VZCZCXRO8703
PP RUEHCHI RUEHCN RUEHDT RUEHHM RUEHNH
DE RUEHBK #1372/01 0650905
ZNR UUUUU ZZH
P 060905Z MAR 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 6943
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 05 BANGKOK 001372 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR JKELLY 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD PINR CH TH
SUBJECT: CHINESE INVESTMENT IN THAILAND (C-AL5-01054) 
 
REF: 05 BANGKOK 847 
 
¶1.    (SBU) Summary:  Well known as a destination of foreign 
investment, China is becoming a foreign investor in its own 
right and is seeking out investment opportunities in 
Thailand.  Encouraged by a friendly business atmosphere and a 
stable environment for investment, Chinese investors see 
Thailand as a manufacturing and export base to expand markets 
in the rest of ASEAN.  Net investment remains relatively low, 
a reflection of the generally conservative nature of most 
Chinese investment here, but trend lines for future 
investment point up, with some Thai officials predicting that 
China will one day become one of the top investors in 
Thailand.  The Thai government sees an opportunity in China 
as a new investment suitor and has made a high-level 
commitment to encourage their northern neighbors to invest in 
numerous projects.  Chinese investors are still finding their 
way through unfamiliar territory, but certain cost advantages 
and improving analytical and management methods are 
brightening their investment future.  End Summary. 
 
¶2.    (SBU) Thirty years after China renewed diplomatic 
relations with Thailand, Chinese investors flush with capital 
and newly confident of their business acumen have begun to 
seek out investment opportunities in Thailand.  Although 
traditionally a direct competitor with Southeast Asia for 
foreign investment, China has found niches for its own 
investment in the region in pursuit of an outward investment 
strategy to participate in international capital markets and 
stake its own claims overseas. 
 
¶3.    (SBU) Although investment numbers from China are still 
dwarfed by overall foreign investment statistics, the growth 
of Chinese investment has been rapid.  In 2003, Thailand's 
Board of Investment (BoI) set a goal of expanding Chinese 
investment by 30 percent for the year; instead investment 
rocketed up 300 percent in 2004.   In 2005, BoI approved 12 
new projects submitted by Chinese investors for a value of 
2.2 million baht (USD 57 million), about half that of 2004, 
but a number of large projects applied for toward the end of 
2005 have yet to be approved.  Chinese companies have made 
direct investments in 154 different investment projects in 
Thailand, with a net value of USD 773 million.  The largest 
investments are in garments and light industry, but 
substantial investments exist in such diverse areas as 
chemicals and plastics, mining, machinery, electronics and 
agribusiness.  Most projects are small to medium enterprises, 
but many of the larger and better known companies from China 
such as Huawei and TCL, which have the capital and technical 
knowledge to support larger projects, are making their 
presence known.  RTG goals for future Chinese investment are 
ambitious, with plans for a 35 percent growth in investment 
from China in 2006 and talk of China one day soon becoming a 
top investor in Thailand. 
 
Gateway to ASEAN 
---------------- 
 
¶4.    (SBU) China's investment goals in its overseas bids 
have ranged from resource-seeking in Africa and Latin America 
to technology-seeking in the U.S.  For Thailand, analysts see 
China utilizing a market-seeking investment strategy, using 
the country as a production base to expand its market share 
in Thailand, and as a springboard for exports to the rest of 
Southeast Asia.  Thailand has promoted this strategy as well 
and is marketing itself as a bridge connecting China to other 
ASEAN members, promoting its strategic position in ASEAN, its 
abundant labor, solid base of production technology and large 
consumer market.  Further, Thailand's network of bilateral 
free trade agreements, some completed and others still in the 
works (including with the U.S), provide an avenue for 
tariff-free trade for Chinese manufacturers in Thailand, and 
also a means to sidestep quotas on Chinese manufacturing, 
most notably in apparel exports. 
 
