China trade reliance and grey capital strain Thai economy

Trade between Thailand and China has long played a vital role in shaping the economic landscape of both nations. As the world’s second-largest economy, China accounts for approximately 30% of global trade. Thailand, situated at the heart of Southeast Asia, serves as a regional hub and has fostered strong partnerships with China across multiple sectors.

However, in recent years, Thailand’s economy has faced growing challenges, particularly a persistent trade deficit with China, a surge in Chinese imports affecting local industries, and concerns over “grey capital” Chinese investments potentially impacting long-term economic stability.

According to the Parliamentary Budget Office (PBO), Thailand has consistently recorded a widening trade deficit with China. In 2013, the deficit stood at US$10.494 billion. By 2024, it had ballooned to over US$45.364 billion.

In 2024, total bilateral trade between Thailand and China reached US$115.851 billion—a 10.3% increase from the previous year. Despite the growth, Thailand's trade deficit with China rose by 23.8%. The main contributors to the deficit were high-value imports such as machinery and electrical equipment, while Thailand’s primary exports to China remained low-value items, particularly agricultural products.

Although the influx of Chinese goods has provided Thai consumers with a broader selection of affordable products, it has also inflicted serious damage on local businesses across the entire supply chain. Many Thai producers have been unable to compete on price, resulting in widespread closures.

Five Key Reasons Chinese Goods Dominate the Thai Market

The PBO identifies several factors behind the competitiveness of Chinese products in Thailand:

• Strong support from the Chinese government aimed at boosting exports.
• Lower production costs in China compared to Thailand.
• Mass production that benefits from economies of scale.
• Efficient distribution channels, including extensive use of e-commerce platforms by the Chinese and international private sectors.
• Rising imports from China are driven partly by the ongoing US–China trade conflict, which has redirected trade flows.

Since mid-2022, the issue of “grey Chinese capital” has become increasingly serious and widely discussed in Thailand. The intensification of China’s domestic anti-corruption campaign has prompted some Chinese nationals engaged in illicit or semi-legal businesses to relocate operations abroad, Thailand being one of the key destinations. The resulting influx of grey capital has had significant economic and social repercussions, including:

• Tax evasion, leading to revenue loss for the Thai government.
• Unfair disadvantage for legitimate Thai businesses, which are subject to regulatory compliance and higher costs.
• Price distortions in the Thai market due to lower production costs of grey capital-backed enterprises.
• Money laundering, where illicit funds are reinvested in Thailand’s economy through seemingly legitimate ventures.
• Increased economic volatility, as illegal capital flows heighten financial instability and long-term risk.
• A rise in criminal activity, including human trafficking, kidnapping, call centre scams, and drug trafficking.
• Corruption among Thai officials, who in some cases aid and abet grey Chinese business operations.

Safeguarding the Thai Economy from Chinese Goods and Grey Capital

PBO has issued several recommendations to manage both the flood of Chinese imports and the growing threat of grey Chinese capital:

• Diversify Export Markets & Upgrade Domestic Production

Thailand’s growing trade deficit with China underscores an overreliance on the Chinese economy, exposing the country to fluctuations in Chinese trade policies. To reduce dependence, Thailand should explore new export markets and focus on developing high-value products, particularly in sectors like machinery and electronics, to offset imports from China.

• Ensure Fair Competition & Raise Product Standards

The surge of cheap, often low-quality Chinese goods has created unfair competition, making it difficult for Thai producers to survive. The government should support domestic innovation and technology development to improve competitiveness. Simultaneously, import quality standards must be tightened to protect local industries and maintain long-term production standards.

• Close Legal Loopholes & Distinguish Between Legal and Grey Capital

The grey capital phenomenon reveals serious weaknesses in law enforcement, such as the use of Thai nominees and the complicity of certain government officials. There is an urgent need for stricter monitoring and legal action. Crucially, a clear distinction must be made between legitimate Chinese investment and grey capital, ensuring targeted, efficient regulation. Failure to do so may undermine investor confidence and damage the credibility of Thailand’s economic system.