Is Thai Manufacturing Sick?

The manufacturing sector plays an important role in the Thai economy. In 2024, the sector accounted for 24 per cent of GDP, 15.7 per cent of total employment, and around 80 per cent of total exports. The sector, however, remains lethargic with average capacity utilisation rates hovering below 60 per cent for the past two years (Figure 1). There are various factors behind the low rates, such as the impact of low-priced Chinese imports. In the long run, the government needs to help Thai firms gain access to financial resources and harness new technologies.

In the first ten months of 2025, only a third of industries had capacity utilisation that surpassed levels experienced during the most stringent lockdown period (April-December 2021). These industries include beverages (for example, soft drinks, coffee, tea), leather footwear, processed foods (meats, poultry, fish), kitchenware and related products, and vehicle engines and turbines. 

In The Doldrums

Figure 1. Average (Weighted) Capacity Utilisation in Thai Manufacturing, 2021-2025 (%)

The low and declining capacity utilisation found in many industries indicate that the demand for locally manufactured products is weak. The export performance of Thai manufacturing products has been decent over the past decade as their world market share has fluctuated within a narrow range between 1.3 and 1.5 per cent from 2014 to 2024. Hence, under-capacity utilisation appears to be a challenge primarily faced by domestic-oriented manufacturers. 

There are three possible explanations for the low-capacity utilisation. One explanation is the influx of ultra-low priced Chinese imports which might have neutralised the impact of the Thai government’s demand-boosting policies on local manufacturers. One such policy was the “half-half programme”, where the government pays 50 per cent of the expenditures on food, drink and general goods up to a specified limit and duration. The programme was implemented five times to cushion the economic impact of the Covid-19 pandemic from October 2020 to October 2023. The total budget spent was THB234.5 billion. A similar programme was the “half-half plus programme”, which was implemented by the Anutin Charnvirakul administration between October and December 2025. 

 Apart from the current demand-boosting programme, similar programmes in the past did not benefit local manufacturers that produce for the domestic market. One possible explanation is that the eligible products are not limited to foods and non-alcoholic beverages but include other necessities and small electrical appliances. The programme might have induced higher demand for cheap imports from China. It is imperative for policymakers to assess the net impact on the programmes on the demand for locally manufactured products to worth fiscal resources spent.

To rejuvenate the Thai manufacturing sector, the government needs to craft a strategy that will improve firms’ access to long-term financial resources.

Another explanation for the manufacturing lethargy is the impact of foreign direct investment from China. Since the Covid-19 crisis, Chinese investors have become increasingly important to the Thai economy. By 2024, Chinese investors accounted for 21 per cent of total FDI inflows into Thailand. Their presence was likely to be in the manufacturing sector. To a certain extent, the entry of investors from China could be more domestic-oriented and displace their Thai counterparts; many Thai firms exited sectors that the Chinese investors engaged intensively in. Chinese investments are expected to spur economic growth. However, the presence of excess capacity in many industries suggests that the entrance of new Chinese-owned firms may have had a small economic impact on local firms due these companies having limited supply chain linkages within the Thai economy. These Chinese-owned firms tend to import inputs from China. As a result, their demand for the products from Thai firms is lower, resulting in lower capacity utilisation for their local counterparts.

Table 1. Cumulative Number of Deregistered Thai Firms and Newly-Registered Chinese Firms From January 2021-October 2025

	# Deregistered Thai Firms	# Newly-Registered Chinese Firms
Manufacture of rubber and plastics products)	499	112
Production of food products	363	66
Manufacture of fabricated metal products, except machinery and equipment	444	59
Manufacture of other non-metallic mineral products	444	43
Manufacture of paper and paper products	68	31
Total	3796	650

The last possible explanation is the stagnation in the credit extended to the manufacturing sector, which has remained virtually unchanged from 2022 to 2025 (Figure 2). Prior to this period, the total outstanding credits extended to the sector grew steadily. The stagnation in credit extended to the sector is likely to have constrained firms’ abilities to explore new business opportunities, upgrade their production technologies, pursue innovative projects, and maintain their business competency. 

The manufacturing sector in Thailand has clearly worsened in its capacity utilisation after the Covid-19 pandemic. During the pandemic, the government implemented measures that focused on helping workers who were laid off due to firm closures and reducing the cost of living, rather than supporting firms to stay in business. Businesses experienced great financial strain during the pandemic and were not able to get adequate financial support. They also experienced intense competition brought about by the influx of cheap imports from China.

Running Flat on Credit

Figure 2. Outstanding Private Domestic Credit From 2013Q1-2025Q1 (in million THB)

To rejuvenate the Thai manufacturing sector, the government needs to craft a strategy that will improve firms’ access to long-term financial resources. This will help them become more innovative and competitive by harnessing new technologies. These activities will incur short-term investment costs. Such activities, which need to be carried out continuously, will take time to yield returns and involve learning by doing. They cannot be achieved by relying solely on short-term financing, such as commercial bank lending. 

The low-capacity utilisation observed in Thai manufacturing is trapping Thailand in a low-growth equilibrium. It points to a gap in current policy thinking that needs to be addressed urgently.

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