain weak for another three years. I would like to suggest the country looks intensely at the Thai-China trade gap problem and adopts an "import substitution" strategy to expand domestic production. After all, we have the advantage of 31.5% cheaper human capital cost. This strategy would create at least 2 million jobs; trust me.

Chartchai Parasuk

Freelance economist

Chartchai Parasuk, PhD, is a freelance economist.

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