Another Xi term sits well with business sector

The 20th National Congress of the Chinese Communist Party (CCP) started on Sunday in Beijing, with Xi Jinping likely to be re-elected as the country's president during meetings behind closed doors at the Great Hall of the People.

Another Xi term sits well with business sector
Business

Another Xi term sits well with business sector

The re-election of China's president is expected to result in the continuation of many of the country's economic policies

published : 17 Oct 2022 at 06:37

newspaper section: Business

writer: Post Reporters

People watch an outdoor screen showing the live speech of Chinese President Xi Jinping during the opening session of the 20th Chinese Communist Party Congress in Hangzhou in China’s eastern Zhejiang province on Sunday. (AFP photo)

The 20th National Congress of the Chinese Communist Party (CCP) started on Sunday in Beijing, with Xi Jinping likely to be re-elected as the country's president during meetings behind closed doors at the Great Hall of the People.

The outcome of the congress is expected to be revealed within a week, but any adjustments to the nation of 1.4 billion people as well as any economic benefits Thailand might gain from the Xi administration could play out over the next five years.

Business leaders expect improved tourism, trade and investment to be driven by China as the country aims to become a global leader in technology, but its conflicts with economic powers remain a concern.

Visitors make their way along Nanjing Road on Oct 2 in Shanghai. China's economy is projected to grow by 3% this year and 5% in 2023. Bloomberg

MORE GOOD THAN HARM

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said despite China's economic slowdown, attributed mostly to its zero-Covid policy, Mr Xi is expected to be confirmed to his third five-year term in office.

Mr Sanan said the move should result in a continuity of policies regarding trade, investment and tourism, which would benefit Thailand.

"Once President Xi is re-elected, we expect he will initiate an easing of the measures related to Covid-19 and allow Chinese and international tourists to travel in and out of the mainland," said Mr Sanan.

"This is the key variable that will allow the Chinese economy to rapidly recover to a growth rate of 4-5% a year, with Thailand's economy expected to benefit once China rebounds."

He said the chamber established a special Sino-Thai task force through cooperation with Han Zhiqiang, the Chinese ambassador to Thailand, to study trade and investment potential between the two countries.

The study is scheduled to be completed by the end of this month, then disseminated at the Thailand-China Investment Forum slated before the Apec 2022 meetings in November.

Regarding tourism, Mr Sanan said he believes Chinese tourists will return to Thailand once Beijing reopens the country's borders. However, the number of visitors per year will tally no greater than 5 million, below the total prior to the pandemic, he said.

The chamber is optimistic about increased Chinese investment, especially in supply chain-related businesses, medical equipment, industry and real estate in Thailand. Chinese electric car manufacturer BYD recently decided to invest to build an electric vehicle production plant in the country.

China is Thailand's largest trading partner, with bilateral trade between the two countries surging 30.2% in 2021 to US$104 billion.

Of the total, exports from Thailand made up $37.2 billion, an increase of 24.8% from 2020, while imports were valued at $66.5 billion, up 33.6%.

In terms of investment, China was the second-largest foreign investor in Thailand last year after Japan.

In 2021, China submitted 112 projects for investment applications with the Board of Investment valued at $1.21 billion, which was an increase of 25% from the previous year.

Vikrom Kromadit, chairman of the Thailand-China Business Council, said once the CCP Congress comes to a close, China is expected to be more settled, with both Chinese citizens and foreigners expected to be allowed to travel to and from China.

"We expect China's reopening will happen on a gradual basis as the administration wants to ensure Covid-19 infection rates do not increase," said Mr Vikrom.

On the economic front, he expects China to accelerate its economic transformation to spur growth following its slowdown, with GDP likely to slump to a 20- or 30-year low this year.

Mr Vikrom said Chinese outbound investment is expected to increase as products made in China bound for the US and Europe face barriers from higher import tariffs imposed by the two economies.

Thailand is likely to become an investment destination for China if the former can come up with favourable investment incentives, he said.

