Thailand and the Chinese Import Surge: Possible Policy Responses

The surge of imports from China has alarmed many local firms in Thailand. While local businesses have called on the government to impose tariffs on imports, it is more expedient to consider more reasonable measures such as clamping down on illegal importation.

Since February 2024, the share of Chinese imports to total imports has soared in Thailand (Figure 1).  It reached a peak at 37.4 per cent in June 2024, and only decreased slightly to 33.6 per cent in September 2024. 

A Chinese avalanche

Figure 1: China’s Share of Thailand’s Total Import (%) (January 2019 to September 2024)

A wide range of markets has experienced substantial increases in Chinese import shares in the first eight months of the year (Figure 2). They included plastic and rubber products (43.5 per cent), pulp and paper products (33.2 per cent), metallic products (42 per cent), and automotives (35.2 per cent). 

Hit Hard

Figure 2: China’s Share of Thailand’s Total Import by Products (%)

(January-August, 2022 and 2024)

These imports, which are mostly ultra-low-priced, are seen as economic threats to the survival of local firms. A clear example is the aggressive price cuts of BYD electric vehicles in July 2024.  The magnitude of the price cut was around 25 per cent of their original prices. Official statistics reflect these fears. The list of products experiencing the Chinese import surge matches with industries experiencing an increase in business closures in the first nine months of 2024 (Figure 3).

More Firms Bite the Dust

Figure 3: Number of Establishment Closures

Many local firms from industries such as steel and auto parts have demanded that the government take concrete action to stop Chinese imports. Thus far, however, the government’s response has been mild. It has extended its 7 per cent value-added tax to incoming purchases valued at less than 1,500 baht (US$42). It has also stepped up law enforcement on value-added taxes and customs duties, as well as on product quality standards. 

Can the Thai government do more to stem the flow of Chinese imports in the affected industries?  Local firms have urged the government to impose higher tariffs or import bans. Higher tariffs, however, are unlikely to lick the problem. The inventory costs for metallic and plastic products are not prohibitive. The prospect of higher tariffs would push businesses into stocking up their imported inventories.  This could weaken the effectiveness of higher tariffs.   

For products such as electric vehicles and petrochemicals, where China is experiencing excess production capacity and where economies of scale play a significant role, higher tariffs might be offset by further price cuts. China could also retaliate against the higher tariffs. This would adversely affect other sectors in Thailand, particularly in areas such as fresh fruit exports and tourism.    

A more reasoned response should consider the multiple facets of the Chinese import surge. These facets include illegal importation, loopholes in existing rules and regulations, low product quality, export subsidy, possible dumping, and genuine price competitiveness. Some of the import surges could be driven by Chinese firms using Thailand as a re-exporting base to the US. Policymakers in Thailand need to carefully study these facets and address them using proper tools. 

The Thai government should continue to clamp down on illegal importation, following up on their recent enforcement activities. From late July to early November, for example, Thai authorities raided 47 Chinese supermarkets in Bangkok and seized 94,476 illegal Chinese consumer products in 341 product categories.

The Thai government should adopt a different approach for an import surge that is driven by genuine price competitiveness. In such cases, local firms should be encouraged to alter their business models, for example, switching from manufacturing to trading.

More product quality inspections should be conducted to minimise the possible risks to public health and safety. These actions must continue irrespective of the future trends in Chinese imports. A third-party independent watchdog mechanism is needed to monitor the efficacy of these actions. 

Thailand should investigate the Chinese import surge in some products in terms of export subsidy and dumping in line with World Trade Organisation (WTO) rules.  Given the high capital intensity in some of these industries, this must be done carefully. Such industries include petrochemicals, chemicals, and rubber products. In these industries, exit decisions are irreversible.

One possible avenue for government action is the imposition of temporary import restrictions based on the safeguard clauses available under the WTO or free trade agreement (FTA) frameworks. For example, under the ASEAN-China FTA, Article 3 Trade in Goods 8(f) allows any member to use safeguards based on the General Agreement on Tariffs and Trade (GATT) principles. Investigations are required to quantify the extent of injury to local firms from the imports. One advantage of this rules-based approach is that it is less likely to ignite trade tensions between Thailand and China.

The Thai government should adopt a different approach for an import surge that is driven by genuine price competitiveness. In such cases, local firms should be encouraged to alter their business models, for example, switching from manufacturing to trading. They should be encouraged to offer new products that make use of the price competitiveness of Chinese imports. In this regard, the government can support these firms in various ways by assisting them in accessing financial resources at a decent cost and providing training, skills, and knowledge.

For Thai firms which are no longer competitive amid the import surge, regulatory reforms are needed to facilitate structural reforms. An effective bankruptcy law with second-chance features is crucial. This would allow the firms in these industries to have a financial fresh start. While the bankruptcy law in Thailand has been long in place, it has been conflated with reorganisation. Unlike Chapter 11 of the US bankruptcy law, reorganisation in the Thai context is separate from bankruptcy. Reforms in the country’s bankruptcy laws should follow the US example so floundering companies are restructured appropriately to set them on a better footing. Better understanding is needed so firms can utilise these legal means to get a fresh start. 

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