Srettha Thavisin, Thailand's newly-elected 30th Prime Minister, attends Bangkok Post Forum 2023, themed 'Thailand: The Era of Change,' at Centara Grand at CentralWorld in Bangkok, Thailand on October 3, 2023. This forum serves as a platform to discuss the policy frameworks set by the new government, with a spotlight on economic recovery and holistic development across all sectors. (Photo by Matt Hunt / ANADOLU AGENCY / Anadolu Agency via AFP)

Srettha Thavisin, Thailand's newly-elected 30th Prime Minister, attends Bangkok Post Forum 2023, themed 'Thailand: The Era of Change,' at Centara Grand at CentralWorld in Bangkok, Thailand on October 3, 2023. This forum serves as a platform to discuss the policy frameworks set by the new government, with a spotlight on economic recovery and holistic development across all sectors. (Photo by Matt Hunt / ANADOLU AGENCY / Anadolu Agency via AFP)

Thailand’s Exposure to Northeast Asia’s Slowdowns


World events have not been kind to Thailand’s economic plans. Besides high oil prices and U.S. interest rates, Thailand faces prolonged slowdowns in its Northeast Asian economic partners. The challenges and opportunities are many, and ultimately hinge on stable democratic leadership.

Thailand’s Pheu Thai government was inaugurated with a mission of revitalising the Thai economy, after nine years of disappointing growth under coup-installed authorities. Yet world events have not been kind to the new government’s plans.

While Middle East conflicts threaten to raise oil prices, high U.S. interest rates have kept pressure on the baht, which has fallen to its lowest levels in 17 years. This pressure prompted the Bank of Thailand to raise interest rates to 2.50 per cent in September, up from 0.50 per cent in mid-2022, purportedly creating tension between the central bank and Prime Minister Srettha Thavisin.

Thai authorities had hoped that the return of high-spending Chinese tourists would mitigate other external pressures. This — predictably — has not happened, even after Srettha eased tourist visa requirements for Chinese citizens in September. Although numbers of Chinese visitors have increased, to about 400,000 a month in summer 2023, they remain well below a peak of one million Chinese visitors in January 2020.

The reduced Chinese tourist numbers hint at deeper problems beyond oil and interest rates. Thailand could face prolonged challenges from weak growth and stagnating demand in Northeast Asia—China, Japan, and South Korea. Thai politicians have looked to these countries as drivers for Thailand’s future growth, with Srettha and Prayut Chan-o-cha both investing considerable time appealing to Chinese and Japanese businesses. How much risk does Thailand face from economic problems in the three countries?

In 2022, all three reported declining or stagnant GDP in US dollar terms, which will likely be repeated in 2023. All three have massive debts, which have generally grown faster than their economies have. All three have mediocre outlooks for consumer spending. A real estate crisis in China risks devastating the wealth of many families and reducing their likelihood to spend or travel, much as earlier real estate crises affected many Japanese families.

China’s slowdown is the most serious, as China is Thailand’s top trading partner, importing billions of dollars worth of Thai agricultural products like rubber and durian. Until Covid-19, more tourists in Thailand came from China than any other single country. As China’s economy faces a sustained consumption shortfall, in which consumers have scaled down spending for cheaper (and domestically made) products, it seems unlikely that Thailand’s tourism sector will fully recover soon or that Thailand’s durian industry will expand its recent China-driven boom.

Japan ranks among Thailand’s largest trading partners, primarily trading manufactured and intermediate products. Tourism from Japan and South Korea is also significant, with each sending 100,000 – 200,000 tourists a month before the Covid-19 pandemic. Korean tourism has mostly recovered, while Japanese tourism has not: lately, there are more Thais travelling in Japan than Japanese tourists in Thailand.

Thailand’s looming challenge is not only to overcome stagnation, but also to withstand growing problems of its economic partners.

Alongside China, Japan and South Korea are leading sources of Thailand’s foreign investment. Thailand has long benefited from substantial Japanese corporate investment, loans, and development assistance, including for major vehicle factories. But as Japanese and Korean firms face mounting competition and financial pressures, Thailand could see a substantial decline in new Japanese and Korean investments, and a drop in the importance and value of their Thailand-based manufacturing. So far this year, net incoming Korean and Japanese investment in Thailand is vastly below its mid-2019 value.

