Thailand 4.0： Embracing Chinese Opportunities

Thailand’s new development initiative benefits from Chinese technology and investment

Thailand 4.0， introduced by Thai Prime Minister Prayut Chan-o-cha’s administration， is a vision to transform Thailand into an innovation-driven and value-based economy. The initiative falls in line with Thailand’s 20-year national economic and social development plan， and over the past three years has begun to benefit from China’s Belt and Road Initiative.

Thailand’s preceding periods of development included models based on agriculture （Thailand 1.0）， light industry （Thailand 2.0） and heavy industry （Thailand 3.0）. Prayut has pointed out that as Thailand became stuck in the middle-income trap during the Thailand 3.0 stage， the country now needs a new approach to realize sustainable economic growth. The Thailand 4.0 model involves reforms promoting an innovation and technology-driven economy and focuses more on education， environmental protection and social well-being.

Thailand’s 20-year National Strategy

As part of the Thailand 4.0 plan， the country will give priority to 10 targeted industries. Five of them are existing industries that require improvement through advanced technology， including the next-generation automotive industry， smart electronics， luxury and wellness tourism， agriculture and biotechnology and food for the future. The other five are new industries that will attract investment to support future competitiveness， including robotics， aviation and logistics， biofuels and biochemicals， the digital industry and medical services.

At the same time， the Eastern Economic Corridor （EEC）， straddling Chachoengsao， Chonburi and Rayong provinces， has been listed as a key region for the implementation of the Thailand 4.0 strategy. As one of the six regions that Thailand has divided the entire country into according to their geographical locations， the EEC aims to grow into Thailand’s most competitive economic center. According to Thai Minister of Industry Utama Savanayon， a total of at least 1.5 trillion baht （US$43 billion） will be invested in the first five years to improve the region’s infrastructure， including expansion of the U-Tapao International Airport and the Laem Chabang Port， as well as construction of the high-speed railway from Bangkok to Rayong， double-track rails and highways within the area.

In order to effectively advance the EEC project， a new committee presided over by Prayut was set up in January this year. Prayut noted that over the next 20 years， Thailand must work hard to maintain policy coherence and continuity towards these goals before they can be realized.

Ready for Global Investors

For the purpose of attracting worldwide investment in both targeted industries and infrastructure construction， the Thai government has formulated a series of preferential policies， especially those focused on corporate income tax relief. According to the newly-revised Investment Promotion Act of Thailand and the National Competitive Enhancement Act for Targeted Industries， enterprises investing in Thailand can enjoy corporate income tax relief in line with the technical value of their projects. Companies engaged in industries like biotechnology， nanotechnology， advanced materials technology and digital information technology can be exempted from corporate income tax for 13 years， and a corporate income tax deduction for up to 15 years is applied for certain high value-added and high-tech industries that meet relevant requirements. Thailand has also set up a research and development fund of 10 billion baht （US$29 million） for eligible companies to apply for.

In addition to corporate income tax relief， a favorable personal income tax rate of 15 percent for executives in foreign-funded enterprises in Thailand is the lowest among all ASEAN member states.

Foreign investors also enjoy a number of non-tax concessions in land ownership， visa application and other areas. They can complete all such formalities at the one-stop investment service center affiliated with Thailand’s Board of Investment （BOI）.

In terms of infrastructure construction， emphasis has been placed on the model of public private partnership （PPP） to encourage the participation of the private sector. According to the Thai State Enterprise Policy Committee， a total of 66 new public facilities projects and expansion projects with total value of over 16 trillion baht （US$47.8 billion） are scheduled to be launched between 2015 and 2019， and most are in the field of transportation infrastructure. PPP will be introduced into these projects. According to Thai Vice Minister for Transport Teerapong Rodprasert， in order to facilitate the bidding of PPP projects， the Ministry of Transport has consulted professionals about legal and contract issues to optimize the partnership， and will also try to attract further foreign investment.

Prayut has pointed out on many occasions that the key to the country’s future success lies in a favorable investment environment. In the World Bank’s Ease of Doing Business Index 2016， Thailand ranks second among emerging Asian economies.