¶5.    (SBU) Thailand's Board of Investment claims that China 
has successfully planted more investment in Thailand than in 
any of its ASEAN neighbors.  Mr. Vikrom Kromdit of the 
Thailand-China Business Council says Chinese investors see 
much to like in Thailand, including a long history of good 
relations (in contrast to their occasionally touchy relations 
with other SE Asian countries), and a stable political and 
economic situation.  Close cultural relations bring an added 
advantage.  According to Vikrom, Chinese investors feel an 
affinity with Thai culture and are comfortable dealing with 
Thai businessmen, many of whom are of Chinese descent.  For 
their part, Thais are positive about their expanding 
relations with China.  In a recent poll, 83 percent of Thais 
 
BANGKOK 00001372  002 OF 005 
 
 
said they had a favorable opinion of China (73 percent had 
the same opinion of the U.S.), and 97 percent said the 
bilateral relationship with China was good. 
 
¶6.    (SBU) This positive view persists despite the widely 
held view here that China tends to trade unfairly and has 
received a disproportionate share of the benefits of the 2003 
China-Thai "early harvest" covering bilateral free trade for 
about 35 fruits and vegetables.  During a visit to Thailand's 
northern Chiang Rai and Chiang Mai provinces, billed by the 
RTG as the country's "gateway to China", businessmen 
invariably complained to econoff about the uneven playing 
field they face when trading with China. Problems range from 
a Chinese monopoly on river traffic on the Mekong ("only the 
Chinese know when they will open the dams allowing boats to 
navigate during the dry season");  to the extremely low price 
for Chinese garlic and vegetables (below cost for Thai 
farmers, "is it due to hidden subsidies?"); to the Chinese 
provincial authorities applying non-tariff barriers to goods 
imported directly by Thais rather than through Chinese 
middlemen, e.g. applying sanitary and phyto-sanitary 
regulations more stringently to goods exported by Thais than 
to those exported by Chinese. 
 
¶7.    (SBU) Thai trade with China is also inhibited by a lack 
of understanding of Chinese rules and regulations. Some 
bankers in the North told us that letters of credit are 
available only "government-to-government", another said Thai 
insurers won't cover shipments to China. This confusion among 
smaller Thai exporters has given the opportunity for Chinese 
traders to control the exports of certain Thai products 
(especially fruits and vegetables) into the Chinese interior. 
The large Thai companies in the food processing industry tend 
to ship directly from Bangkok to Chinese ports and indicate 
few problems with their transactions. The Chinese 
agricultural goods traders have invested in some small-scale 
food processing businesses but generally have confined their 
operations to purchase and transport of final product. 
 
¶8.    (SBU) Mr. Pisanu Rienmahasarn, Deputy PermSec of the 
Ministry of Commerce, told Econoff he saw China's increased 
investment in Thailand as an extension of its "Go West" 
policy, opening up economic opportunities in China's western 
frontier and taking advantage of their southern provinces' 
relative proximity to Thailand.  The provincial government of 
China's Yunnan province, situated directly north of Thailand 
separated by parts of Burma and Laos, have engaged with RTG 
officials in northern Thailand to improve the flow of trade, 
investment and tourism between the two regions.  China, Laos 
and Thailand have linked up with the Asian Development Bank 
to construct a road through Laos that would link Kunming in 
Yunnan province to Chiang Rai in northern Thailand.  Although 
there is a current road link through Burma, the route is 
considered insufficient for the heavy volume of goods flowing 
from China, and concerns remain about political stability in 
Burma.  The RTG has provided loans to Laos for road 
construction and a bridge across the Mekong River, and 
expects the project to be completed by the end of 2007.   The 
RTG is also upgrading ports along the Mekong River to handle 
increased traffic flow; Chinese shipping companies already 
dominate river traffic.  A rail link from Kunming to 
Thailand's Laem Chabang port near Bangkok is also under 
consideration by regional governments. 
 
