Thailand’s Industrial Sector Gains From US – China Trade War

Thailand’s industrial property sector is profiting from the US-China trade war, as mainland Chinese manufacturers shift production to Southeast Asia in an attempt to avoid escalating tariffs.

Chinese foreign direct investment (FDI) into the sector rose last year by 31.7 per cent to US$233 million, after declining by 15.7 per cent in 2016-17, according to Bank of Thailand data. In the same period, total FDI into Thailand skyrocketed by 130.5 per cent year on year, after rising by two-thirds in 2016-17. Chinese investment accounted for 4.3 per cent of total FDI last year and 7.6 per cent in 2016-17.

The data, cited in a report by real-estate services company CBRE released last week, suggests FDI into Thailand’s manufacturing sector was increasing before the trade war too, and is now seeing increased participation from China.

Last year, sales of serviced industrial land plots – privately owned industrial estates – by major developers in Thailand increased by 50 per cent year on year, to total 160 hectares, CBRE said. One park, specifically developed for Chinese manufacturers by Thai industrial estates provider Amata, accounted for 15 per cent of the total sales last year.

In another instance, Guangxi Construction Engineering Group, one of China’s largest construction companies, formed a joint venture with CP Land, the property arm of Thai conglomerate Chareon Pokphand Group, to build the CPGC Industrial Estate in Rayong in eastern Thailand last August. The 490 hectare space cost 10 billion baht (US$314.8 million) to develop and was built to attract investors from mainland China, Hong Kong and Taiwan in smart electronics, medical hubs, digital and robotics.

CBRE also said China could be in line to take over from Japan, which has been the largest source of investment into Thailand

Andrew Gulbrandson, head of research for real estate services company JLL, however, said that even though Chinese investment in industrial properties “will continue to grow”, it would take “quite a stretch for Chinese investment to overtake Japanese investment any time soon”.

Total FDI into Thailand last year amounted to US$235 billion, with Japan contributing US$86.6 billion, the largest chunk, or about 37 per cent. China accounted for US$4.9 billion, said Gulbrandson.

Between 2013 and 2018, investment by both countries grew at similar rates, by 34 per cent and 32 per cent, respectively.

Investment from Hong Kong doubled from US$8 billion to US$16 billion in the same time period, making the growth of investment from the region “more impressive”, said Gulbrandson. The investment from Hong Kong could also be due to offshoring of mainland Chinese investments, he said.

And although the trade war is helping to drive investment into Southeast Asia, factors such as rising labour costs in China and a broad diversification of Chinese manufacturing to reduce future risks will be key to determining growth in investment in industrial property in Thailand.

E-commerce will also play a part in driving Chinese demand for space and logistics in Thailand. “Chinese e-commerce companies are going to drive the demand for modern logistics properties in Thailand,” said Adam Bell, head of advisory and transaction services, industrial and logistics, CBRE Thailand.

 “Joint ventures were announced last year between WHA, Thailand’s biggest modern logistics properties developer, and two of China’s biggest e-commerce companies, Alibaba and, for the development of e-commerce fulfilment centres,” he said.