PM’s fear of Chinese contagion
Worry over direct impact on Thai economy
Prime Minister Prayut Chan-o-cha has voiced concern about the impact of China’s volatile stock market on Thailand, which has substantial exposure to the world’s second-biggest economy.
“I’m worried because all the economies are in the same chain,” he said. “Stock market there plunges, ours also falls. Today the Chinese economy is cooling.”
Despite yesterday’s 5.8% rebound of the Shanghai composite, Finance Minister Sommai Phasee said China’s stock market correction remains more worrying to him than the crisis in Greece.
China’s market tailspin will weaken production and demand for raw materials from countries like Thailand, he said.
Thai exports to China account for 13% of total overseas shipments.
“The number of Thais who invest in China is still small, but the crisis there seems to be enormous,” Mr Sommai said.
“China’s GDP growth is likely to slip below 6% this year, or one percentage point lower than last year. Every single percentage-point decline in China’s GDP growth is equal to 35% of Thailand’s GDP.”
Banyong Pongpanich, the chairman of Phatra Securities Plc and a member of the State Enterprises Policy Commission (superboard), said China’s economy warranted the most concern among external factors because of its direct effect on Thailand and other regional economies.
The plunge in China’s stock index — 30% in the past three weeks before the rebound — means hefty losses in equity market value and a potential chain reaction for Chinese financial institutions, as retail investors have obtained margin loans for their stock investments, Mr Banyong said, adding that a decline in Chinese citizens’ wealth will lead to weaker consumption and investment.
“It remains uncertain whether China’s economy will experience a hard-landing scenario or an economic crisis, but there is a likelihood that the Chinese economy will expand by less than 7% over the next two or three years,” he said.
In his view, a hard-landing situation is when China’s yearly economic growth dips below 5%.
Notable impacts from China’s economic slowdown on Thailand include a drop in imports for Chinese consumption and reexporting purposes, declining Thai shipments to China, a possible drop in Chinese tourist arrivals and falling foreign direct investment (FDI) by Chinese firms, Mr Banyong said.
He said the yuan could weaken as a result of China’s economic slowdown and hurt Thai exports to the advantage of China’s own shipments.
Luxmon Attapich, senior country economist for Thailand at the Asian Development Bank, said that while a hard-landing scenario for China was likely not on the cards, effects from China’s tumbling stocks could influence Chinese FDI and consumer wealth, causing investment delays and reduced consumption.
“China’s economic growth could be lower than expected, and this would affect the Thai economy, but hopefully the Chinese government’s recent measures [to curb a plunge in China stocks and other growth-boosting policies] will help alleviate the slowdown,” Ms Luxmon said.
The economies of China, the EU and the US are of equal concern, she said, because they are Thailand’s major trading partners, but China’s economic growth prospects generate the most anxiety because the US economy is starting to pick up and the EU needs further assessment.
And while a further slowdown in China’s economy would take the heaviest toll on Thai exports, Chinese tourists will still flock to Thailand because most come from China’s southern provinces and are less invested in the Shanghai stock market, she said.
The ADB in April forecast the Chinese economy to grow by 7.2% this year, but a downward revision will be announced at the end of this month.
One Asset Management chief executive Win Udomrachtavanich remains optimistic that the impact from the slowdown in China on Thailand will be limited.
Although equity markets around the globe have been shaken, northern Asian countries like China are still more attractive than most, Mr Win said.
“We don’t think the Chinese bourse’s correction will be a major concern,” he said.
“The ‘A’ share markets are dominated by retail investors at 80-90%, and they tend to overly react towards negative factors. We still believe the Chinese government can handle the current situation.”