¶9.    (SBU) In anticipation of greater trade between Yunnan 
and northern Thailand, Yunnanese authorities and local 
officials in Thailand's northern Chiang Rai province have 
been planning a Northern Region Industrial Estate to 
accommodate anticipated investment from China.  Although 
dozens of Chinese companies stated intentions of investing, 
the project has stalled out lately in the face of political 
problems with the original proposed site in Chiang Saen 
district.   The industrial estate promises to take advantage 
of the coming road, rail and port improvements between 
southern China and northern Thailand, but may not be the 
center of bilateral trade as it was once anticipated.  Dr. 
Sompop Manarungsan, Director of China Studies at 
Chulalongkorn University, speculated that the industrial 
estate may never get off the ground.  As the implementation 
date of the China-ASEAN FTA comes nearer and tariffs fall 
across the region, there will be fewer reasons to focus on 
northern Thailand as a gateway to the rest of ASEAN. One 
Chiang Mai businessman, who ships Thai products by sea, noted 
that southwest China "is poor and can't afford the higher 
cost/higher quality goods that we produce in Thailand. There 
is no reason to trade with Yunnan. Our market is China's 
seacoast." 
 
 
BANGKOK 00001372  003 OF 005 
 
 
Looking for opportunities 
------------------------- 
 
¶10.   (SBU) China's investments in Thailand to date have 
followed little overall strategy other than a search for 
profitable investment opportunities.  Analysts see no central 
coordination of China's investments other than provision of 
loans by the Chinese government to overseas investors. 
China's investments appear to focus on trade creation and 
taking advantage of China's comparative strengths.  In 
contrast to investments from developed countries, which 
typically focus on comparative advantages in technology, 
management and marketing, China's investments in Thailand lie 
in their advantages in flexibility and cost, in particular 
lower salaries for technical staff.  China analysts suspect 
that in addition to already low costs, some Chinese companies 
have bid on projects at below cost, accepting the short-term 
losses in a bid to gain experience and better position 
themselves for future projects.  Chinese companies most 
frequently team up with Thai partners in new investments. 
Companies have to date not focused on mergers or acquisitions 
or taking over established Thai brands as a means to enter 
the market as has been seen in other countries. 
 
¶11.   (SBU) China's cost advantage in construction has raised 
expectations for a burgeoning presence of Chinese 
construction firms.  Dr. Sompop of Chulalongkorn University 
speculated that the oversupply of construction companies in 
China is fueling interest in overseas construction projects 
to make use of idle capacity.  The RTG is actively 
encouraging Chinese investment in construction of its new 
megaprojects infrastructure development program, and 
predicted that twenty percent of the contracts for the USD 24 
billion program will go to Chinese firms.  However, a recent 
meeting for international investors on megaprojects was 
sparsely attended by Chinese. 
 
¶12.   (SBU) China's new traveling class (the fourth largest 
source of visitors to Thailand in 2004) is opening up new 
investment opportunities overseas as well.  The Chinese New 
Year in January saw a large influx of Chinese tourists, 
bringing Thailand closer to its goal of expanding annual 
tourism figures from one million Chinese visitors (actual 
2005 total was 800,000) to three million by the end of 2010. 
The Tourism Authority of Thailand (TAT) budgeted 10 million 
baht (USD 250,000) for Chinese New Year festivals in Bangkok 
and other provincial tourist destinations to attract mainland 
tourists.  After a post-tsunami downturn in visitors from the 
mainland in 2005, the number of Chinese tourists is gradually 
improving.  Airlines have expanded direct flights between 
China and Thailand and the RTG is encouraging even more. 
Incoming tourists are sparking an interest in Chinese 
investment in hotels and resorts in Thailand and travel 
agencies to guide them in.  In September 2005 the TAT signed 
a tourism agreement with three Chinese tour operators and a 
public relations company, Publicitas China, to raise the 
profile of Thailand in China and market Thailand to Chinese 
tourists. 
 
