Thailand
Thailand: Wage hike could repel Chinese firms
A hike in the daily minimum wage could discourage Chinese manufacturers in labour-intensive industries from relocating their production base to Thailand, says a Chinese banking executive.
“This is a very big problem for some low-end [Chinese] factories,” said Zhigang Li, chairman of the board of directors at ICBC Thai. “If the labour cost increases, they may not have the confidence to invest here and may go to other countries like Vietnam, Myanmar and Laos because of lower [minimum wages]. But for some medium- to high-tech [businesses], they could accommodate this cost because their [profit] margin is higher.”
A sharp increase in the daily minimum wage is a key concern among businesses because the new government coalition, led by the Palang Pracharath Party, has a commitment that the new rate will increase roughly 30% to 400-425 baht.
The current daily minimum wage has seven rates: 308, 310, 315, 318, 320, 325 and 330 baht.
China ranked third behind Japan and Singapore for approved foreign direct investment (FDIs) in Thailand in 2018, with 97 projects worth a combined 32.8 billion baht, according to the Board of Investment.
Besides the minimum wage hike, insufficient skilled labour and domestic political stability are factors having an impact on attracting Chinese FDI to Thailand, Mr Li said.
“Preconditions for [Chinese FDI into Thailand] are stability in terms of [domestic] politics and policies,” he said.
Regarding how the US has made an abrupt policy U-turn on allowing American companies to do business with Chinese giant Huawei, Mr Li said further monitoring must be done, but some US imported products, such as auto parts, can be replaced.
Separately, Fitch Ratings said Thai exports are not expected to contract this year despite flagging export data, since sustained global economic growth and exports to the US can compensate for sluggish exports to China.
“Total exports are not expected to turn negative this year,” said Stephen Schwartz, a Hong Kong-based senior director and head of Asia-Pacific sovereign ratings at Fitch. “The momentum is weakening and there are downward risks from many countries, but the baseline outlook is reasonably strong.
“Thailand has seen exports to China turning negative in recent months, but [the country] has seen a pickup [in exports] to the US. We are seeing a short-term shift and trade diversion going on, but in general when China’s growth slows, it tends to suppress exports and growth around the region.”
The Sino-US trade dispute has complicated business sentiment and contributed to a divergence in trade and supply chain, Mr Schwartz said.
Global economic growth is projected at 2.8% in 2019 and 2.7% in 2020, down from 3.2% in 2018, according to Fitch.
Source: https://www.bangkokpost.com/business/1706446/wage-hike-could-repel-chinese-firms