FTI warns factory closures signal Thai industry tipping point

The Federation of Thai Industries (FTI) said Thai industry had reached a key turning point after factory closure statistics climbed to a 10-quarter high.

Thai SMEs are being squeezed by pressure on two fronts, finance costs and state regulations, while Chinese capital is moving into Thailand in force under a “zero-coin” model that leaves no share of the local supply chain.

It is therefore preparing to use the Thai-Chinese institute mechanism to enter secondary-city markets in China and revive Thai operators before widespread failure.

Veerachai Monsintorn, vice chairman of the FTI, chairman of the Small & Medium Industrial Institute (SMI) and chairman of the Thai-Chinese Economic and Investment Institute, told Bangkokbiznews in an interview on the current Thai industrial crisis that small and medium-sized manufacturers, or SMIs, were now in a serious condition.

This was reflected in factory closures outnumbering new openings over the past 10 quarters, a warning sign that the government and related agencies must urgently address to prevent Thailand’s industrial sector from collapsing en masse.

Chinese goods deliver a double blow: upgraded and cheap

Veerachai said the most severe external factor was the advance of goods from China, which had poured into Thailand in every dimension.

These were no longer only cheap, low-quality goods as in the past, but had developed into good-quality products at prices still far below those of Thai goods.

The situation has given Thai SMEs a double hit, eroding their competitiveness both at home and in export markets where Vietnam, Indonesia and Malaysia have taken market share across several segments.

For foreign direct investment (FDI), especially from China in new industries such as electric vehicles (EVs), he said investment had entered on a “zero-coin” basis in supply-chain terms.

This was different from Japan’s push into Thailand in 1988, when Japanese investors initially brought in their own supply chains but eventually allowed Thai manufacturers to participate because of language and population constraints.

Chinese capital today may be divided into three forms:

1. Chinese people learn quickly, taking only two years to speak Thai clearly, reducing the need to rely on Thais as much as Japanese investors did.
2. They bring their supply chains with them. China leads its existing partner parts makers from China to set up factories in Thailand, preventing Thai SMEs in existing supply chains, such as internal-combustion-engine vehicles, from accessing opportunities in new industries.
3. The distance is short. Convenient transport links between Thailand and China make it easier for China to connect production bases than it was for Japan in the past.

Thai SMEs face steep interest rates and state rules blocking growth

Veerachai said that, in addition to external factors, internal factors were weakening the capacity of Thai SMEs and required assistance. They included:

1. Financial inequality. Large operators can borrow at 3% interest, while SMEs face 12-18%. Micro enterprises may have to rely on informal debt, with annual interest as high as 36-50%.
2. A failed Ease of Doing Business process. Applications for factory licences and utilities are slow and complex. In some cases, factories have been completed for a year, but the required permits are still incomplete, creating a huge hidden cost.
3. State measures are hard to access. Although the government has assistance budgets through several agencies, such as the Office of Small and Medium Enterprises Promotion (OSMEP) and the Small and Medium Enterprise Development Bank of Thailand (SME D Bank), operators may face conditions that are too fragmented, leaving them exhausted and discouraged from trying to access support.

Two-year strategy: protect, develop and enter markets

Veerachai said that during his term as chairman of SMI and the Thai-Chinese institute, and as vice chairman of the FTI, he would move ahead with a three-pronged strategy to slow the rate of business failures or help operators survive. It is divided into:

1. Protection: pushing the state to strictly block substandard and improperly imported goods through the mechanisms of the Thai Industrial Standards Institute (TISI) and the Customs Department.
2. Development: creating a knowledge-sharing centre for AI, automation and robotics to reduce costs for SMEs, as well as providing advice on CBAM and carbon credits to cope with new global trade rules.
3. Offensive: using Thailand Fever to enter China’s secondary-city markets, which have huge populations, such as Henan province, with about 108 million people. The FTI would act as an intermediary, taking operators directly to partners without going through “long” brokers or Chinese middlemen, to increase product value.

Five rising industries: creativity is the way out

Veerachai said he believed Thailand still had strengths China found hard to copy: creativity and service from the heart. He saw opportunities in five business groups:

1. Food Security: developing processed food and medicinal raw materials, such as durian or coconut extract, rather than merely selling fresh produce.
2. Health Care Hub: The Thai healthcare and cosmetics industries have reached an international level.
3. Tourism & Service: extending into secondary-city tourism and in-depth services.
4. Creative Industry: Thai advertising and content that appeals to Chinese consumers.
5. Niche Packaging: premium packaging in which Thailand remains ahead of competitors in ASEAN.

“Pimjai Leeissaranukul, president of the FTI, will review our work every 90 days. In this two-year term, or these more than 700 days, we must work hard to connect government assistance and bring it concretely into the hands of SMEs, to drive the SMI institute under the current pressure from all sides,” Veerachai said.