¶13.   (SBU) Thailand is not considered a rich source of 
energy for China, but Chinese oil companies have nevertheless 
expressed interest in working with the Petroleum Authority of 
Thailand (PTT) on energy projects.  PTT and China's oil major 
Sinopec announced in June 2005 that they were considering a 
joint project to build an oil pipeline across the Isthmus of 
Kra to connect the Andaman Sea to the Gulf of Thailand and 
bypass the increasingly congested Strait of Malacca, cutting 
as much as a week of transportation time for crude oil 
shipments to China from the Middle East and improving 
security of shipping routes.  However, the oil pipeline 
project has been under consideration by the RTG for years and 
previous feasibility studies cast some doubt on the financial 
viability of the project (reftel).  To date the pipeline 
remains in the planning phase and is not expected to go 
forward.  Another Chinese oil producer, CNOOC, has agreed to 
work with PTT to explore new oil fields in Thailand and 
abroad, and to seek new potential in existing Thai oil fields. 
 
Thais lend a hand 
----------------- 
 
¶14.   (SBU) Eager to tap into China's enormous foreign 
exchange reserves, Thailand is actively encouraging mainland 
investment.  The two countries formed the Thailand-China 
Joint Committee on Trade, Investment and Economic Cooperation 
in 2004 to promote economic ties.  At the most recent meeting 
in September 2005, the two countries signed 11 agreements 
over issues from logistics cooperation down to trade 
 
BANGKOK 00001372  004 OF 005 
 
 
protocols for crocodile meat.  The Thai side is represented 
by Deputy Prime Minister Somkid, designated "Mr. China", with 
responsibility for promoting bilateral investment with China. 
 Somkid has made monthly trips to China and has been hosting 
a continual procession of visiting Chinese dignitaries, 
speaking at investment conferences, and overseeing the 
signing of trade and investment deals.  As part of the Joint 
Committee, the two sides have established a working group 
with Yunnan province which holds regular meetings regarding 
trade, investment, culture, and tourism between the two 
regions.  Somkid is pushing Chinese participation in 
construction, food processing, logistics, electronics and 
textiles. 
 
¶15.   (SBU) In 2003, Thailand's Board of Investment (BoI), 
the entry point for most formal investment in Thailand, 
established a China desk headed by veteran China hand Charas 
Chitkittichamras.  Although Thailand provides no special 
privileges to Chinese investors, Charas said the BoI saw the 
need to assist less experienced Chinese investors to learn 
the ropes of investing in Thailand.  The RTG also established 
the Thailand-China Business Council, headed by Mr. Thanakorn 
Seriburi, a vice-chairman of Thai conglomerate CP Group (CP 
Group has considerable interests in China, especially in the 
food processing and retail sectors).  The Business Council 
has been active in arranging investment conferences and 
partnering Chinese investors with local firms. 
 
¶16.   (SBU) Mr. Piroon Laismit, Director of the China Desk at 
the Ministry of Foreign Affairs, said that Thailand's close 
relations with Taiwan have not slowed the formation of closer 
economic relations with China.  Although Thailand closely 
follows the One China policy, their relations with Taiwan go 
back for decades and are still valued.  Taiwan is among the 
top three investors in Thailand and Piroon estimated 10,000 
Taiwanese businessmen were resident here.  Piroon believed 
China was pragmatic enough to keep political and economic 
issues separate and said he had felt no pressure from China 
on economic matters with Taiwan.  Nevertheless, he conceded 
that any future problems between China and Taiwan would be 
likely to affect their own bilateral relationships with the 
two nations. 
 
