Asian Angle | Why China, Japan and South Korea’s economic woes are Thailand’s too

Thailand’s Pheu Thai came to power with a mission of revitalising the economy, after nine years of disappointing growth under coup-installed governments. Yet world events have not been kind to its plans.

While Middle East conflicts threaten to raise oil prices, high US interest rates have kept pressure on the baht, which has fallen to its lowest levels in 17 years. This prompted the Bank of Thailand in September to raise interest rates to 2.5 per cent, up from 0.5 per cent in mid-2022, purportedly creating tension between the central bank and Prime Minister Srettha Thavisin.

Thai authorities had hoped that the return of high-spending Chinese tourists would mitigate other external pressures. Predictably, this has not happened. Even after Srettha eased tourist visa requirements for Chinese citizens in September, monthly arrivals were still well below their January 2020 peak of one million.

The reduced numbers of Chinese tourists hint at deeper problems beyond oil and interest rates. Thailand could face prolonged challenges from weak growth and stagnating demand in Northeast Asia: namely China, Japan, and South Korea. Thai politicians have looked to these countries as drivers for Thailand’s future growth, with Srettha and Prayuth Chan-ocha both investing considerable time appealing to Chinese and Japanese businesses. So how much risk does Thailand face from these countries’ economic problems?

In 2022, all three nations reported declining or stagnant gross domestic product in US dollar terms, which is likely to be repeated this year. All three have massive amounts of debt, which have generally grown faster than their economies. All three have mediocre outlooks for consumer spending. China’s real-estate crisis risks devastating the wealth of many families and reducing their likelihood to spend or travel, much as earlier real-estate crises affected many Japanese families.

China’s slowdown is the most serious, as it is Thailand’s top trading partner, importing billions of dollars worth of Thai agricultural products like rubber and durian. Before Covid-19, China was the single largest source country for tourists in Thailand. But as the Chinese economy faces a sustained shortfall in consumption – with consumers scaling back spending and opting for cheaper, domestically made, products – it seems unlikely that Thailand’s tourism sector will fully recover soon or that Thailand’s durian industry will expand its recent China-driven boom.