The infrastructure legacy of China and its lessons for Thailand
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China's investment in infrastructure is well above the world average. Total infrastructure stock as a percentage of GDP is 76 per cent compared with 71 per cent for Germany, 64 per cent for the US and 57 per cent for the UK. Yet even though China is alrea
Investment in infrastructure is not cheap – it consumed the major portion of the 4 trillion yuan China spent on its massive package to boost the economy after the global economic crisis struck in 2008. Today, as Thailand prepares to make a major investment in infrastructure over the next decade, it is instructive to look at the Chinese experience.
Critic say the spending programme in China was excessive, diverted funds from more productive uses, drove up national debt and resulted in more infrastructure than needed.
However, in my view, these negatives are easily outweighed by the positives. Over the past few years China has built up tremendous expertise in infrastructure development, as an investor, consultant, partner and owner. Today five of the top 10 global construction and engineering companies are Chinese.
China is leveraging this competitive edge by purchasing infrastructure assets all around the world.
This is not only a useful long-term investment but also enables China to have better control over its supply chain and tighter security for the transport of goods.
Good infrastructure brings significant benefits for industry.
Production can be moved to lower-cost regions such as in the west of China. New rail and road networks between China and Southeast Asia will give further depth to China’s supply chain as it will be able to tap into the huge markets and affordable labour force in this region.
Flexibility of production and economies of scale will enable China to move up the value chain and it will also be able to expand markets through manufacturing in countries with an advantageous trade position, such as several Southeast Asian countries that enjoy most favoured nation status.
So what are the lessons for Thailand from China’s experience?
Although Thailand may not aspire to be a global leader in infrastructure, it is within our reach to become a regional leader, and this is certainly the intent behind the government’s plans to make Thailand the hub of Southeast Asia.
Be selective in investments
However, we don’t have deep pockets and are already more indebted than China, so we must be very selective about our investments. They should have clearly defined benefits that justify their cost.
It is good that the Thai government is now reportedly considering focusing on medium-speed trains with dual tracks that can also be used for freight, rather than expensive high-speed trains targeting the traveling public.
The key issue for Thailand is providing efficient and affordable transport links among Southeast Asia, China, Europe and the Middle East. By closely coordinating with China, Thailand can realise considerable savings in the transport of goods.
This is extremely important, since Thailand’s exports account for more than two-thirds of its gross domestic product (GDP), yet its logistics costs to GDP are nearly 20 per cent. This is well above Singapore and Malaysia, with about 8 per cent and 13 per cent, and also well above the average for OECD countries of about 8-10 per cent.
Thailand’s priority must be good logistics systems. We have plenty of room for improvement in this area and a judicious programme of investment in infrastructure will help provide us with a
competitive edge and, by ensuring good access to reliable suppliers, allow us to move up the value chain.
For more columns in this series please see www.bangkokbank.com