A man rides his bicycle along an alley in Beijing adorned with national flags on Friday, ahead of the 20th National Congress of the CCP. REUTERS

OPTIMISTIC OUTLOOK

Surawat Akaraworamat, vice-president of the Association of Thai Travel Agents, said tour operators in Thailand and China are holding out hope for good news from the Chinese government on loosening its borders, particularly with Mr Xi booked to attend the Apec Summit in Bangkok next month.

China could hear some advice from Thailand at the summit on how to maintain safety standards for tourists if they are permitted to take overseas trips, he said.

The larger concern is rising airfares, recording an average of 40,000-50,000 baht because of restrictions on international flights, said Mr Surawat.

The number of slots permitted for Thai and Chinese carriers operating routes to Chinese cities is limited to just 15 each per week at present.

"Hopefully, if China allows outbound tourism to restart, the restrictions on flights will be lifted to some extent, which could help reduce the price to a more acceptable level," he said.

Mr Surawat said even if China's travel restrictions were eased, there would not be an instant recovery.

Tour operators would need at least a month to prepare land services, particularly as most of the hotels and restaurants that used to target Chinese travellers have been shuttered for years, he said.

"Most of the hotels and restaurants targeting only Chinese guests by offering lower prices have remained closed for almost three years now. Some of them are permanently closed. This situation will impact tour operators that have to control operational costs," said Mr Surawat.

Moreover, most hotels in the South that pivoted to Thai tourists and independent travellers from Europe do not offer group prices for tour agencies, making it difficult to maintain a low package price if this situation does not improve, he said.

"Independent travellers from China will be the first group to visit Thailand if the government eases travel restrictions within this year as we expect," he said.

Tassapon Bijleveld, the executive chairman of Thai AirAsia, said if the Chinese administration remains in control, the country should consider reopening its borders as threats from Covid-19 are less severe than in previous years.

"Most countries already returned to normal practices and faced no impact. This should help prove that travel can resume as normal," said Mr Tassapon.

The US-China trade war broke out during the administration of Donald Trump.

ANALYST INSIGHTS

If Mr Xi, 69, remains in power for another five years, China can continue to develop itself as the world's leader in digital technology, despite heavy competition from the US, said Saharat Chudsuwan, head of marketing and wealth advisory at Tisco Financial Group.

"Under Mr Xi's leadership, China's economic policy would continue to develop according to the country's five-year strategic plan [2021-2025]. It is unlikely there would be any policy change in his next term," he said, noting that China has a strong leadership selection system.

"I believe after the pandemic infections ease and China produces a Covid-19 mRNA vaccine, Beijing will be ready to open the country in the second quarter of next year. That would benefit Thailand in terms of tourism," said Mr Saharat.

China's economy is projected to grow by 3% this year and 5% in 2023, he said, though geopolitics still need to be monitored.

Under China's social and economic strategic plan lasting until 2025, Mr Saharat said there are some highlights investors must focus on.

The plan emphasises promoting the quality of growth, "quality development" and sustainable growth.

The plan also focuses on basic research to drive innovation such as artificial intelligence, quantum technology and semiconductors.

In addition, environmental and energy goals have been set, requiring carbon neutrality to be achieved by 2060. The goals would benefit companies in the clean energy, hydrogen economy and electric vehicle (EV) sectors, he said.

China developed its economy with an emphasis on domestic circulation, said Mr Saharat. The goal is to reduce dependence on the international market and focus on expanding its domestic market, including lowering import dependence and producing more goods to serve the domestic market.

China's planning also emphasises stability as the country becomes an "ageing" society and people have fewer children, with the government focusing on technology development, including cybersecurity and security of data, food, energy and statistics, he said.

"Whoever the president is, they should continue with this plan," said Mr Saharat.

He said under its growth strategy, four business groups are likely to experience windfalls. The first is consumer products.

According to the 14th National Strategy Plan of China, the proportion of people living in urban areas should increase to 65% of the total population, up from the current level of 60%. This plan should support the growth of consumer goods in China, said Mr Saharat.

The second group is biotechnology companies.

