Prasarn Trairatvorakul: Thai economy - tapping the untapped
opportunity
Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the inauguration
of the RMB Clearing Bank in Thailand and 5th year celebration of the ICBC (Thai), Bangkok,
22 April 2015.
* * *
1. Your Excellency Ambassador Ning Fukui, Chairman Jiang, Chairman Hu, Dr. Zhigang Li,
distinguished guests, ladies and gentlemen, thank you for the invitation to give a few remarks
on the occasion of the inauguration of ICBC (Thai) as the official Renminbi clearing bank
here in Thailand.
2. This development of the RMB Clearing Bank in Thailand and certainly also to
celebrate the 5th Anniversary of ICBC (Thai) is in fact the result of the long and
continued ties between China and Thailand. It has marked another important step in
further development of our financial ties following the signing of the Renminbi - Thai Baht
Bilateral Swap Agreement and the Memorandum of Understanding with the People's Bank of
China on the establishment of the Renminbi Clearing Arrangements in December 2014.
3. Today, I was invited to talk about Thai economy. So I am pleased to have the opportunity
to share with you some of my observations on the current state of the Thai economy. Let me
humbly start from some of the challenges we are facing, the economy is currently reeling
from both internal and external headwinds. Internally, the stagnant technology and labour
readiness has so far taken a toll on Thailand's economic expansion. Also, the improvement
of domestic consumption and investment are slow due to a cautious private sector's
confidence. Externally, Thai economy is affected by the current uneven recovery of global
economy which hinders Thai export growth. However, Thai economy is expected to recover
up to 3.8% GDP growth this year from a mere 0.8% last year. Private consumption and the
government expenditures will play key roles for 2015 outlook.
4. On the bright side, Thailand has been riding on the back of China's economic
prosperity. In other words, the regional prospect has pinned on improvement in
intraregional trades of goods and services. China's economic figures may be somewhat lower
than its historical average, as a result of the sluggish recovery of the global demand and the
continued structural reform in China. However, China growth rate is still at a satisfactorily
high level. And China has yet remained an important engine in support of the growth of the
Thai export sector. For the past few years, Thailand has become one of the most
popular destinations among Chinese tourists, thanks to popularity of the 'Lost in
Thailand' movie. Each week, hundreds of flights between Thailand and China have been
landed to accommodate the increasing interest of Chinese visitors. We value this
considerably as it not only helps boost the tourism and services sector of the Thai
economy, but also tightens our cultural connections.
5. As we all know, Chinese economy has become a necessary ingredient for our
secret recipe for the past decade. Since China has been an important economic partner of
Thailand and the region. To further strengthen these flows of trades and investments, close
financial cooperation is the key. The Renminbi / Baht Bilateral Swap Agreement (or BSA in
short) and the establishment of the Renminbi Clearing Bank here in Bangkok are the great
examples.
6. The BSA is designed to be a backstop liquidity facility, which will help boost
confidence of the private sector in using the local currency in trade and investment
settlement. After the first signing of the BSA in 2010, the use of the Chinese Renminbi in
trade and investment settlement between Thailand and China has grown remarkably. The
share of trade settlement in Renminbi quadruples between 2010 and 2014. As for investment
settlement, the share climbs up dramatically from a mere 1% in 2010 to 14% in 2014. In spite
of the rapid increases, the volumes are still small compared to other major currencies.
7. The Renminbi Clearing bank is the next important step from the BSA. Its Renminbi
settlement mechanism is the sequencing plan of the Renminbi scalability. I could see its
merit which fundamentally paves the way for further Renminbi internationalization as well as
the role of Renminbi in global financial markets that will become increasingly prominent in the
near future.
8. There is, however, some room for improvement in order to realize the full economic
benefits between Thailand and China. With this regard, we need to further promote
financial cooperation and more trade and investment facility arrangements such as today's
initiative.
Ladies and gentlemen,
9. I would like to emphasize that there are still untapped opportunities abound along
the whole spectrum of exchanges and cooperation between Thailand and China. As to
give you food for thought, the followings, are a few examples. Firstly, regional supply
chain network. Our region has already been regarded as high quality and cost-effective
production bases. However, there is still gap to be filled and opportunity to be grasped. Since
many economies in the region are not well integrated into the regional production networks.
According to the latest World Bank's Trading Cross Borders indicator which measures the
time and cost of trading across borders, the newer member of ASEAN all score well below
the ASEAN average. This is mainly due to the huge gaps in infrastructure.
10. Here, we can narrow the gap by mobilizing our region's abundant financial resources into
infrastructure investment. In this regard, China plays a strategic role in the progression of
infrastructure development in our region. The improved infrastructure will allow regional
economies at various stages of development to participate in regional production
networks in line with their evolving comparative advantage. Infrastructure investment is
costly but it is worth the expense.
11. Secondly, research and technical development. Although China has emerged into the
world centre stage in just recent decades, China is now a world class technology lab who
owns the broad range of advanced technologies. These range from the "Maglev" train in
Shanghai to the supercomputer "Tianhe-2" which is ranked as the world's fastest computing
system in 2014. Thailand, on the other hand, is currently facing technology bottleneck which
has taken a toll on Thailand's competitiveness and growth. According to the UNESCO,
Thailand's combined public and private investment in research and development (R&D) is
around 0.25 percent of GDP which falls behind China's 1.7 percent.
12. Arrays of China development plans are coincided with Thailand's research
interest. According to China's Medium to Long-Term Plan for Development of Science and
Technology (2006 - 2020), China's topics of strategic research include (1) agriculture
science (2) green technology and (3) public health. These topics are in line with the agendas
of Thailand's National Science, Technology and Innovation (STI) Master Plan. This provides
opportunities for joint scientific works based on common interests and medium-term visions.
Thailand could leverage on China experiences and knowhow through technology
transfer. In this light, Thailand could step ahead at the faster pace to achieve her
goals. This is yet another great complement to tap.
13. Lastly, Thailand as gateway to ASEAN. Thailand is strategically positioned at the heart
of the ASEAN region with relatively well-developed infrastructure as reflected in the World
Bank's latest Logistics Performance Index. Thailand has, therefore, been a natural gateway
that links extra-regional economies to ASEAN markets. Thailand has advantages to be a hub
for regional headquarters of multinational companies; a hub for logistics and distribution
activities; a sourcing hub for regional markets; and a financial hub for regional markets.
However, to remain competitive as a regional hub is a challenging task.
14. To remain as the preferred hub and entry point of the region, we perceive an
opportunity for investment from China which has the advantage in capital, construction
capacity and technology. As the advantage of low cost factor of productions is rapidly
declining, China is facing an urgent need to re-orient supply chains through Thailand to enter
ASEAN and the Greater Mekong Subregion (GMS) in particular. China and Thailand should
therefore make every effort to grasp this opportunity and construct win-win solutions for both
sides.
Ladies and gentlemen,
15. Let me conclude that China economic prosperity and advancement provides wide range
of untapped opportunities for Thailand. They are right here where we are now, in our region.
We should seize it and not miss it. And I am confident that so long as we work hand in hand
with China, unite together, and embrace the merit of economic integration, the synergy of the
two will surely give its fruit on the growing tree.
Thank you.