Once the leader, Thailand must now study lessons of a new China

FOLLOWING China’s opening of its country for reform in the late 1970s, it has learned a lot about economic development from countries in Southeast Asia, like Thailand. Now, decades later, events have taken the reverse direction as countries like Thailand must learn from China, said economist Sompop Manarangsan.

Thai businesses poured their investment funds into China in the 1980s, but now it’s Chinese investors who are pouring their money into the Thai economy, together with high technology and know- how. China has become the rising power in the region and in the world politically, economically and militarily.

“It’s the nature of the economic circle of every country in the world, which needs to readjust itself every three or four decades,” said Sompop, rector of Panyapiwat Institute of Management.

“China liberalised its economy after 1978. It has made steady growth over the past years but now we see a certain degree of slowdown [and the] need to readjust economic policy again,” he said.

The Chinese leadership in Beijing has got to the point where it can see it is time for economic diversification from “original equipment manufacturing” – producing at low cost by foreign investment for export – to “original design” or technology manufacturing and restructuring, relying more on a servicebased economy, he said.

“I understand China will make [such a change] quickly since it has already prepared infrastructure for new development for a long time,” he said, “Urbanisation in China is so rapid. By the next five to six years, 60 per cent of the Chinese economy will be driven by the service sector,” he said.

With urbanisation and a servicebased economy, domestic consumption will grow and China will not need to rely on exports anymore, he said.

Another key strategy for China these days is a “going out” policy to take its capital and technology for investment in foreign countries, Sompop said. To do so, China’s current leaders led by President Xi Jinping created the “one belt one road policy” – also known in the 21st century as the Silk Road. It is China’s main foreign policy to meet political, economic and security objectives, he said.

“In this respect, it is understandable why China is flexing its muscles in the South China Sea as it wants the maritime channel to connect with countries in Southeast Asia, Europe and Africa,” he said.

Chinese leaders knew that their country and its economy would send a strong message to the world, and in turn this would bring resistance from major powers, notably the US.

In order to have more room to play in the global political economy, Beijing created the Asian Infrastructure Investment Bank (AIIB), BRICS Development Bank and Silk Road Fund as alternatives to the Westerndominated financiers such as the World Bank and International Monetary Fund, he said.

“China will not rush to bear the cost of taking the lead in shaping a global economic order. For the time being, China rather wants to create and expand its network of allies,” he said.

China would use its economy as the key instrument for having relations with the world, he said. “It does not surprise me to see massive Chinese investment in Asean across the board,” he said.

The key for China is mainland Asean, since it is a major supply chain. Among the countries in its region, Thailand is the most important strategic area since it has a strong base for manufacture, but mostly dominated by Japanese, he said.

“That’s the reason why China pushed a rail link from its southern province of Yunnan to Map Ta Put, a major manufacturing hub in Thailand,” Sompop said.

For Thailand and its dealings with the new Chinese development, Sompop said the geographical proximity and historical ties between the two countries had made Thailand a crucial actor to bridge China and Asean.

“Unfortunately, I think Thai leaders do not know any better about the Chinese moves,” he said. He suggested the best way for Thailand to deal with China these days is to have a good strategy on ‘ balance of power management’.”

“What we know is that powerhouses in this region, notably China and Japan, are competing to get access into the deeper mainland and we also know that countries in the Mekong region – Cambodia, Laos, Myanmar and Vietnam – are lacking adequate infrastructure,” he said.

On economic issues, balancing between China and Japan is the key, he said. “We know China needs us while we also know Japan would not leave us,” he said.

“But, we have to come to terms with reality, that Thailand is no longer the top investor with our neighbouring countries Cambodia, Laos and Myanmar, not to mention Vietnam,” he said. “We have to tap Chinese and Japanese traders and investors to our areas [so that] we can be suppliers for their manufacturing,” he said.

Chinese investors however are relatively new for Thailand compared to the Japanese or Koreans, Sompop said. “Be careful, many of them might be looking only for short term profits while Thailand is [ still getting to know them],” he said.

Sompop suggested the Thai business sector change its mindset about China and adjust to being compatible with the new regional trend. “While our private sector has no dynamism, our state sector is getting worse,” he said.

“The train deal, for example. I think our negotiators must be tougher than this. We should know that China needs the rail transportation to reach our seaport. Why do we need to borrow their money at such a high interest rate?” he said.