- The Thai economy expanded by 3.5% year-on-year (YOY) in Q2 2016, surpassing the 3.2% increase in the previous quarter, primarily due to strong growth of public investment and private consumption.
- In August 2016, Thailand registered a 0.29% YOY rise in inflation, the fifth consecutive increase amid higher food prices. The Bank of Thailand (BOT) kept its policy rate unchanged at 1.5% in September 2016 after two cuts in H1 2015.
- Thailand’s Board of Investment launched its Seven-Year Investment Promotion Strategy in 2015, with priorities given to high-tech and creative industries, and service industries aligned with the development of a digital economy.
- China’s cumulative investment in Thailand almost tripled from US$1.08 billion in 2010 to US$3.08 billion in 2014, while that from Hong Kong rose from US$7.4 billion to US$11.2 billion in the same period.
- Thai exports shrank 3.1% YOY in Q2 2016 to US$51.0 billion due to sluggish external markets and commodity price declines, with imports plunging by 7.8% YOY in the same period.
- Hong Kong’s exports to Thailand dropped by 4.8% YOY to US$3,565 million in the first seven months of 2016, while imports from Thailand fell by 3.6% YOY to US$5,938 million over the same period.
Current Economic Situation
Thailand is the second largest economy in the 10-nation ASEAN, following Indonesia. Service is the largest sector of the economy with a GDP share of 52%, followed by 38% in industry, with agriculture constituting 10% of GDP. Major sectors include electronics, car making, transport, storage, communication, finance and real estate.
The Thai economy expanded by 3.5% YOY in Q2 2016, surpassing the 3.2% increase in the previous quarter, thanks to an 10.4% increase in public investment resulting from the government’s stimulus measures. In the same period, the economy also benefitted from a rise in private consumption, which accelerated to 3.8% from 2.3% in Q1 2016, supported mainly by increased spending on durable goods such as passenger cars. For 2016, GDP growth is expected to strengthen modestly to 3% on higher public investment and private consumption despite softer exports amid global demand weakness.
The Bank of Thailand (BOT) kept its benchmark interest rate unchanged at 1.5% in September 2016 after two 0.25% cuts in March and April 2015, stating that monetary conditions were sufficiently accommodative to support economic growth. In August 2016, Thailand registered a 0.29% YOY rise in inflation, the fifth consecutive month of increase amid higher food prices.
To mitigate the impact of the daily minimum wage of THB300 (around US$10) introduced since January 2013, the Thai government has cut the corporate income tax (CIT) in stages, first from 30% to 23% in 2012 and further to 20% in 2013. To stimulate economic recovery, the Thai government has announced that the CIT will be permanently kept at 20% effective from 1 January 2016.
After a review of the THB300 daily minimum wage in June 2015, the Thai Ministry of Labour announced to scrap this daily minimum by the end of 2015, reverting to the old system of basing minimum wages on the cost of living and economic development. In August 2016, the government launched a new schedule of minimum wages covering 20 skilled occupations in five industries: electronics; automotive parts and spares; automobiles; gems and logistics.
Thailand is one of the world’s most important electronics manufacturers. Major exports of Thailand include computers and parts, automobiles and parts, machinery and equipment. Its main imports include crude oil, parts of electronics and electrical appliances, chemicals, automobiles and parts. With softer global demand, exports contracted by 3.1% YOY to US51.0 billion in Q2 2016. The decline in exports was mainly attributed to the drop in agricultural commodity prices, depreciation of key trading partners’ currencies, end of the Generalised Scheme of Preferences (GSP) for Thai exports to the EU from 2015 as well as the slowing China, the second largest export market of Thailand. In the same period, import dropped by 7.8% to US$41.3 billion as import prices of crudes, petroleum, steel and chemical products fell.
In the first half of 2016, Thailand’s top three trading partners were China, Japan and the US. During the same period, Hong Kong became Thailand’s fourth largest export market.
Thailand maintains pro-investment policies to encourage foreign direct investment (FDI), which is allowed in all sectors except for projects related to national security, agriculture and fisheries, and mass media, while there is restriction on foreign ownership in specific sectors, such as telecommunications, banking, or insurance, under specific laws.
In Thailand, the principal government agency responsible for promoting investment is the Office of the Board of Investment of Thailand (BOI). To promote inward FDI, the BOI offers a range of tax incentives, including an eight-year CIT exemption and 50% tax reduction for five years after tax holidays, double deduction from the costs of transport, electricity and water supply, a 25% deduction on the cost of installation or construction of facilities as well as exemption of import duty on raw or essential materials imported for use in production for export. Eligible investments include seven sectors, namely agriculture and agricultural products; mining, ceramics and basic metals; light industry; metal products, machinery and transport equipment; electronic industry and electrical equipment; chemical, paper and plastics; services and public utilities. More information on Thailand’s investment environment and regulations can be found at the website of the BOI.
