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“55362”,”3/6/2006 9:05″,”06BANGKOK1372″,

“Embassy Bangkok”,




DE RUEHBK #1372/01 0650905


P 060905Z MAR 06














E.O. 12958: N/A






1. (SBU) Summary: Well known as a destination of foreign

investment, China is becoming a foreign investor in its own

right and is seeking out investment opportunities in

Thailand. Encouraged by a friendly business atmosphere and a

stable environment for investment, Chinese investors see

Thailand as a manufacturing and export base to expand markets

in the rest of ASEAN. Net investment remains relatively low,

a reflection of the generally conservative nature of most

Chinese investment here, but trend lines for future

investment point up, with some Thai officials predicting that

China will one day become one of the top investors in

Thailand. The Thai government sees an opportunity in China

as a new investment suitor and has made a high-level

commitment to encourage their northern neighbors to invest in

numerous projects. Chinese investors are still finding their

way through unfamiliar territory, but certain cost advantages

and improving analytical and management methods are

brightening their investment future. End Summary.


2. (SBU) Thirty years after China renewed diplomatic

relations with Thailand, Chinese investors flush with capital

and newly confident of their business acumen have begun to

seek out investment opportunities in Thailand. Although

traditionally a direct competitor with Southeast Asia for

foreign investment, China has found niches for its own

investment in the region in pursuit of an outward investment

strategy to participate in international capital markets and

stake its own claims overseas.


3. (SBU) Although investment numbers from China are still

dwarfed by overall foreign investment statistics, the growth

of Chinese investment has been rapid. In 2003, Thailand\’s

Board of Investment (BoI) set a goal of expanding Chinese

investment by 30 percent for the year; instead investment

rocketed up 300 percent in 2004. In 2005, BoI approved 12

new projects submitted by Chinese investors for a value of

2.2 million baht (USD 57 million), about half that of 2004,

but a number of large projects applied for toward the end of

2005 have yet to be approved. Chinese companies have made

direct investments in 154 different investment projects in

Thailand, with a net value of USD 773 million. The largest

investments are in garments and light industry, but

substantial investments exist in such diverse areas as

chemicals and plastics, mining, machinery, electronics and

agribusiness. Most projects are small to medium enterprises,

but many of the larger and better known companies from China

such as Huawei and TCL, which have the capital and technical

knowledge to support larger projects, are making their

presence known. RTG goals for future Chinese investment are

ambitious, with plans for a 35 percent growth in investment

from China in 2006 and talk of China one day soon becoming a

top investor in Thailand.


Gateway to ASEAN



4. (SBU) China\’s investment goals in its overseas bids

have ranged from resource-seeking in Africa and Latin America

to technology-seeking in the U.S. For Thailand, analysts see

China utilizing a market-seeking investment strategy, using

the country as a production base to expand its market share

in Thailand, and as a springboard for exports to the rest of

Southeast Asia. Thailand has promoted this strategy as well

and is marketing itself as a bridge connecting China to other

ASEAN members, promoting its strategic position in ASEAN, its

abundant labor, solid base of production technology and large

consumer market. Further, Thailand\’s network of bilateral

free trade agreements, some completed and others still in the

works (including with the U.S), provide an avenue for

tariff-free trade for Chinese manufacturers in Thailand, and

also a means to sidestep quotas on Chinese manufacturing,

most notably in apparel exports.


5. (SBU) Thailand\’s Board of Investment claims that China

has successfully planted more investment in Thailand than in

any of its ASEAN neighbors. Mr. Vikrom Kromdit of the

Thailand-China Business Council says Chinese investors see

much to like in Thailand, including a long history of good

relations (in contrast to their occasionally touchy relations

with other SE Asian countries), and a stable political and

economic situation. Close cultural relations bring an added

advantage. According to Vikrom, Chinese investors feel an

affinity with Thai culture and are comfortable dealing with

Thai businessmen, many of whom are of Chinese descent. For

their part, Thais are positive about their expanding

relations with China. In a recent poll, 83 percent of Thais


BANGKOK 00001372 002 OF 005


said they had a favorable opinion of China (73 percent had

the same opinion of the U.S.), and 97 percent said the

bilateral relationship with China was good.


