The 4th Thai – Chinese Strategic Research Seminar

25-30th July, 2015

Xiamen, Fujian，PRC

An analysis of China-Thailand investment relations-The Current Status of Industrial sector

and Future Prospects

Mathavee Keorite, Thananya Intaraphan , Pan Huang School of Economics, Xiamen University, Xiamen, PRC

• In recent years, the bilateral trade value has increased greatly.

Table 2 Nominal growth rate of inflows of FDI into Thailand

Source : Board of Investment(BOI), 2014

Table 3 PRC's Approved Investment Projects(Percentage)

Sector 1987-91 1992-97 1998-2013

Agricultural Products 22 53.66 8 26.67 63 19.63

Minerals & Ceramics 1 2.44 7 23.33 16 4.98

Light Industries & Textiles 5 12.20 1 3.33 37 11.53

Metal Products & Machinery 5 12.20 4 13.33 92 28.66

Electrical Electronic Products 3 7.32 1 3.33 42 13.08

Chemicals and Paper 3 7.32 9 30 54 16.82

Services 2 4.88 0 0 17 5.30

Total 41 100 30 100 321 100

Source: BOI, Ministry of Industry, 2014.

Pattern and Structure of investment between China and Thailand

Agricultural

Products 20%

Minerals & Ceramics

5%

Light Industries & Textiles

11% Metal Products

& Machinery

29%

Electrical Electronic Products

13%

Chemicals and Paper

17%

Services 5%

1998-2013

Agricultural Products

27%

Minerals & Ceramics

24%

Light Industries & Textiles

3%

Metal Products & Machinery

13%

Electrical Electronic Products

3%

Chemicals and Paper

30%

Services 0%

1992-97

Agricultural

Products

54%

Minerals &

Ceramics

3%

Light Industries &

Textiles 12%

Metal

Products &

Machinery 12%

Electrical El

ectronic Products

7%

Chemicals

and Paper

7%

Services

5% 1987-91

Figure 1 PRC’s Investment by Sectors

Pattern and Structure of investment between China and Thailand

Figure 2 PRC’s Investment Projects Classified by Type

firm

s

Valu

e(M

illi

on

Bah

t)

Em

plo

ym

ent(

Th

ai)

Em

plo

ym

ent(

Forei

gn

)

firm

s

Valu

e(M

illi

on

Bah

t)

Em

plo

ym

ent(

Th

ai)

Em

plo

ym

ent(

Forei

gn

)

2003-2007

2008-2013

20 4388.1 381

28 53 39318

1045

27

149 152793.7 3918 277 149 99929.2 2346

130

Expansion New

Pattern and Structure of investment between China and Thailand

Purpose of this study

• The paper is to analyze the economic relation between China

and Thailand in the area of foreign direct investment (FDI).

Instrument and Data

• Instrument Development This instrument used in this study is composed of 2 parts. – 1st first part includes a number of demographic questions such as gender, age,

organization and education level.

– 2nd Part 2 deals with statements on the impact of the various projects carried out in Thailand by Chinese companies on Human capital development, employment and capital supply, respectively.

– Each of job stressors was measured on a five-point Likert Scale in which 1 indicated “strongly disagree”, 2 indicated “disagree”, 3 indicated “undecided”, 4 indicated “agree” and 5 indicated “Strongly agree”.

• Data Analysis method – A survey research design was used in this study.

– Primary data was obtained using questionnaires.

– The target population was employees of various organizations conversant with FDI issues.

– Purposive sampling technique was employed in selecting a sample size of 30 persons to whom questionnaires were administered.

Reliability

The internal reliability of the items was verified by computing the Cronbach’s

alpha (Nunnally, 1978). Nunnally (1978) suggested that a minimum alpha of

0.6 which the study benchmarked against .

• The Cronbach alpha estimated for human Capital Development was 0.813,

• Employment was 0.666,

• Capital supply was 0.813.

• All the scales were significant, having an Alpha above the prescribed

threshold of 0.6. When all scales were combined, the Cronbach’s Alpha

became 0.764.

Human Capital

Mean

Std.

Deviation

Chinese companies train domestic workers who later transfer skills and

knowledge acquired to local firms 3.58 .758

FDI by Chinese companies has led to development of quality human

capital through diffusion of new technology and ideas 3.58 .578

FDI by Chinese companies has brought transfer of foreign useful skills 3.35 .846

Chinese firms after entering Thailand market demonstrate their

advanced technology and Thailand afterward adapt or imitate them 3.12 1.071

FDI has brought competition. This increase in competition that occurs

as a result of Chinese firms entry forces domestic firms to introduce

new technology and/or work harder

3.42 .945

Economic development through Human Capital

Employment

Mean

Std.

Deviation

FDI by Chinese companies lead to job creation in Thailand 4.00 .800

Chinese companies are discriminative providers of

employment because they mainly employ non-professionals

and only casual laborers

3.23 .765

Chinese companies have led to very high competition amongst

local firms thus leading to their down fall and thus loss of

employment

3.50 .762

Chinese FDI has led to exacerbating inter-regional economic

and employment disparities as a result of the uneven

distribution of FDI in Thailand

3.19 .749

Employment terms and conditions by Chinese companies are

favourable 2.96 .720

Economic development through Employment

Economic development through Capital Supply

Capital Supply

Mean

Std.