In 2015, the BOI launched its 2015-2021 Investment Promotion Strategy with the aim to enhance national competitiveness by promoting high value-added industries, investment clusters, development in the southern provinces, special economic zones (SEZs) in border areas and Thai overseas investment. Under the new strategy, tax incentives and non-tax incentives (e.g. guarantees or protection measures) are granted to investors. Priorities are given to investment in high-tech and creative industries, service industries that support the development of a digit economy and industries that utilise local resources.
The country’s Civil and Commercial Code was amended in 2008 to facilitate investment, cutting the company registration process from nine to one day, and reducing the minimum number of shareholders from seven to three. In the World Bank’s Ease of Doing Business Report 2016, Thailand ranked 49th globally and fifth in East Asia & Pacific.
According to the BOI, approved foreign investment in the first seven months of 2016 plunged 50% YOY to THB 149.6 billion (US$4.3 billion). During this period, new FDI applications jumped to 510 projects from 260 projects last year. Japan was the largest FDI source, followed by China, Australia, Singapore and Indonesia. The bulk of FDI was invested in the manufacturing of computer, electronic and optical products.
China’s cumulative FDI in Thailand surged from US$1.08 billion in 2010 to US$3.08 billion in 2014, while Hong Kong’s total investment expanded from US$ 7.4 billion to US$ 11.2 billion in the same period.
To meet its WTO commitments, Thailand has been reducing tariff rates and the number of items subject to import tariff. In January 2005, the government significantly cut import duties on a wide range of items. For example, the import tariff for raw materials was reduced from 7% to 1%, intermediate products from 12% to 5% and finished products to 10%. In 2014, the average MFN applied tariffs were 31.3% and 8.3% for agricultural and non-agricultural products respectively.
Thailand is a member of ASEAN, which signed an agreement with China to establish the China-ASEAN Free Trade Area (CAFTA) in 2010. A concrete step towards establishing CAFTA came in November 2004, when China and ASEAN hammered out the Agreement on Trade in Goods (TIG) to remove tariffs on a range of agricultural and industrial products. The TIG agreement, which covered tariff-lines representing more than 95% of China-ASEAN trade, took effect from July 2005 to phase in tariff reductions. The Trade in Services Agreement also came into force in July 2007. CAFTA was formally established in January 2010, and over 90% of the products traded between China and Thailand are now tariff-free. In the first six months of 2016, China was Thailand’s largest trading partner, with bilateral trade falling 1.1% YOY to US$30.7 billion.
In November 2007, the free trade agreements (FTA) between Thailand and Japan came into effect. This FTA allows 97% of Japanese exports to Thailand and 92% of Thailand's exports to Japan to be tariff-free within 10 years. In 2015, Japan was Thailand’s second largest import source and ranked 3rd among the country’s export destinations. In addition, Thailand has secured FTAs with China, Australia, Japan and New Zealand. Besides, Thailand has embarked on negotiations of FTAs with several economies, including the US, India, the EU and European Free Trade Association (EFTA). The Thailand-Peru FTA came into effect since January 2013 while FTA with Chile was signed in October 2013. An FTA between Thailand and Pakistan is expected to be concluded by 2017.
Thailand has signed double taxation agreements (DTAs) with 60 countries/territories, including Australia, the Chinese mainland, France, Germany, the US, Japan, Korea and Hong Kong. It has also entered into a Comprehensive Double Taxation Agreement (CDTA) and Investment Promotion and Protection Agreement (IPPA) with Hong Kong.
Hong Kong's Trade with Thailand
Thailand was Hong Kong's 13th largest export market and the 9th largest import source in the first seven months of 2016. Hong Kong’s exports to Thailand decreased by 4.8% to US$3,565 million, while imports from Thailand fell by 3.6% to US$5,938 million. Hong Kong ran a trade deficit with Thailand amounting to US$2,373 million.
Major export items were telecom equipment & parts (24.4% share), pearls, precious & semi-precious stones (12.6%) and semi-conductors, electronic valves & tubes, etc. (8.7 %). On the other hand, major imports items included semi-conductors, electronic valves & tubes, etc. (24.3% share), computers (17.4%) and telecom equipment & parts (9.7%).
Hong Kong-Thailand Bilateral Economic Relations
As of 1 June 2015, there were 27 local offices and 5 regional offices set up by Thai companies in Hong Kong. For example, Bangkok Bank has a local presence to facilitate Chinese customers in doing business with Thailand and the rest of Asia. In addition, there are many small and medium enterprises (SMEs) established by Thai people in Hong Kong, mainly engaging in retailing business of electronics, processed food and furniture.
In the first seven months of 2016, a total of 354,178 Thai people visited Hong Kong, up 26.6% from 279,723 in the year-earlier period.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.
 ASEAN consists of 10 members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.