EEC (3): Influence of Chinese Concepts on Thai Economic Development

This report will explore the roots of the influence of Chinese concepts of development found in the ECC: the role of the Thai elite (specifically Somkid Jatusripitak), the big picture of economic and political changes in Thailand and China, and the history of modern Sino-Thai interdependence.

EEC (1): Megaproject ‘exempt’ from investigation of basic principles – No coup, no project

 

EEC (2): Hear the voice of the local people when the state-capital 'legally' grabs land

From Japan to the era of Chinese investment

In the early 1980s, the Thai government included the Eastern Seaboard Development Programme for the first time in the fifth National Economic and Social Development Plan. It aimed to promote exports, industries using natural gas from the Gulf of Thailand and the spread of prosperity outside Bangkok. The Nikkei Asian Review revealed information that the Thai government attempted to get financial support from the World Bank, but was turned down due to the plan’s lack of “economic rationality”. Fortunately, the Japanese government granted loans of 178.8 billion yen ($1.6 billion at current rates) in the 12 years from fiscal year 1982, to fund 16 projects involving roads, ports, irrigation systems, and industrial parks.

No one would have predicted that  the financial loans that Japan approved for Thailand would later come around to helping the Japanese people themselves. In 1980-1985, the US had an enormous trade deficit with Japan because Japanese goods were much cheaper because of the value of the yen. To reduce the trade deficit, the US forced Japan into strengthening the value of its currency. This led to the 1985 Plaza Accord. The prices of Japanese products around the world promptly surged while American goods got cheaper. In an attempt to stay afloat, Japan had to relocate its production bases to countries with lower costs and convenient transportation. One of these destinations was Thailand.

Since it saw an opportunity to increase foreign investment, the government of Gen Prem Tinsulanonda announced a depreciation of the Thai baht to attract Japanese investment. The previous groundwork which had been announced was the Eastern Seaboard Development Programme in 1987. Information from Soji Sakai, President of the Japanese Chamber of Commerce, shows that the number of Japanese companies coming to invest in Thailand skyrocketed.

Today, the base of Japanese capital is about to reach higher peaks. After the 2014 coup d’état, the Thai government announced it was creating a special economic zone called the Eastern Economic Corridor (EEC), with a budget of 1.5 trillion baht. The project, set to complete in 2021, aims to develop the infrastructure in the eastern provinces of Chachoengsao, Rayong, Chonburi, and may include other related areas. The interest of many people, however, is not in Japanese capital, but in China as the current economic superpower. Data in 2019 shows that China has become the largest investor in Thailand, although in 2018 it was in third place behind Japan and Singapore.

The public are concerned about the influence of Chinese capital and whether it would weaken Thai sovereignty, especially after the EEC Act allowed foreign investors to lease land for up to 99 years. The EEC Office responded by bringing up the law that a foreign company that was granted investment support must return the land within one year if it does not invest, while companies that do not receive such support must return the land within three years. The office added that leasing land out to foreign businesses is far from new, as is mistakenly understood.

In addition to 99-year leases, there are several other concerns regarding the role of Chinese that could affect Thailand as a whole; for instance, the flood of Chinese tourists into Thailand, the entry of Chinese invasion capital into the property sector, Chinese investors’ buying up land, importation of waste from China, universities sold to Chinese investors, Alibaba’s entry, Chinese capital bidding on communications projects, adoption of the Chinese airport model, and adoption of the Chinese model for Thai SMEs. In all these issues, most anticipate that the US-China trade war and the Belt-and-Road initiative are supporting factors. This tide of investment has been evaluated both positively and negatively.

This article will explore the roots of the influence of Chinese concepts of development found in the ECC: the role of the Thai elite (specifically Somkid Jatusripitak), the big picture of economic and political changes in Thailand and China, and the history of modern Sino-Thai interdependence.

Zhengzhou model: Tip of the iceberg

The EEC project is divided into 2 parts, which are 5 infrastructure development megaprojects and the development of 10 target industries. All of these projects are either partially funded by China, or have Chinese involvement one way or another. Isranews observed that this could be the phenomenon of “Chinese capital seizing the EEC backbone.”

The U-Tapao Airport Project, for example, is linked to China at the government level. The keyword for this project is the term “Zhengzhou model”.

Signing of MoUs between the Zhengzhou Airport Economy Zone (ZAEZ) and the EEC on 29 August 2019. (source: Eastern Economic Corridor Office)

In August 2019, Deputy Prime Minister Somkid Jatusripitak went to preside over the signing of memoranda of understanding (MoUs) between the Zhengzhou Airport Economy Zone (ZAEZ) and the EEC. The essence of the agreements involves the exchange of experience of Zhengzhou airport development to be applied to U-Tapao airport, and trade cooperation between the two airports to expand the market for Thai export goods (e.g. fruits and pharmaceutical products).

Under this cooperation, it is expected that in the future some industrial groups from Zhengzhou may invest in the EEC zone. As of now, investors in the ZAEZ comprise over 60 IT and smartphone companies, 36 air transportation companies, 431 e-commerce companies, and 5 aircraft maintenance companies.