Nevertheless， Thailand still falls behind in talent cultivation. To foster the development of a high value-based economy， human resources development has been outlined as a key part of the Thailand 4.0 strategy. Thai Prime Minister Prayut stressed at the “Opportunity Thailand” Seminar that human capital is the most important factor in the model of a value-based economy， so Thailand needs to focus on education in its efforts to ensure coordinated development of human resources and the Thailand 4.0 economic model.

Chinese-invested Enterprises Thrive

Hirunya Suchinai， secretary general of the Board of Investment of Thailand， said she believes that the Thailand 4.0 strategy has benefited from the China-proposed Belt and Road Initiative， which provides new opportunities for Chinese enterprises to expand global operation.

According to BOI statistics， China is the third largest source of foreign investment in Thailand. In fact， with the implementation of the Belt and Road Initiative， Chinese companies are accelerating their efforts to enter Thailand， as manifested by the development of the Thai-Chinese Rayong Industrial Zone.

Located in the EEC， the heartland of the Thailand 4.0 strategy， the zone has hosted many Chinese-invested firms since its establishment in 2005. But the Belt and Road has pushed the zone further ahead.

“Substantial achievements have only been made in the past three years as the Belt and Road Initiative has begun to produce tangible results，” said Xu Genluo， president of the Thai-Chinese Rayong Industrial Zone.

The zone is now home to more than 80 Chinese enterprises， including Zhejiang-based Dun’an Artificial Environment Equipment and Futong Group， Hebei-based Lizhong Wheel Group， Beijing-based Advanced Technology Materials Group and others. Among them， up to 35 firms launched their operations on the site within a three-year period following the initial proposal of the Belt and Road Initiative. During this period， US$800 million was invested in the park， accounting for nearly half of aggregate investment since it was first opened. Total industrial value of US$5.5 billion was reached， accounting for almost 70 percent of accumulative industrial output since 2005. In 2016， the number of new companies entering the park peaked， and the park’s operating income increased by nearly 120% on a year-on-year basis， the highest on record.

In 2015， Zhejiang-based Zhongce Rubber Group （ZC Rubber）， China’s largest tire manufacturer， opened its first overseas plant in the Rayong Industrial Zone. After its 100，000-square-meter phase I project was completed in the same year， the plant reached annual production capacity of 5 million semi-steel radial tires and 1 million all-steel radial tires. In 2016， ZC Rubber achieved an industrial output of nearly 30 billion yuan （US$44.4 million） in Thailand and sped up the construction of its phase II project in the park. An annual output up to 50 billion yuan （US$740 million） is expected to be reached in 2017.

Xu looks to the future with confidence.

“The Rayong Industrial Zone will usher in a new wave of Chinese investment，” Xu said. From his point of view， the Thailand 4.0 strategy and the China-proposed Belt and Road Initiative are closely intertwined. On one hand， Chinese enterprises are participating in the negotiations on some major infrastructure projects outlined on the Thailand 4.0 roadmap. On the other hand， China’s thriving new technology， new energy and new materials industries are also listed on the targeted industries prioritized in the Thailand 4.0 strategy.

While the Photovoltaic （PV） industry has matured in China， it is still an emerging high-tech industry in Thailand. So when Chinese PV enterprises like Trina Solar and Suzhou Talesun Solar Technologies launched their operations in the Rayong Industrial Zone in 2016， Thai officials noted that such firms “help Thailand fill its technological gaps in the PV industry”. Thai Deputy Prime Minister Wissanu Krea-ngam personally cut the ribbon at the launching ceremony of Trina Solar Science Technology （Thailand） Ltd.

Xu believes that industrial parks in Thailand and China complement each other and that Chinese investment in Thai manufacturing industry won’t negatively effect the domestic market.

“While Chinese enterprises have invested in Thailand， their headquarters are still in China，” Xu said. “Furthermore， as they have set up new plants in Thailand to open up the Southeast Asian market， there has been an increased demand for raw materials and components from China. This is capacity expansion， not production reduction or hollowing out.”