VZCZCXRO6355
RR RUEHCHI
DE RUEHBK #4880/01 2220323
ZNR UUUUU ZZH
R 100323Z AUG 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0832
INFO RUEHCHI/AMCONSUL CHIANG MAI 2269

UNCLAS SECTION 01 OF 03 BANGKOK 004880 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958, AS AMENDED: N/A 
TAGS: EINV ECON TH
SUBJECT: CHINESE INVESTMENT STRATEGIES: FAIR OR FOUL PLAY? 
 
¶1. Summary: In its efforts to manage globalization and competition, 
Thailand has welcomed Chinese trade and investment.  China in turn 
has responded with well-connected companies utilizing government 
incentives to invest.  Both countries extend attractive policy 
measures to encourage this trend.  Chinese multinational companies 
find attractive Thailand's mature domestic market, similarities in 
culture and - until recently - stable political environment, which 
local observers believe primes it as a major outlet to reduce 
China's rapidly expanding trade surpluses and foreign exchange 
reserves.  However, while some in Thailand welcome China as just 
another source of investment to raise overall market 
competitiveness, others fear that Chinese companies may possess 
unfair advantages from being closely aligned with the PRC 
government.  Spurred by Beijing's 'Go Abroad' policy, large Chinese 
state-owned enterprises can count on their government-sanctioned 
financial support.  End summary. 
 
¶2. In recent years Thailand has aggressively targeted China as a 
trading partner and as a growing source of foreign investment, 
although local Thai observers do not see any favoritism on the part 
of the RTG.  Mr. Charas Chitkittichamras, head of the China desk at 
Thailand's Board of Investment, considered the increased attention 
towards China a necessary and balanced response commensurate to 
China's economic clout.  Furthermore, Dr. Deunden Nikomborirak, 
research director at the Thailand Development Research Institute, 
viewed China only as one among many participants in Thailand.  She 
emphasized the benefits of greater competition among all foreign and 
Thai companies towards increased efficiency and lower prices. 
 
¶3. Both countries actively promote this development.  For instance, 
Thailand's Board of Investment (BoI) has created a special China 
desk to facilitate mutual FDI.  Moreover, rather than relying solely 
upon agreements with Beijing, the BoI has targeted individually 11 
southern Chinese provinces for direct cooperation in the private 
sector.  This initiative includes the establishment of a 
Thailand-China Business Council in each of those selected provinces. 
 Concomitantly, China has restructured its Thailand embassy to 
encourage Chinese investment.  According to Ms. Hu Yan, a Chinese 
businesswoman with close connections inside the Chinese embassy in 
Bangkok, China's diplomatic corps only engaged in political or 
consular activities until the 1990s.  In the last 10 years, however, 
the Chinese Ministry of Commerce has increased its presence in 
Thailand.  Aside from supplying some basic informational and legal 
support, it created the Chinese-Thai Enterprises Association in 2002 
as the official grouping of Chinese companies.  Hu noted these 
measures correspond to Beijing's overall engagement with ASEAN 
countries, where Thailand is the largest destination for Chinese 
investments.  For example, she noted the 3rd China-ASEAN expo later 
this October in the Chinese city Nanning, to which she claimed 
responsibilities for handling Thai delegates' travel arrangements. 
 
 
Chinese investors praise Thailand 
--------------------------------- 
 
¶4. Chinese investors interviewed by Econoff unanimously agreed that 
Thailand is particularly well-suited for Chinese companies.  Along 
with a more mature domestic market, they felt Thailand offers better 
production sourcing and infrastructure than most other Southeast 
Asian nations.  Ms. Jian Jun of textile and chemical manufacturer 
China Worldbest Group, a Shanghai-based SOE, also mentioned 
Thailand's advantages as a base for greater access to export 
markets.  Finally, the large ethnic Chinese community often acts as 
a springboard into the market.  According to Mr. Milton Osbourne at 
the Lowry Institute in Australia, at least 60 percent of Thai 
parliamentary MPs have Chinese ancestry, with some estimates upwards 
of 90 percent.  "We like Thailand because the Thais are unbelievably 
friendly and kind, probably because of their Buddhist beliefs," 
added Mr. Wang Yinfei, managing director of China State Construction 
Engineering company. 
 
¶5. Notwithstanding Thailand's current political uncertainties, all 
the Chinese investors interviewed considered the country as 
generally stable, with mostly consistent economic policies.   No one 
denied that the current conditions have caused short-term 
difficulties to their business.  For example, Chinese businesswoman 
Hu revealed that the Chinese premier was originally scheduled to 
arrive earlier in April this year to announce upwards of USD 5 
billion dollars in loans to the Thai government, but canceled the 
trip due to the political protests at the time.  Chinese companies 
would in turn receive much of these loans to invest in Thailand. 
Not surprisingly, all said they would like to see a continuation of 
caretaker PM Thaksin's government, but maintain confidence that any 
administration would continue liberal trade and investment policies. 
 
