In the ever-evolving economic landscape, Thailand finds itself in the crosshairs of the financial fallout of Evergrande, the real estate goliath of China. Poonpong Naiyanapakorn, who leads the Policy and Trade Strategy Office (PTS) at the Ministry of Commerce, sounded the alarm on the potential aftershock that might have ripple effects on pivotal sectors within the Thai economy. Forewarned is forearmed. As such, Naiyanapakorn advises business entities to keep a diligent watch over the developing situation.
Evergrande, the towering monolith in China’s real estate domain, contributes nearly a quarter to China’s economic pie. This behemoth, infamous for being the globe’s most debt-ridden enterprise, declared insolvency recently. Naiyanapakorn’s foresight reveals that the crumbling of Evergrande is set to chip away at the momentum of the Thai economy, particularly impacting the tourism sector as Chinese consumers tighten their purse strings and postpone or cancel plans for international journeys.
An impressive 28% of foreign footfall in Thailand’s tourism landscape is credited to China. Prior to the onslaught of the COVID-19 pandemic in 2019, the country welcomed a whopping 11.1 million Chinese guests, an influx translating to an economic boon worth approximately 53 billion baht. Alas, the first half of this year painted a picture of stark contrast. A paltry 1.4 million Chinese tourists graced Thailand with their presence from January through June, a grim testament to the state of affairs.
Naiyanapakorn further underscored that Evergrande’s downfall could also spell doom for Thailand’s export industry. Given that a lion’s share of China’s GDP is funneled into its real estate sector – a significant employment generator boasting over 62 million positions – a reduction in Chinese purchasing power is inevitable. This downturn will bear impact on Thailand’s raw material exports to China, notably including construction chemicals and plastic pellets. China outperforms all other nations as the largest export market for these commodities, accounting for impressive tallies of 18% and 29% respectively. Construction supplies make it into the elite league of Thailand’s top ten export products. Nevertheless, exports of these two categories to China recorded steep declines of 20.9% and 26.9% respectively during this year’s initial semester.
Contact with collateral damage stemming from the downfall of Evergrande would likely be limited for other building-related merchandise such as steel, steel products, aluminum articles, construction machinery, cement, and plastic goods. China does not take center stage as the primary export market for these categories. Still, indirect aftershocks may resonate on price dynamics, notably for steel, which exhibits high sensitivity to the realty economy.
Naiyanapakorn offered a final word of caution to Thai businesses, urging them to keep a close eye on China’s real estate sector. The fate of this sector has significant bearings on the recovery trajectory of China’s economy, which in turn shapes the destiny of Thailand’s economy, with the tourism and international trade sectors being particularly vulnerable. Owing to China’s status as Thailand’s prime trading ally and its second-largest export market (representing roughly 12% of Thailand’s total export worth), the Chinese economy exerts a substantial influence on Thai export goods. The case of Evergrande and its far-reaching repercussions on China’s economy indeed warrant close monitoring as they hold ramifications for Thailand’s economic wellbeing.
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