6. (SBU) This positive view persists despite the widely

held view here that China tends to trade unfairly and has

received a disproportionate share of the benefits of the 2003

China-Thai \”early harvest\” covering bilateral free trade for

about 35 fruits and vegetables. During a visit to Thailand\’s

northern Chiang Rai and Chiang Mai provinces, billed by the

RTG as the country\’s \”gateway to China\”, businessmen

invariably complained to econoff about the uneven playing

field they face when trading with China. Problems range from

a Chinese monopoly on river traffic on the Mekong (\”only the

Chinese know when they will open the dams allowing boats to

navigate during the dry season\”); to the extremely low price

for Chinese garlic and vegetables (below cost for Thai

farmers, \”is it due to hidden subsidies?\”); to the Chinese

provincial authorities applying non-tariff barriers to goods

imported directly by Thais rather than through Chinese

middlemen, e.g. applying sanitary and phyto-sanitary

regulations more stringently to goods exported by Thais than

to those exported by Chinese.


7. (SBU) Thai trade with China is also inhibited by a lack

of understanding of Chinese rules and regulations. Some

bankers in the North told us that letters of credit are

available only \”government-to-government\”, another said Thai

insurers won\’t cover shipments to China. This confusion among

smaller Thai exporters has given the opportunity for Chinese

traders to control the exports of certain Thai products

(especially fruits and vegetables) into the Chinese interior.

The large Thai companies in the food processing industry tend

to ship directly from Bangkok to Chinese ports and indicate

few problems with their transactions. The Chinese

agricultural goods traders have invested in some small-scale

food processing businesses but generally have confined their

operations to purchase and transport of final product.



Ministry of Commerce, told Econoff he saw China\’s increased

investment in Thailand as an extension of its \”Go West\”

policy, opening up economic opportunities in China\’s western

frontier and taking advantage of their southern provinces\’

relative proximity to Thailand. The provincial government of

China\’s Yunnan province, situated directly north of Thailand

separated by parts of Burma and Laos, have engaged with RTG

officials in northern Thailand to improve the flow of trade,

investment and tourism between the two regions. China, Laos

and Thailand have linked up with the Asian Development Bank

to construct a road through Laos that would link Kunming in

Yunnan province to Chiang Rai in northern Thailand. Although

there is a current road link through Burma, the route is

considered insufficient for the heavy volume of goods flowing

from China, and concerns remain about political stability in

Burma. The RTG has provided loans to Laos for road

construction and a bridge across the Mekong River, and

expects the project to be completed by the end of 2007. The

RTG is also upgrading ports along the Mekong River to handle

increased traffic flow; Chinese shipping companies already

dominate river traffic. A rail link from Kunming to

Thailand\’s Laem Chabang port near Bangkok is also under

consideration by regional governments.


9. (SBU) In anticipation of greater trade between Yunnan

and northern Thailand, Yunnanese authorities and local

officials in Thailand\’s northern Chiang Rai province have

been planning a Northern Region Industrial Estate to

accommodate anticipated investment from China. Although

dozens of Chinese companies stated intentions of investing,

the project has stalled out lately in the face of political

problems with the original proposed site in Chiang Saen

district. The industrial estate promises to take advantage

of the coming road, rail and port improvements between

southern China and northern Thailand, but may not be the

center of bilateral trade as it was once anticipated. XXX


Chulalongkorn University, speculated that the industrial

estate may never get off the ground. As the implementation

date of the China-ASEAN FTA comes nearer and tariffs fall

across the region, there will be fewer reasons to focus on

northern Thailand as a gateway to the rest of ASEAN. One

Chiang Mai businessman, who ships Thai products by sea, noted

that southwest China \”is poor and can\’t afford the higher

cost/higher quality goods that we produce in Thailand. There

is no reason to trade with Yunnan. Our market is China\’s



BANGKOK 00001372 003 OF 005


Looking for opportunities



10. (SBU) China\’s investments in Thailand to date have

followed little overall strategy other than a search for

profitable investment opportunities. Analysts see no central

coordination of China\’s investments other than provision of

loans by the Chinese government to overseas investors.

China\’s investments appear to focus on trade creation and

taking advantage of China\’s comparative strengths. In

contrast to investments from developed countries, which

typically focus on comparative advantages in technology,

management and marketing, China\’s investments in Thailand lie

in their advantages in flexibility and cost, in particular

lower salaries for technical staff. China analysts suspect

that in addition to already low costs, some Chinese companies

have bid on projects at below cost, accepting the short-term

losses in a bid to gain experience and better position

themselves for future projects. Chinese companies most

frequently team up with Thai partners in new investments.

