Rise of China and India puts pressure on Thailand
Source: PARISTA YUTHAMANOP Date: 2006-08-07
The rapid growth in trade and investment in China and India has increased pressure on Thailand to reform to remain competitive, according to economists at the Bank of Thailand. They will present research on how to improve competitiveness at the annual central bank economic symposium on Wednesday and Thursday under the theme: ''Positioning Thailand in the New Asian Economy''.
The symposium will feature more than a dozen economists presenting six research papers on impacts from China and India, national and business competitiveness, energy policy, quality of human resources and regional financial integration.
Central bank economist Chayawadee Chai-anant said the rise of China and India had helped spurred intra-regional trade, thanks to China's huge import demand and cheap labour force, whereas India had a comparative edge in IT skills and outsourcing businesses.
The fact that Asian economic growth has remained on track over the past several years, in light of Japan's recession, showed that demand from China and India has helped offset negative impacts.
''However, the trend represents both opportunities and threats. While local businesses recognise its opportunities well, we want them to acknowledge that there are threats too,'' Ms Chayawadee said.
Her colleague Runchana Pongsaparn said economic policymakers might need to revise strategy to determine whether to focus on foreign direct investment or traditional strengths, including agricultural, food and textile products.
This is because skills shortcomings and low value-added production chains could prevent the economy from benefiting fully from foreign direct investment.
As well, she said, the economy would need to strengthen the services sector, an increasingly important income generator.
Despite competition from China and India, Thailand has managed to hold on to a 1% market share in the world market, whereas those of Indonesia and the Philippines have declined. This shows that the economy has been competitive.
Thailand's competitive exports include processed food, rubber, textiles, glass, ceramics, plastic, paper, wood and furniture.
Economist Kiatipong Ariyapruchya said more policies were needed to promote competition in order to push local firms to raise their productivity.
Authorities should enact a clearer competition law and increase participation from small firms, consumers and academics in the enforcement.
The key, he said, was to enhance competition so that firms would be forced to raise productivity or exit the market.
In addition, policymakers should not target industries for promotion but let market mechanisms work.
Chatsurang Kanchanasai said red tape in import procedures, business registration and product price controls had possibly prevented local firms from improving competitiveness.
As well, the patent and copyright registration system is unhelpfully mired in excessive paperwork.
Yunyong Thaicharoen said authorities should upgrade public transport and logistics to promote energy conservation, given high oil consumption. A long-term energy framework is needed for sustainable economic development, including policies such as energy diversification, promoting renewable energy and setting clear targets.
On educational policy, economist Ashvin Ahuja said there should be a system to provide incentives to parents, children and teachers to improve standards.
Thailand makes relatively large investments it the educational system, with an annual budget of 300 billion baht, or 20- 25% the total state budget and equivalent to 4% of gross domestic product, on par with Europe.
But the return on investment has been frustratingly poor, considering income gaps and differences in test scores between students in Bangkok and the provinces.
Economist Chaipat Poonpatpibul said regional countries should strengthen financial co-operation in order to have a surveillance system, deeper capital markets and liquidity assistance.
There have been several initiatives in the region including Asean Plus 3 (China, Korea and Japan) and the Asia Bond Fund, but there is a need to streamline them and reduce overlaps.
''There needs to be greater integration within the region,'' Mr Chaipat said. ''There have been several programmes, but they don't link well among themselves and have not been strong enough.''
