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By Joe Horn The Sino-Thai Relationship from a Young Businessman’s Perspective September 19, 2005.

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Presentation on theme: "By Joe Horn The Sino-Thai Relationship from a Young Businessman’s Perspective September 19, 2005."— Presentation transcript:

1 by Joe Horn The Sino-Thai Relationship from a Young Businessman’s Perspective September 19, 2005

2 2 Overview of the Path Ahead Economy Social Issues Financial System The Environment Role of the State Sino-Thai Relationship

3 3 China’s Economy n China’s economy ranks 5 th in terms of total size n China has managed to push growth to above 8% for most of the past 25 years n China is the world’s factory, and is the largest consumer of many of the world’s commodities n China’s economy could rank 3 rd, behind USA and Japan n China has to sustain growth within a narrow band of ~ 7%-10% n China will become a major buyer of consumer products from around the world LaterNow

4 4 China’s Economy n Development focused in east coast n Economy fueled by cheap labor n China has tackled most problems by growing out of them n Development to move westwards n Abundance of cheap labor remains n Will need to couple cheap labor with efficiency and innovation LaterNow “Uphill bicycle” Rely on growth to solve problems Analogy “Shuttle reentry to earth with faulty instruments” Analogy

5 5 Social Issues n Effects of cultural revolution overcome, while effects of single child policy become visible n Problematic public health system, with more health problems around the corner n Unemployment caused by state- owned enterprise reform, but absorbed by private sector n Social inequality at its highest since the 1940’s n Effects of single child policy prominent, while single child policy is faded out n Major overhaul required to switch to user-pay system n Unemployment caused by increased efficiency, harder to absorb n Addressing social inequalities high on Party’s agenda LaterNow

6 6 Financial System n Closed capital account and inflexible currency n High savings rate provide liquidity n 60-70% of banking sector owned by “Big 4” state-owned banks, foreign participation minimal n NPLs due to state-owned enterprise reform, easily resolved n Steady liberalization of capital account and currency regime n Gradual reduction of savings rate n Share of private and foreign banks increasing, as clients attracted by quality of service n NPLs caused by banks’ lack of credit culture, harder to resolve LaterNow

7 7 The Environment n China is a country with scarce resources… ä < ¼ world average of water ä Twice as much desert as arable land ä Accelerating desertification n … but is nevertheless wasteful ä China represents 4% of world GDP vs 55% of cement consumption, 1/3 of coal, ¼ of steel Now Source: aquabio-tronic

8 8 The Environment n The government appears resolute on tackling environmental issues n Cleaning up China will create many business opportunities Later n China has become the world’s second largest polluter n Quantifiable cost 8-15% of GDP Now

9 9 Role of the State n Government to loosen grip on economy ä Privatization of government’s stake in state-owned enterprises to continue ä Emergence of large private enterprises ä Higher interest rates make it harder for state to control economy via directed lending n State will have to develop viable public health system, education system, unemployment support Later n Economy is closely managed by the state ä State retains high ownership in key sectors ä State-owned enterprises maintain firm grip on key sectors ä Directed lending by state- owned banks favor certain sectors/companies n Role of state with regards to welfare is currently in transition, and remains ambiguous Now

10 10 Sino-Thai Relationship n Political relation to continue on good track as little risk of hitting any “hot-spots” n China to become major geopolitical force in the region, its economy will drive inflation, interest rates, oil and commodity prices n ASEAN + 1 fully in effect 2010 n Head-on competitors on many export products, need to find complimentarity n Thailand to play the role of China’s door into ASEAN. Expect more Chinese investment in Thailand Later n Politically, as strong as ever n China is 3 rd largest export destination for Thailand ä Total exports reaching over US$17 billion in 2004 n China is the top FDI destination for Thai businesses ä Over 20% of Thailand outward FDI, on average US$200 million per year n Thailand and China exchange 1 million tourists each year Now

11 11 Sectors of Interest Electricity/ energy Commodities Logistics Sectors feeding larger economic growthSectors catering to city migration Pharma Insurance Medical facilities Sectors catering to ageing population Construction Furniture Education Fashion Sectors servicing single children

12 12 Sectors of Interest Sectors promoting sustainable development Renewable energy Air/ water treatment Retail Tourism Automobile Sector catering to growing middle class

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