Companies have to date not focused on mergers or acquisitions

or taking over established Thai brands as a means to enter

the market as has been seen in other countries.


11. (SBU) China\’s cost advantage in construction has raised

expectations for a burgeoning presence of Chinese

construction firms. XXXXXXX of Chulalongkorn University

speculated that the oversupply of construction companies in

China is fueling interest in overseas construction projects

to make use of idle capacity. The RTG is actively

encouraging Chinese investment in construction of its new

megaprojects infrastructure development program, and

predicted that twenty percent of the contracts for the USD 24

billion program will go to Chinese firms. However, a recent

meeting for international investors on megaprojects was

sparsely attended by Chinese.


12. (SBU) China\’s new traveling class (the fourth largest

source of visitors to Thailand in 2004) is opening up new

investment opportunities overseas as well. The Chinese New

Year in January saw a large influx of Chinese tourists,

bringing Thailand closer to its goal of expanding annual

tourism figures from one million Chinese visitors (actual

2005 total was 800,000) to three million by the end of 2010.

The Tourism Authority of Thailand (TAT) budgeted 10 million

baht (USD 250,000) for Chinese New Year festivals in Bangkok

and other provincial tourist destinations to attract mainland

tourists. After a post-tsunami downturn in visitors from the

mainland in 2005, the number of Chinese tourists is gradually

improving. Airlines have expanded direct flights between

China and Thailand and the RTG is encouraging even more.

Incoming tourists are sparking an interest in Chinese

investment in hotels and resorts in Thailand and travel

agencies to guide them in. In September 2005 the TAT signed

a tourism agreement with three Chinese tour operators and a

public relations company, Publicitas China, to raise the

profile of Thailand in China and market Thailand to Chinese



13. (SBU) Thailand is not considered a rich source of

energy for China, but Chinese oil companies have nevertheless

expressed interest in working with the Petroleum Authority of

Thailand (PTT) on energy projects. PTT and China\’s oil major

Sinopec announced in June 2005 that they were considering a

joint project to build an oil pipeline across the Isthmus of

Kra to connect the Andaman Sea to the Gulf of Thailand and

bypass the increasingly congested Strait of Malacca, cutting

as much as a week of transportation time for crude oil

shipments to China from the Middle East and improving

security of shipping routes. However, the oil pipeline

project has been under consideration by the RTG for years and

previous feasibility studies cast some doubt on the financial

viability of the project (reftel). To date the pipeline

remains in the planning phase and is not expected to go

forward. Another Chinese oil producer, CNOOC, has agreed to

work with PTT to explore new oil fields in Thailand and

abroad, and to seek new potential in existing Thai oil fields.


Thais lend a hand



14. (SBU) Eager to tap into China\’s enormous foreign

exchange reserves, Thailand is actively encouraging mainland

investment. The two countries formed the Thailand-China

Joint Committee on Trade, Investment and Economic Cooperation

in 2004 to promote economic ties. At the most recent meeting

in September 2005, the two countries signed 11 agreements

over issues from logistics cooperation down to trade


BANGKOK 00001372 004 OF 005


protocols for crocodile meat. The Thai side is represented

by Deputy Prime Minister Somkid, designated \”Mr. China\”, with

responsibility for promoting bilateral investment with China.

Somkid has made monthly trips to China and has been hosting

a continual procession of visiting Chinese dignitaries,

speaking at investment conferences, and overseeing the

signing of trade and investment deals. As part of the Joint

Committee, the two sides have established a working group

with Yunnan province which holds regular meetings regarding

trade, investment, culture, and tourism between the two

regions. Somkid is pushing Chinese participation in

construction, food processing, logistics, electronics and



15. (SBU) In 2003, Thailand\’s Board of Investment (BoI),

the entry point for most formal investment in Thailand,

established a China desk headed by veteran China hand Charas

Chitkittichamras. Although Thailand provides no special

privileges to Chinese investors, XXXXXX the BoI saw the

need to assist less experienced Chinese investors to learn

the ropes of investing in Thailand. The RTG also established

the Thailand-China Business Council, headed by Mr. Thanakorn

Seriburi, a vice-chairman of Thai conglomerate CP Group (CP

Group has considerable interests in China, especially in the

food processing and retail sectors). The Business Council

has been active in arranging investment conferences and

partnering Chinese investors with local firms.



the Ministry of Foreign Affairs, said that Thailand\’s close

relations with Taiwan have not slowed the formation of closer

economic relations with China. Although Thailand closely

follows the One China policy, their relations with Taiwan go

back for decades and are still valued. Taiwan is among the

top three investors in Thailand and XXXX estimated 10,000

Taiwanese businessmen were resident here. XXXX believed

China was pragmatic enough to keep political and economic

issues separate and said he had felt no pressure from China

on economic matters with Taiwan. Nevertheless, he conceded

that any future problems between China and Taiwan would be

likely to affect their own bilateral relationships with the

two nations.