Much ado about nothing? 
----------------------- 
 
¶17.   (SBU) Despite the impressive growth in Chinese 
investment and the attention given to it by the RTG, analysts 
stressed to Econoff that investment from China was still a 
fraction of that from more established foreign investors from 
North America, Europe and Japan, and still had little impact 
on the Thai economy.  When asked where China stood on the 
list of foreign investors in Thailand, BoI's Charas replied, 
"They're not even on the list."  The latest BoI statistics 
show Chinese investment as still only one percent of net 
foreign investment.  Charas noted also that Thais have been 
investing in China for the last twenty years and Thai 
investment in China was over ten times the value of Chinese 
investment in Thailand.  As yet no Chinese companies have 
listed on the Thai stock exchange. 
 
¶18.   (SBU) Analysts pointed out the numerous difficulties 
faced by Chinese investors.  Most Chinese are relatively 
inexperienced in overseas investment compared to their 
Western or Japanese counterparts and are unfamiliar with the 
investment environment.  Despite the prevalence of 
Thai-Chinese businessmen in Thailand, mainland Chinese 
investors tended to speak a different dialect than their 
counterparts, and did not have advanced English language 
skills to communicate with their partners and customers. 
When confronted with problems, Mr. Charas said that Chinese 
firms had a tendency to send their own experts from China to 
solve problems rather than relying on local staff, usually 
with less than stellar results.  One representative from the 
largest Chinese investor in Thailand, Worldbest, spoke of the 
difficulties the company had after setting up business in 
¶2001.  Despite its size (accounting for at least a quarter of 
all Chinese investment in Thailand) the firm faced 
difficulties in breaking into local supply networks.  Without 
established relationships with suppliers, Worldbest found 
itself low on the priority list for supplies and met 
production delays. 
 
¶19.   (SBU) Though some companies have found rough going in 
starting new investments, future Chinese investments may be 
more successful, if for no other reason than that the RTG 
wants it that way.  BoI sifts through investment applications 
from Chinese investors and is approving only those it 
 
BANGKOK 00001372  005 OF 005 
 
 
believes will be successful.  With Chinese investment still 
in a nascent stage, BoI is careful to manage perceptions 
about investment in Thailand and is wary of news of failed 
investments filtering back to China and discouraging future 
investors.  Chinese investors are also quickly learning the 
investment game and are being more systematic in their 
investment approach.  According to BoI's Charas, initial 
Chinese investments tended to focus on areas where an 
investor had a personal relationship with a partner in 
Thailand, without necessarily examining all the investment 
factors and the profitability potential of the venture. 
These days young Chinese MBAs schooled in modern management 
methods are leading the new wave. 
 
¶20.   (SBU) Despite RTG assistance, Chinese investors have 
hardly been a juggernaut.  A tobacco joint venture in Chiang 
Mai has suffered from financial disputes and there have been 
numerous anecdotes of plans for Chinese-invested projects in 
the Northeast being cancelled after environmental concerns 
were raised.  High hopes for a recent bid by Chinese 
conglomerate CITIC Group to build a rail link to Bangkok's 
new Suvarnabhumi Airport were dashed after a European 
consortium outbid the Chinese.  However, in January, 
Thailand's biggest construction contractor said it would 
partner with CITIC to bid on twenty major projects in 
Thailand. 
 
¶21.   (SBU) Comment:  Despite going through some expected 
growing pains, Chinese investment is beginning to come into 
its own and trends indicate rapidly increasing Chinese 
participation in the Thai market.  Bilateral trade is 
ballooning, and investment is likely to follow directly in 
its path.  Bilateral trade reached USD 12 billion in 2004 
with preliminary estimates of a 75 percent increase in 2005. 
Deputy PM Somkid said recently he was confident that trade 
would reach USD 50 billion by 2010 (bilateral trade with the 
U.S. totaled USD 26 billion in 2005).  There are few fears 
that China, Inc. will steamroll the competition anytime soon, 
but the Thais have sat up and taken notice that a new player 
has taken a seat at the investment table even as they are 
aware that Chinese are typically careful investors and have a 
difficult market to crack.  End comment. 
BOYCE