Nevertheless, the “Zhengzhou model” is only the tip of the iceberg because Deputy PM Somkid also visited many other cities in China in a bid to invite businesspeople from the Land of the Dragon to invest in Thailand. Efforts to promote Sino-Thai trade cooperation occurred under circumstances while the overall politics and economics of the two countries are coming more and more to resemble each other all the time, both from the perspective of the “right turn” in politics in general and from the economic perspective. Especially after the 2014 coup, Thailand gave more importance to the concept of special economic zones (SEZs) as the heart of its development strategy, no differently from China which is spearheading this idea.
Special Economic Zones: Influence of Chinese concepts

Our development models have been heavily influenced conceptually by China. David Dodwell, Executive Director of the Hong Kong-APEC Trade Policy Study Group, wrote that China today is the country that most uses the concept of SEZs as a development strategy, although the results raise many questions. SEZs can be defined broadly as areas where economic regulations (such as taxation) are different from other areas, with an objective to boost economic growth or attract foreign direct investment. China is home to 2,543 SEZ projects, over half of the total SEZs in 147 countries.

David Dodwell wrote an analysis in the South China Morning Post that the reason why the Chinese government really liked this strategy was because of their need to reduce risks by first experimenting with a development model in a specific area. If it failed, it would fail in only one area, instead of the whole country, as was the case of The Great Leap Forward in 1958-1962, which caused millions to starve to death. China first applied the SEZ concept under Deng Xiaoping, starting at Shenzhen, Zhuhai, Shantou, and Xiamen. The SEZ concept then became a continuing development strategy and was also used in investments in foreign countries, beginning with investing in the Suez Canal Special Economic Zone in 1999 and most recently the attempts to invest $3.5 billion in the Djibouti Free Trade Zone, which aims to promote economic cooperation among Rwanda, Sudan, Somalia, and Ethiopia, under the Belt-and-Road strategy.

Even we have got to know SEZs from the time of the Eastern Seaboard Development Programme. But we never implemented the SEZ concept again even though the Thaksin Shinawatra government attempted to push it. One reason may be the lessons drawn of the pollution caused by the Map Ta Phut industrial estate. But after the 2014 coup the SEZ concept was brought up again as a development model. NCPO Order 3/2559 declared special economic zones in 10 provinces.

The NCPO government later declared that the Eastern Seaboard is to be developed further. Three NCPO orders were announced, followed by the Eastern Special Development Zone Act which shaped what is now the EEC. The government later planned to develop an SEZ in the south on the same lines under the name of the Southern Economic Corridor (SEC). The government approved 116 projects, covering the provinces of Chumphon, Ranong, Surat Thani, and Nakhon Si Thammarat, with a total budget of 100 billion baht.

Somkid’s Chinese conspiracy?

Somkid Jatusripitak visited Huawei Ox Horn Campus in Dongguan, Guangdong province. Photo was taken on 21 October 2019 (source: Thaigov.go.th

The person who re-introduced the SEZ concept to Thailand was none other than Somkid Jatusripitak, Deputy Prime Minister. In 2016 he expressed his admiration for China at the Smart SME Expo. Matichon Online summarised his statement:
“China will be the first country to recover from the global recession because they are not dependent on the same economic format as Western countries. China has given importance to SMEs, or what we call mass entrepreneurs, by integrating cooperation between the government sector, the private sector, and leading universities in technology and science to create innovation, change ideas into products and services to compete in the world market, as well as to train entrepreneurs in e-commerce and distribution logistics. Thailand has to watch and take a lesson in how to achieve such growth.”

When Somkid travelled to Guangdong in October 2019, he made it clear that he wanted to adopt the Chinese model to develop Thai SMEs : “We will use a model similar to China’s to create Thai start-ups, to transform Thailand’s economic structure into an economy based on entrepreneurs. Our connections with the Great Bay Area (GBA) allows Thailand better access to China’s strongholds that any other country, because Guangdong and Shenzhen are world leaders in this.” If we go back, we will ssee that the city of Shenzhen in Guangdong Province was a pilot Special Economic Zone pioneered by

Deng Xiaoping in 1980.

Dhanin Chearavanont met China's supreme leader Deng Xiaoping in April 1990. (source: njcttq.com)

Adopting a concept from a foreign country like China and giving special importance to China is not problematic per se. The question is whether using special economic zones as a development model is still effective.

A report by United Nations Conference on Trade and Development (UNCTAD) shows that 22% of a total of 5,400 SEZs are “heavily underutilized/largely vacant.” 25% are “somewhat underutilized/vacant.” Only 13% are fully utilised. UNCTAD’s concerns may correspond to a report about the EEC at the end of last year which indicates that although the number of new investment projects has increased by 37% from 2018, the investment value over the same period plummeted by 23%. It remains to be seen how much investment will occur in the future.

Even if the EEC is “fully utilised,” the UNCTAD report also suggests that the SEZs might not have an overall positive impact on the economy as claimed, because SEZs are separated from other areas. Hence they do not connect and distribute their prosperity to other areas of the country. The Nikkei Review report also points in the same direction that, unlike the Eastern Seaboard programme, the EEC cannot help increase Thailand’s overall economic growth even if it succeeds.