"The increasing life expectancy of the Chinese population and the ageing society will have very positive impacts on the healthcare business as healthcare spending tends to increase substantially," he said.

The proportion of healthcare expenditure in relation to overall consumption in China is significantly less than that of the US, even though China's population is four times the size of the US population. That is partly attributed to low access to treatment and health insurance in China compared with the US, said Mr Saharat.

The third group is semiconductors, a key component in computer displays, mobile phones and electronic circuits in EVs.

"The Chinese government's push for technology development and innovation over the past several years should continue for the next five years under the national strategic plan, with the semiconductor business expected to benefit a lot," he said.

Mr Saharat also shared positive views about clean energy and EV businesses as the Chinese government has set a goal that by 2025, the unit energy consumption per unit compared to GDP must be reduced by 13.5% when compared to 2020 baseline.

"That would directly benefit clean energy-related businesses, especially solar, wind and other renewable energies, as well as the EV manufacturing industry."

AI DRIVE

Kulthirath Pakawachkrilers, president of the Thai E-Commerce Association, said the current leadership policy in China centres on strengthening small and medium-sized enterprises (SMEs) for inclusive growth, not merely ensuring big tech firms increase their wealth.

China is looking to create 200 industrial clusters of SMEs during its 14th five-year plan, which started last year, she said.

China has designated 9,000 "little giants", or SMEs that specialise in strategic sectors, such as manufacturing and semiconductors, Ms Kulthirath said.

"This support encourages those SMEs to export and join collaborations with other partners in the digital area. Thailand is one of its preferred countries," she said.

"The Chinese want their partners to commit to them and take sides, rather than stay neutral. Partners who work with the US may lose business opportunities or face sanctions."

Thai businesses may need to make a strategic move in terms of the areas in which they will work with the Chinese, said Ms Kulthirath.

Artificial intelligence (AI) is a digital field China is investing heavily in as it wants to be a global AI leader in 2030. This is an area in which Thailand could seek collaborations, she said.

Thanachart Numnonda, executive director of the IMC Institute, a research and tech training provider, agreed that China will continue to commit to develop AI technology.

"The Chinese government has a clear action plan as an AI nation, in competition with the US," he said.

Ongoing geopolitical tension between the US and China is expected to persist, with China scaling up the production of semiconductors independently, relying less on American firms, said Mr Thanachart.

Thailand could indirectly benefit from the tension as the country is one of the preferred destinations for manufacturers that may want to move out of China, he said.

CONFLICTS LIE AHEAD

The key task for Mr Xi is whether he can successfully deal with economic and geopolitical conflicts, says Federation of Thai Industries chairman Kriengkrai Thiennukul.

Mr Kriengkrai is confident Mr Xi will be re-elected, but trade tension with the US and continued animosity with Taiwan require monitoring, he said.

The US-China economic conflict broke out during the administration of Donald Trump, which launched a trade war claiming China conducted unfair trade practices.

Washington imposed tariffs on Chinese products, causing Beijing to retaliate by imposing tariffs on US products.

Mr Kriengkrai said it is hard to predict what new measures Mr Xi would implement in response to the US restricting semiconductor exports to China amid an ongoing global shortage.

According to media reports, the US Department of Commerce's Bureau of Industry and Security recently announced new export controls in order to limit China's ability to produce high-tech military systems.

This means American companies must seek permission if they want to sell certain advanced computing semiconductors to China.

This will affect information technology and EV industries in China, he said.

"We are closely monitoring this issue. We are greatly worried about it," said Mr Kriengkrai.

The issue comes as the Xi administration pushes ahead with "Made in China 2025", a key state-led industrial policy aimed at increasing the industrial value chain.

Beijing wants to make the country a world leader in 10 key industries, notably robotics, information technology and AI by 2025, according to media reports.

In Mr Kriengkrai's opinion, this policy will benefit the Chinese economy and eventually help drive the global economy.

"Once the Communist Party votes to appoint Mr Xi as president and Chinese politics becomes clearer, then we will see new economic policies," he said.

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