How China’s economy slowdown affects Thailand

China’s economic slowdown has raised concerns among global leaders and economists. Despite experiencing significant growth over the past few decades, recent data indicates a decline in growth rates. This has sparked discussions on the impact of the slowdown on the global economy and potential strategies to address the issue.

Key Takeaways:
– The slower growth in China’s real estate sector and debt problems could potentially lead to an economic crisis that impacts the global and Thai economy.
– China’s growth is being hindered by factors such as slowing investment, a drop in domestic consumption, strict import and export restrictions, high public debt, and the risk of deflation.
– Thailand’s export sector is already slowing down due to global recession and geopolitical uncertainty, and China’s slowdown will further reduce revenue from trade and tourism.
– Concerns are growing over the potential contagion effect of China’s economic slowdown, especially for Hong Kong and Singapore, which are highly dependent on Chinese demand.
– Other Asian countries, including Australia, Vietnam, Malaysia, and Thailand, are also experiencing negative repercussions from China’s economic struggle, resulting in slower growth rates and declining exports.

According to a recent Reuters poll, China’s economy is projected to grow by 5.0% this year, slightly lower than the 5.5% growth rate predicted in a previous survey. The range of forecasts provided by analysts varies between 4.5% and 5.5%. The struggling property market in China is causing downward revisions in economic growth forecasts, posing risks to both the domestic and global economy. The current situation in China’s real estate sector is impacting other areas of the economy since a significant portion of Chinese household wealth is invested in real estate.

The Chinese economy’s deflationary trend has raised concerns about weak consumption, a weakening currency, and excessive local government debt. The Chinese manufacturing sector has contracted for the fifth consecutive month in August.

Thailand has been cautioned about the impact of China’s economic slowdown on its own economy. China’s real estate sector is facing debt and liquidity problems, leading to slower growth. Considering Thailand’s heavy reliance on exports, it is expected to see reduced revenue from trade and tourism due to China’s slowdown and the global recession.

The impact on Thai exports:
China’s economic slowdown is affecting Thailand’s exports, particularly chemical products and plastic pellets used in the real estate sector. The Trade Policy and Strategy Office (TPSO) of the Commerce Ministry reports a decline of 9.4% and 8.7% in Thailand’s exports of chemical products and plastic pellets to China, respectively, in the first half of 2023 compared to the same period last year. These products are primarily used in the construction industry, which has been significantly affected by the real estate crisis. The TPSO expects modest growth of 3.5% in Thailand’s exports to China in 2023, down from 5.5% in 2022.

Real estate businesses in China heavily rely on extensive borrowing for numerous projects, creating a dangerous property bubble. Earlier this year, the People’s Bank of China introduced the “Three Red Lines” criteria to reduce the risk of a property bubble and restrain debt expansion in the real estate business. Only 6.3% of Chinese real estate businesses meet these criteria, making it nearly impossible for most businesses to borrow more money to operate.

Job losses:
Combined with reduced sales during the pandemic, many businesses, including major player Evergrande, faced severe financial difficulties and filed for bankruptcy earlier this month. The real estate slump has also impacted the labor market, as the construction sector is a major job provider of over 62 million positions. These jobs may be subject to elimination while new job opportunities have dwindled, especially for new graduates who have suffered due to reduced real estate investments since 2022.

The impact on tourism arrivals:
China’s economic slowdown is also affecting Thailand’s tourism sector, which heavily relies on Chinese visitors. The TPSO reports that the financial status of the Chinese population has been affected by plummeting real estate prices, resulting in significant financial losses. Approximately 70% of urban residents invest in real estate for income and investment. The TPSO projects that tourist arrivals from China will reach 4.5 million in 2023, down from 9.8 million in 2019 pre-COVID. However, other markets such as Europe, India, Russia, and America are recovering from the pandemic and resuming travel activities, which may help tourism remain a growth driver for Thailand’s economy.

The outlook for Thailand:
The TPSO has adjusted its Thailand GDP forecasts for 2023 to 3% and for 2024 to 3.5% due to the Chinese economic slowdown. However, it also notes some positive factors that could support Thailand’s economic recovery, such as the US potentially avoiding a soft-landing scenario and China implementing stimulus policies to drive growth. Government stimulus policies aimed at injecting cash into low-income households and stimulating consumption could also be implemented. Additionally, improvements in political stability and investor confidence may lead to an increase in foreign direct investment (FDI) relocating to Thailand from China.

Considering the potential impact of China’s economic slowdown on Thailand’s economy, it is crucial for the Thai government to implement effective strategies to mitigate negative consequences. Possible measures could include diversifying export markets, supporting domestic industries, boosting domestic consumption, and strengthening tourism recovery.

Overall, although the Chinese economic slowdown presents challenges for Thailand, it also provides an opportunity for the country to reassess its economic strategies and diversify its sources of growth. By implementing proactive policies and fostering resilience, Thailand can navigate the current situation and position itself for sustainable and inclusive economic development.


09/12/2023 7:00 pm