Thailand's Industrial Struggle: Factory Closures and Economic Challenges

Thailand's manufacturing sector is facing deep challenges due to factory closures and rising competition from cheap Chinese imports. The closures have heavily impacted the economy, leading to significant job losses. Prime Minister Srettha Thavisin is under pressure to revive the economy and meet his GDP growth targets.

When Chinese electric vehicle maker BYD opened its first Southeast Asian factory in Thailand earlier this month, the nation of 66 million people basked in the limelight and won praise for its industrial vision.

However, what received less attention was the announcement by another big automobile manufacturer - Suzuki Motor - just a few weeks earlier that it will shutter a Thai factory that produced as many as 60,000 cars annually. The Japanese automaker's move mirrors those by scores of other companies in Southeast Asia's second-biggest economy, which is bearing the brunt of cheap imports from China and a slide in industrial competitiveness due to factors including rising energy prices and an aging workforce.

In the past year, nearly 2,000 factories in Thailand have closed, disrupting a manufacturing sector that contributes nearly a quarter of the country's gross domestic product (GDP). This is exerting pressure on the $500 billion economy and workers like Chanpen Suetrong.

The 54-year-old spent nearly two decades at V.M.C. Safety Glass factory in Samut Prakan province, inspecting automotive and building products. She was unexpectedly informed in April that the factory would shut down, leaving her without a job.

"I don't have any savings. I have hundreds of thousands of baht in debt," said the sole breadwinner in her family of three, which includes an ailing husband and a teenage daughter. "I'm old, where will I go to work? Who will hire me?" Monchai Praepriwngam, a director at V.M.C. Safety Glass, declined to comment on the factory's closure.

The manufacturing sector's troubles have left Prime Minister Srettha Thavisin, who took office last year, struggling to fulfill his promise of achieving 5% average annual GDP growth over his four-year term, up from 1.73% in the past decade. "The industrial sector has slumped and capacity utilization has fallen below 60%," Srettha told parliament last week. "It is clear that the industry needs to adapt."

Supavud Saicheua, chairman of the National Economic and Social Development Council, said Thailand's decades-long manufacturing-driven economic model is broken. "The Chinese are now trying to export left, right and center. Those cheap imports are really causing trouble," Supavud told Reuters.

"You have to change," Supavud said, advocating for Thailand to refocus on producing goods not exported by China and strengthening its agriculture sector. "No ifs or buts." ADAPT, OR CLOSE.

Factory closures between July 2023 and June 2024 increased by 40% from the preceding 12 months, according to the latest Department of Industrial Works data, which has not been previously reported. Consequently, job losses surged by 80% during the same period, with over 51,500 workers left unemployed, data shows.

The opening rate of new factories has also slowed, with large factories closing while small ones open instead, Kiatnakin Phatra Bank's research division noted in June. The impact has reached key industries driving the economy, including the automotive sector.

Smaller manufacturers are also grappling with rising production costs due to steep energy prices and relatively high wages, said Sangchai Theerakulwanich, chairman of the Federation of Thai SME. "We compete with multinational businesses," he said. "Manufacturers unable to adapt quickly had to close or switch to making different products."

From this month, Thailand is imposing a 7% value-added tax on imported goods priced below 1,500 Thai baht ($41), mostly from China. However, these imports remain exempt from customs duties. Nava Chantanasurakon, vice chairman of the Federation of Thai Industries, said his group has urged the government to address tariff evasion amid the U.S.-China trade war and high barriers facing some Chinese goods in other regions.

For now, the economy is projected to grow by only about 2.5% this year, contributing to widespread dissatisfaction with Prime Minister Srettha's performance. Srettha defends his party's controversial and delayed 500 billion-baht handout scheme, arguing it is essential: "It will be strong medicine to revive the economy."

Without a steady income, Chanpen said she is waiting for the 10,000 baht ($276) handout that 50 million Thais will be eligible for under the plan. "The economy was bad during the previous government," she said, "but even after the new government took office, the economy remains just as bad." ($1 = 36.33 baht)

(Additional reporting by Pasit Kongkunakornkul, Panu Wongcha-um and Thanadech Staporncharnchai; Writing by Devjyot Ghoshal; Editing by Muralikumar Anantharaman)

(With inputs from agencies.)