Asia Times, Hong Kong
Chinese food makes Thais uneasy
By Larry Jagan
10 February 2006
BANGKOK - 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 the Southeast Asian country’s farmers.
The China-Thailand FTA, which took effect in October 2003, was limited to agricultural produce, deferring a more comprehensive deal until 2010. But there are second thoughts now after a deluge of Chinese fruits and vegetables ruined farmers in the country’s northeast.
"The arrangement has been a huge mistake," Thai Senator Kraisak Choonhaven said. "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 a diversified economy with a large manufacturing sector, some 60% of the labor force is employed in agriculture and the country 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, asserted 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 Southeast Asia. At last year’s ASEAN foreign ministers’ summit in the Laotian 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 FTAs within the Association of Southeast Asian Nations, which groups Myanmar, 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 [its] economic development," former Thai finance minister Amnuay Virawan said. "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."
Analysts estimate that China has invested more than US$150 million 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 kilometers from the Mekong River, with initial construction costs of more than 4 million baht ($100,600). 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 [are] likely to be more ventures in the future," said Professor Sompop Manarungsan of the Chinese Studies Institute at the Chulalongkorn University in Bangkok. "China has excessive foreign reserves - around $700 billion - 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."
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, the rest of ASEAN, and Europe and the United States as well, said Sompop.
Over the past decade, a handful of Thai businessmen have also invested heavily in China. One of the first companies to recognize 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 Vikrom Kronsat, vice president of the Thai-China Business Council.
"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 Vikrom. "The future is only positive," he insisted.
However, Vikrom warned that doing any business with China carries with it considerable risk. "Too often, Chinese businessmen do not honor 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 an LoC" (letter of credit).
"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 Vikrom.
"Everything needs to be written down. The Chinese often are keen to do business on a handshake. China has just opened the door to the world and is still learning how to deal with foreign businessmen," he said.
Most businessmen and analysts are cautious about the effect of last year’s official appreciation of the Chinese currency, the yuan.
"The slight change is unlikely to have much impact," Vikrom said. But if there is any further appreciation, as Chinese officials have hinted, Thailand’s imports to China will benefit - as they would become cheaper within China and therefore more competitive, while Chinese exports would become more expensive.
Bangkok wants to encourage more Chinese tourists to come to Thailand. Although there was a dramatic fall in arrivals over the past 12 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.
(Inter Press Service)