Thailand long ago established itself as the production hub for Indochina. But now its longstanding trade surplus with its three frontier economy neighbours is on what looks like a structural decline.
Credit-fuelled consumption booms in Laos and Cambodia have begun to soften, while Myanmar is diversifying its trading relationships. The result has been sharp falls in Thai exports of cars, machinery and even beverages.
The fall in oil prices has been a factor. Petrol and other refined fuels make up a major Thai export to the Mekong and the value of these exports has weakened considerably. There has also been slower growth in exports of machinery and consumer goods, according to FT Confidential Research, an investment research service at the Financial Times.
Policymakers in Bangkok should pay especial attention to the changing nature of the supply chain among the Mekong countries.
Labour shortages in Thailand have led European and Japanese companies to begin outsourcing parts of their Thailand-based supply chains to the three neighbours, where land and labour are still plentiful.
The trend is already a few years old but has been exacerbated by Thailand’s latest bout of political uncertainty.
Thailand’s trade surplus with its three neighbours remains intact, at a substantial $6.06bn last year and an estimated $3.78bn year-to-date.
But annual growth in exports to the three Mekong countries slowed significantly in the first half of this year, while Thailand’s imports from the three have rapidly gathered pace.
Infrastructure and logistics remain an issue, but in the case of Cambodia, new special economic zones with secure power supplies have been set up on the Thai border, resulting in a surge in Thai import growth.
This trend appears set to continue. Japanese companies are looking seriously at Myanmar as an alternative for new investment expansion, albeit linked to existing Thai supply chains.
And after several false starts in the past five years, there is an emerging commitment among Myanmar authorities to develop new industrial zones and related infrastructure in Dawei, a coastal city in Myanmar’s south-east that is only 300km from Bangkok.
Myanmar’s political liberalisation has helped drive the growth of a new consumer class — and opened up new checkpoints along the extensive Thai-Myanmar border.
On top of the changes in formal trade, consumers from all three countries are now seen at some of Thailand’s biggest shopping malls in the major cities of its north and east.
Prices on the Bangkok Stock Exchange held up well despite a slowdown in economic growth in recent years, partly thanks to professional and savvy management in the corporate sector but also to Thailand’s booming cross-border trade. But prices have sagged since July.
Thailand’s status as the region’s production hub is unlikely to be challenged any time soon. But its weakening trade surplus and the siphoning off of parts of its supply chain to its neighbours will put growing pressure on the country’s political and business leaders to move the country up the value chain to stay competitive.
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