Back in the time of the Eastern Seaboard, inhabitants in the three eastern provinces benefitted from huge development projects, since the population growth rate (2.5% during 1981-1991) was well above the national average (1.5%.) People born during that period had the chance to be employed in the new large development projects that were built. The result was that people in the eastern region sent their income to boost the economy. In contrast, Thailand’s current fertility rate was only 1.53 in 2017. The Nikkei Review analyzed that jobs created in the EEC projects are unlikely to go to Thais but will go to foreigners instead.

Thailand is also becoming an aging society. The effect of this is that the working population will not be Thai and those who spend money in the economy will not be Thai. This means that the body of knowledge of innovation which is expected to be learned from abroad will not be passed on to the Thai people. The question is why Somkid insists on using SEZs as a development model.

The world turns right: A worldwide change

Looking at the big picture, political trends in Thailand and China share a frightening resemblance. Thailand had a coup d’état in 2014, and China appears to lean towards the same trend. A year after Thailand’s new constitution went into effect, China amended its constitution, repealing the provision that limits the presidency to two terms. This allows President Xi Jinping to stay in power after the end of his second term in 2023, just like Mao Zedong. This amendment annulled the 32-year-old rule that Deng Xiaoping imposed in 1982 to put limits in the way of anyone having an excessive concentration of power and mass killings such as occurred in the Cultural Revolution.

CP, Hong Kong, and friends in need

Dhanin Chearavanont, Senior Chairman of the CP Group (source: cpgroupglobal.com)

The macro-level change is not the only factor that propelled the Thai elite to be more easily inclined to accept Chinese development concepts. Thailand and China have long helped each other out in difficult times, in both the government and private sectors. This kind of help is most clearly evident in the case of the CP Group.

The 80-year old tycoon Dhanin Chearavanont, Senior Chairman of the CP Group, is currently a key economic ally of President Xi Jinping, according to Bloomberg. His father, Chia Ek Chor, fled his typhoon-devastated hometown in southern China to begin selling vegetable seeds in Thailand 99 years ago. His business grew to become one of the world’s largest conglomerates today. CP’s role, which many may have forgotten, was its economic aid to China during the critical time of the Tiananmen Incident. Because of the Chinese government’s brutal slaughter of protesters calling for democracy in 1989, the world boycotted the Chinese economy. Yet CP Group still invested in in China despite the political crisis. Today, the CP Group proudly declares that it was the first foreign company to invest in China, and owns the commercial registration number of 001. A US official document in 1998 stated that CP first invested in China in 1979. 

 

Source: Investigation of Illegal or Improper Activities in Connection with 1996 Federal Election Campaigns, Final Report of the Committee on Governmental Affairs, United States Senate, Together with Additional and Minority Views, Volume 3 of 6, March 10, 1998, P.4551-4552

This document also states that CP’s businesses in China go from broiler chickens and motorcycles, all the way to real estate. The reason that the US reported information about the CP Group was because CP was implicated in American politics during that period. Big news at that time was that Pornpimol (Pauline) Kanchanalak made illegal donations to the Democratic National Committee. The donations were related to a coffee talk between then-President Bill Clinton and four businesspeople, which concerned US trade policy with China. One of the 4 was Dhanin Chearavanont who dominated the conversation on that day. He stressed the importance of maintaining good trade relations with China.

After Clinton left office and George W. Bush’s presidency began, an investigative report revealed that Dhanin also has a relationship with the Republicans and the Bush family. Bush established a telecommunications company in collaboration with the CP Group, using the latter’s connections in China to open the door for various American companies to invest in China.

It is clear that Dhanin has always tried to defend the CP Group’s investments in China. When the NCPO government initiated the EEC project in an adverse political and economic situation under limits on the right to express political ideas, CP again took the leading role in encouraging its Chinese allies to invest in the EEC in Thailand. It entered an investment consortium with the China Railway Construction Corporation and won a bid to construct the railway linking three airports worth 224,544.36 million baht. As of now, they have signed the contract, and the project is due to be completed in 2023.

The Chinese-CP consortium also bid for an airport construction project. It is not certain whether it will win, as this matter remains incomplete today. One thing about this is clear: Thai-Chinese relations can be called “comrades in arms” during times of the suppression of dissent. This relationship re-appeared after the Hong Kong political crisis emerged. Last November Carrie Lam, Chief Executive of Hong Kong, visited Thailand and signed six MoUs. It is expected that over 50 Hong Kong businesspeople may invest around 9,000 million baht in the EEC within nine months following the agreements.

Sovereignty is still ours

Many factors contribute to this influx of Chinese capital. Although many will give weight to the One-Belt-One-Road Initiative and the US-China trade war, the invasion of Chinese capital into the EEC and the Thai economy as a whole might be a result of other important factors—i.e. the Thai elite’s acceptance of the influence of the Chinese development model in Thailand, the big picture of social and political changes which allow for easier implementation of the Chinese development model in Thailand, and long-standing mutually beneficial trade relations between Thailand and China, especially during political crises and human rights abuses by dictatorial governments.

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