Deviatio

n

FDI acts as a means of supply of foreign currency thus stabilizing the exchange rate in Thailand 3.58 .578

FDI by Chinese companies is likely to be an engine of Thailand’s economic growth. Because

FDI inflow may lead to manufactured exports thus improving balance of payments 3.65 .846

Capital inflows at substantial rate through FDI will reduce the need for borrowing. This will

reduce the debt-service ratio, which can be a real drain on heavily indebted countries such as

Thailand

3.60 .770

China’s FDI crowed out national savings, and a reduction in domestic savings could lead to

further increase on the dependency on foreign capital. This leaving Thailand vulnerable and tied

up to any requirements

3.08 1.071

Thailand does not actively pursue export-led growth strategy thus it is unable to reap enormous

benefits from FDI from china companies. 2.58 .945

Economic

Development by

China FDI

Human Capital

Development Employment Capital

Supply

Pearson

Correlation

Impact of FDI on Thailand

Economic Development 1.000

Human Capital Development .610 1.000

Employment .346 .033 1.000

Capital Supply .523 .234 -.172 1.000

• The analysis in table, two predictor variables are said to be correlated if

their coefficient of correlations is greater than 0.5. In such a situation one of

the variables must be dropped from the analysis.

• As shown in table, none of the predictor variables had coefficient of

correlation between themselves more than 0.5 hence all of them were

included in the model. The matrix also indicated high correlation between the

response and predictor variables.

• The established multiple linear regression equation becomes:

• Y = -0.098 + 0.354X1 + 0.301X2 + 0.369X3

• As shown in the table above, Constant was -0.098 shows that if human capital development, employment,

and capital supply were all rated as zero, Thailand Economic Development due to FDI rating would be

decrease 0.098.

• Human Capital Development , X1 was 0.354 shows that one unit change in human capital development

result in 0.354 units increase in Thailand Economic Development due to FDI.

• Employment, X2 was 0.301 shows that one unit change in Employment results in 0.301 units increase in

Thailand Economic Development due to FDI.

• Capital Supply, X3 was 0.369 shows that one unit change in Capital Supply results 0.369 units increase in

Thailand Economic Development due to FDI.

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

(Constant) -.098 .505 -.194 .848

Human Capital

Development

X1 .354 .090 .483 3.936 .001

Employment X2 .301 .089 .412 3.398 .003

Capital Supply X3 .369 .096 .480 3.855 .001

Regression Analysis

Conclusion

• The researcher concludes FDI by Chinese companies has great

effect on human capital development; mainly due to training

and transfer of foreign useful skills.

• The study further concludes that FDI by Chinese companies

leads to creation of employment in Thailand.

• Finally the study concludes that FDI by Chinese companies

lead to capital supply which lead to economic development in

Thailand.

Summary of Recommendation

Organization Recommendation

From

Ministry of

Finance

Recommendation of Thailand Government are following; Ministry of Revenue :

Chinese companies need to understand the Regulations and Tax Laws in the Kingdom

of Thailand.

Ministry of

Industry

Chinese companies needs to understand the Labor Law and Regulations in Thailand.

Chinese companies also need to accelerate the learning and following of Oversea Local

Laws and Regulations. Eventually, Regulators should create Regulations clearly.

Regulators also need to evaluate by checking update of those Regulations.

Private

Sectors

joint venture can help Chinese companies to access the limited sourcing/distribution

channel. However Chinese companies, particularly those of SOE’s backgrounds, lack

the connections with local partners in Thailand. Gaps in connection and relationship not

only cause the less efficient business management but also induce a higher-degree of

malpractices and non-merit in doing business. Moreover, Chinese companies,

particularly those of Suppliers of Thailand companies, lack of concern and control

consistency of raw material and intermediate product. These not only cause the more

cost business management but also induce a degree of satisfaction of local partners in

Thailand in doing business. Chinese companies need to understand the value and

importance of intellectual property in overseas market. Meanwhile, Chinese companies

need to improve the ability in generating patents and the ability to translate patents into

economic value.

Limitation

employed a survey over a short period of time. So this

study does not fully explore the main paths of the top

level informants.

limitation is in regard to respondents. Although all

respondents were the top level management from various

organizations in Thailand conversant with FDI issues, thus

the collected data are therefore believed to be accurate, but

the feedback rate is low.

Future Research

Future Research

• Researchers have made an attempt to uncover the connection of Chinese

investors and the informants drawn from the top level management from

various organizations.

• However, the number of the top level management from various

organizations is substantially small sample.

• Thus, the first direction of research are to expand the sample size and to do

fully explore the main paths of the top level informants

Ministry of Commerce

Department of Custom.

Acknowledgment

Thanks the support of Thai Industrial Standards Institute, Krungthai Bank,

Ministry of Industry, Department of Revenue, Ministry of Finance, Bangkok,

Thailand.