Still, a closer look at trade suggests that Thailand is less exposed than first meets the eye. Thailand has large trade deficits with Northeast Asia’s economies. Much of this trade is in raw or industrial materials, such as metals and chemicals, and in electronics, like circuits and data processors, many of which are re-exported to the U.S. and Southeast Asia. Exports to the U.S. accounted for all of Thailand’s growth in exports of data processing equipment, such as computer hard drives, since 2015 (Table 1).

Table 1. Thailand’s Electrical and Electronics Balance of Trade: Exports and Imports driven by the US and Asia

Exports (billion USD)20152022% of 2022 exports% of 2015-2022 growth from US and ASEAN-9
Electrical equipment22.329.410.2%62.0%
Electronic machines32.645.115.7%81.6%
    Of which: 1. data processing equipment17.620.77.2%116.1%
                      2. semiconductors, transistors, diodes, and integrated circuits8.512.74.4%81.0%
Imports (billion USD)20152022% of 2022 imports% of 2015-2022 growth from China and Japan
Electrical machinery15.820.26.7%68.2%
Computing, scientific, and measurement equipment11.214.74.9%68.6%
Electric and electronic parts/intermediaries13.124.68.2%37.4%
    Of which: semiconductors, transistors, diodes, and integrated circuits10.821.97.3%32.4%
Figures from Thailand Ministry of Commerce, CEIC, and author’s calculations. China figures include mainland China and Hong Kong. Thailand’s other exports largely consist of agricultural products, processed rubber, refined fuel, plastics and chemicals, and vehicles and vehicle parts.

Such trade depends most of all on demand from final consumers. If the U.S. and Southeast Asian economies—destinations of many Thai higher-value-added products—maintain strong growth, then much of Thailand’s manufacturing should withstand weakened demand in Northeast Asia. Instead of the broad consequences that some analysts fear, Thailand would face narrower effects on specific sectors. In addition to tourism, agriculture and raw materials exports—such as rubber, fish, and fruits—could face worse growth prospects, unless Thailand fosters new markets. Trade with India is growing quickly but remains under 3 per cent of Thailand’s total trade by value. Thailand is fortunate that, unlike Indonesia or Australia, its natural resource exports are weakly linked to China’s real estate industry at the centre of China’s slowdown.

Western-led “de-risking” campaigns complicate this trajectory. Thailand is embedded in supply chains stretching across Asia, particularly for the production of vehicles and electric or electronic devices. These depend heavily on trade with China. If U.S.-China trade tensions further escalate, then whether Thailand suffers from “de-risking” could depend on Thai manufacturers’ flexibility to adjust suppliers. Thailand might succeed in attracting and growing its own advanced manufacturing, at least if leaders can demonstrate that they are still reliable partners for Japan, the U.S., and other democratic countries.

Table 2. Thailand and Northeast Asia, 2019 to 2023: Less Tourism and Investment, More Trade in Electronics and Agriculture

Visitors (monthly peak)20192023 (as of Oct.)
South Korea208,000169,000
Net foreign direct investment (million USD) from:20192023 (first half)
South Korea465135
Electrical and electronics exports from Thailand (billion USD) to:20152022
South Korea1.21.2
Electrical and electronics imports to Thailand (billion USD) from:20152022
South Korea1-1.52.4
Agricultural and processed agricultural exports from Thailand (billion USD)20192022
South Korea1.11.6
Figures from Thailand Ministry of Commerce, Ministry of Tourism and Sports, Bank of Thailand, CEIC, and author’s calculations. Note: China figures include Hong Kong for electrical and electronic trade data, but China figures only include the mainland for other data.

Bangkok could also further attract expat entrepreneurs, financiers, and professionals. Since last year, Bangkok has gained expats from other Asian business capitals, who appreciate the city’s lower costs, relatively better political conditions, easier visa policies, and widespread use of English. The Bangkok and national governments could cooperate to entice foreigners and their businesses, including by reducing visa restrictions, attracting international schools, fostering multinational cultural organisations, expanding flights to global financial centres, easing rules for foreigners holding properties, and relaxing restrictions on foreign ownership of domestic assets, particularly if the latter helps finance improvements to Bangkok infrastructure.

Thailand’s looming challenge is not only to overcome stagnation but also to withstand the growing problems of its economic partners. Most of Thailand’s risks likely concentrate around a few sectors such as tourism and agriculture. These can be mitigated by helping industries pivot to new markets and fostering integration with South and Southeast Asia as well as the West. The ultimate challenge, as ever in Thailand, is in maintaining stable democratic leadership capable of instituting reforms.


Richard Yarrow is a Fellow at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School and a Visiting Fellow at the East Asian Bureau of Economic Research at the Australian National University.