Much ado about nothing?



17. (SBU) Despite the impressive growth in Chinese

investment and the attention given to it by the RTG, analysts

stressed to Econoff that investment from China was still a

fraction of that from more established foreign investors from

North America, Europe and Japan, and still had little impact

on the Thai economy. When asked where China stood on the

list of foreign investors in Thailand, BoI\’s XXXX replied,

\”They\’re not even on the list.\” The latest BoI statistics

show Chinese investment as still only one percent of net

foreign investment. XXXXX noted also that Thais have been

investing in China for the last twenty years and Thai

investment in China was over ten times the value of Chinese

investment in Thailand. As yet no Chinese companies have

listed on the Thai stock exchange.


18. (SBU) Analysts pointed out the numerous difficulties

faced by Chinese investors. Most Chinese are relatively

inexperienced in overseas investment compared to their

Western or Japanese counterparts and are unfamiliar with the

investment environment. Despite the prevalence of

Thai-Chinese businessmen in Thailand, mainland Chinese

investors tended to speak a different dialect than their

counterparts, and did not have advanced English language

skills to communicate with their partners and customers.

When confronted with problems, XXXXXX said that Chinese

firms had a tendency to send their own experts from China to

solve problems rather than relying on local staff, usually

with less than stellar results. One representative from the

largest Chinese investor in Thailand, Worldbest, spoke of the

difficulties the company had after setting up business in

2001. Despite its size (accounting for at least a quarter of

all Chinese investment in Thailand) the firm faced

difficulties in breaking into local supply networks. Without

established relationships with suppliers, Worldbest found

itself low on the priority list for supplies and met

production delays.


19. (SBU) Though some companies have found rough going in

starting new investments, future Chinese investments may be

more successful, if for no other reason than that the RTG

wants it that way. BoI sifts through investment applications

from Chinese investors and is approving only those it


BANGKOK 00001372 005 OF 005


believes will be successful. With Chinese investment still

in a nascent stage, BoI is careful to manage perceptions

about investment in Thailand and is wary of news of failed

investments filtering back to China and discouraging future

investors. Chinese investors are also quickly learning the

investment game and are being more systematic in their

investment approach. According to BoI\’s XXXXX, initial

Chinese investments tended to focus on areas where an

investor had a personal relationship with a partner in

Thailand, without necessarily examining all the investment

factors and the profitability potential of the venture.

These days young Chinese MBAs schooled in modern management

methods are leading the new wave.


20. (SBU) Despite RTG assistance, Chinese investors have

hardly been a juggernaut. A tobacco joint venture in Chiang

Mai has suffered from financial disputes and there have been

numerous anecdotes of plans for Chinese-invested projects in

the Northeast being cancelled after environmental concerns

were raised. High hopes for a recent bid by Chinese

conglomerate CITIC Group to build a rail link to Bangkok\’s

new Suvarnabhumi Airport were dashed after a European

consortium outbid the Chinese. However, in January,

Thailand\’s biggest construction contractor said it would

partner with CITIC to bid on twenty major projects in



21. (SBU) Comment: Despite going through some expected

growing pains, Chinese investment is beginning to come into

its own and trends indicate rapidly increasing Chinese

participation in the Thai market. Bilateral trade is

ballooning, and investment is likely to follow directly in

its path. Bilateral trade reached USD 12 billion in 2004

with preliminary estimates of a 75 percent increase in 2005.

Deputy PM Somkid said recently he was confident that trade

would reach USD 50 billion by 2010 (bilateral trade with the

U.S. totaled USD 26 billion in 2005). There are few fears

that China, Inc. will steamroll the competition anytime soon,

but the Thais have sat up and taken notice that a new player

has taken a seat at the investment table even as they are

aware that Chinese are typically careful investors and have a

difficult market to crack. End comment.



Written by thaicables

July 10, 2011 at 4:30 am

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