 
Chinese SOEs to China: Show me the money! 
----------------------------------------- 
 
¶6. These conditions have also made Thailand an ideal destination for 
China's 'Go Abroad' (Zou Chuqu) investment strategy, which Chinese 
businessmen say offers incentives for Chinese state-owned 
enterprises (SOEs) to invest in other countries.  Mr. Xu Genluo, 
 
BANGKOK 00004880  002 OF 003 
 
 
general manager at Hangzhou-based Holley Group, explained the five 
priorities of this policy: 1) Relieve the pressures to revalue the 
Chinese currency; 2) Avoid certain export restrictions on Chinese 
products; 3) Reduce China's trade imbalance with other countries by 
diverting manufacturing; 4) Gain global management and technological 
skills; and 5) Diversify company investments. 
 
¶7. The 'Go Abroad' policy thus coordinates significant Chinese 
government involvement in financially supporting its outbound SOEs. 
Xu stated that his own company derives significant direction and 
financial support from the government, including a direct grant for 
a $100 million dollar electric meter factory in Thailand.  Xu did 
not specify the source of the grant, only stating that they were 
given to ten specially selected Chinese companies.  Jian also spoke 
of regular consultations and business ceremonies held within the 
Chinese embassy compound.  (Note: During interviews with Econoff, 
Chinese businesspersons all either appeared to have just come from 
or prepared to depart for meetings there.  It is possible the 
Chinese embassy either wanted to ensure adherence to certain talking 
points or to discover the substance of the interviews. End note.) 
In addition, Hu recollected that some of her friends in Chinese 
banks were mandated by their government to approve a certain number 
of loans for outbound investments each year.  She asserted some of 
those loans offered "virtually no interest" for borrowers, adding 
that Chinese SOEs are also exempt from corporate taxes on their 
overseas earnings. 
 
Getting too much help from China? 
--------------------------------- 
 
¶8. Further blurring the distinction between Chinese businesses and 
government, Hu also emphasized that only Chinese SOEs are afforded 
those policy incentives.  In contrast, privately-owned Chinese 
companies are generally prohibited from going abroad.  Officially, 
only SOEs are allowed into the 69-member Chinese-Thai Enterprise 
Association.  There are only two exceptions, including Hu's small 
tourism and air shipping company.  She said the Chinese Ministry of 
Commerce only allowed her company to bypass those rules because of 
her extensive personal relationships with the Chinese embassy in 
Bangkok. 
 
¶9. In addition to reducing its foreign reserves and trade 
imbalances, Chinese investment policies can help its SOEs gain 
advantages over its private competitors in Thailand.  For example, 
Charas of Thailand's BoI suspected that the Chinese government 
financially underwrites low bids to gain access to the Thai market. 
He considered this policy to be an extension of Chinese soft power 
policies.  Nonetheless, Charas did not consider these measures 
financially large enough to significantly undermine genuine 
competition, especially since most Chinese companies are still minor 
players in Thailand. 
 
¶10. However, Jian of China Worldbest Group, a Shanghai-based SOE, 
portrayed a far more distant relationship between Chinese businesses 
and government.  Acting also as president of the Chinese-Thai 
Enterprise Association, she asserted that Worldbest received no 
money from the Chinese government, dismissing the notion as an 
inefficient allocation of public funds.  She reiterated Chinese 
government statements that China has allowed the market to 
completely determine a company's viability.  For Jian, even the 
concept of SOEs being 'state-owned' belies the reality that 
companies are now publicly owned, with the government as only one 
shareholder.  She theorized the dominance of Chinese SOE investors 
as a natural result of China's relatively nascent entrance into a 
market economy, as larger companies with resources to invest 
overseas tend to have SOE origins. 
 
¶11. Jian also defends against the notion that China is too reckless 
with its outbound FDI.  For instance, she gave evidence of 
market-driven investment decisions, noting their careful risk 
assessment since 1998 before opening manufacturing facilities in 
Thailand in 2001.  She explained that Worldbest wanted to have 
better access to the local market and export position, but also 
stressed the high quality of Thai talent in assisting their research 
and development. 
 
¶12. Charas agreed with most of Jian's market-based rationale.  He 
noted that most of the Chinese companies have been profitable, apart 
from some minor investors in products and retail services.  Aside 
from telecommunications, most of the larger investments and service 
trade in construction have moved into Thailand cautiously.  Those 
Chinese companies that have failed suffered from a limited 
understanding of Thai tastes, rather than self-inflicted wounds to 
placate Beijing's foreign policy mandates.  For instance, Charas 
imparted one anecdote on ceramics from Jingdezhen, China's most 
famous town for such wares.  Chinese investors failed to realize 
Thai buyer's appreciation for professional presentation and often 
displayed otherwise quality wares amassed on the ground.  This 
alienated Thai clients seeking ceramics for both small- and 
large-scale home improvement projects. 
 
¶13. Comment: Thus far it appears Thai observers considered the 
advantages of Chinese investment outweigh any potential fairness 
 
BANGKOK 00004880  003 OF 003 
 
 
issues.  While they understand that Chinese companies have close 
relationships with the PRC government, none of the interlocutors has 
indicated that China has used its increasing investments for 
political leverage.  Even Chinese investors like Hu and Xu were 
candid regarding their own business-government intimacy, appearing 
not to find such support unfair.  With China's GDP rising 10.3 
percent and 11.3 percent in the first and second quarters of 2006, 
expect China to increase its direct incentives to motivate its SOEs 
to 'Go Abroad', especially as China is eager to avoid the various 
economic pressures caused by its ascendant economy.  End Comment. 
 
Arvizu