Wednesday
February 28, 2024

Importance of Thailand for India and China

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By: Barsha Hazarika, Research Analyst, GSDN

Thailand: source Internet

Competition between India and China has caused Southeast Asian countries to assess their respective geopolitical positions and importance as another great power struggle begins. With countries compelled to choose sides or straddle the line with perilous neutrality, we examine why Thailand may be necessary to both Asian powers.

Thailand’s location in Southeast Asia, bordering Myanmar, Laos, Cambodia, and Malaysia, makes it an important crossroads for trade and transit lines and a gateway to other countries in the region.

Thailand is Southeast Asia’s second-largest economy and a center for manufacturing, agriculture, and tourism. Because of its significant economic growth, it has become a key partner for several countries in the region and global trade and investment.

Despite recurrent political instability, Thailand maintains a largely stable political environment and strong connections with its regional neighbours. Its stability has made it an appealing destination for global investment and a trusted partner for other countries in the area, implying that giants of Asia have increased their efforts to persuade Bangkok’s leadership.

Southeast Asia’s economic growth over the last four decades demonstrates relatively extended periods of unbroken, vigorous growth. This was one of the factors that led India and China to strengthen their ties with the area after the Cold War ended. Southeast Asia’s overall growth rate was 7.6 percent from 1991 to 1996. However, the Asian financial crisis, which began in July 1997 with the devaluation of the Thai baht, put in motion an economic and financial catastrophe that engulfed the Thai economy and every other critical Southeast Asian economy, with repercussions felt worldwide. The Thai economy was in disarray after the financial crisis, with output and investment contracting, poverty rising, and the government forced to accept an IMF bailout package as the financial system was bankrupt due to a lack of confidence in the country’s economic institutions.

One of the critical driving causes for Thailand’s connectivity goal, according to a 2015 analysis by the Asian Development Bank Institute, is the country’s shifting economic structure. Like many other nations in the region, Thailand serves as a central manufacturing and assembly hub for sectors such as autos and hard disc drives. This attracts investments from global corporations in Japan, the EU, and the United States.

China’s interest in Thailand

Thailand, known as Siam before 1939, has faced and lived with power imbalance for generations as a small country near China.

Thailand is significant for China because it is one of the countries involved in China’s Belt and Road Initiative (BRI). The Belt and Road Initiative (BRI) is a vast infrastructure and development project to expand China’s economic and political influence across Asia, Africa, and Europe. Thailand’s Southeast Asian position makes it a significant hub for China’s marine trade and a gateway to other countries in the region. Furthermore, Thailand has a well-developed infrastructure, such as ports, railways, and highways, which China may utilize to transfer goods and commodities from its southwestern region to other parts of the world.

Furthermore, Thailand is viewed as a potential partner for China in its efforts to counteract the United States’ influence in the region. China’s military presence in the South China Sea has increased tensions with numerous Southeast Asian countries, including Thailand. However, China has been seeking to strengthen its relationship with Thailand by providing economic and military aid and fostering tighter relationships with the Thai government.

Concerned about the potential consequences of military tensions in the Taiwan Strait, small and medium-sized Northeast Asian firms have considered Thailand a cheaper, more regionally connected production base. Over the years, Thailand has emerged as an attractive investment hub for growth-hungry Chinese firms.

According to the Thailand Board of Investment (BOI), Thailand received 365.2 billion baht (US$ 10.1 billion) in foreign investment applications between January and August, 73% more than the same period last year, led by Chinese firms that committed 90.3 billion baht, up nearly three-fold year on year, and it’s predicted to rise. According to central bank data, net Chinese direct investment in Thailand increased 56% yearly to 25.1 billion baht in the first six months of 2023. Thai exports to China have also increased, from US$ 1.82 billion in 1995 to US$ 37.7 billion in 2021, owing to China’s expanding middle class and Thailand’s increasing competitiveness as a manufacturing and agricultural powerhouse.

India’s interest in Thailand

In 2022, both countries celebrated the 75th anniversary of their diplomatic relations. Thailand’s “Look West” policy has complemented India’s “Act East” program, bringing the two countries closer together. Both countries have participated in various international forums, including ASEAN, the East Asia Summit, BIMSTEC, the Indian Ocean Rim Association, the Asia Cooperation Dialogue, and the Mekong Ganga Cooperation, as India and Thailand have maritime borders in the Andaman Sea.

The relationship between India and Thailand is familiar; they have historical people-to-people and economic ties that help further cement the relations between them. The two countries’ relations were formalized in 1947. Thailand initially had little to offer India, and Cold War politics placed them in opposing camps of two superpowers, the United States and the Soviet Union. However, with the end of the Cold War and the Asian economic boom of the 1970s, trade and commercial connections between India and Thailand have grown, and several agreements have been struck between the two countries.

Thailand’s importance has grown substantially in recent years. For the past two decades, India has worked to expand its economic, social, political, and cultural ties with Southeast Asian countries. The value of trade between India and ASEAN countries has surpassed 70 billion US dollars.

It is not just Myanmar’s neighbor but also shares its discomfort with China.  If one looks at trade and commerce, it reached an all-time high of USD 15 billion in 2021-22, thus achieving the status of India’s fourth-largest trading partner in ASEAN.

The India-Myanmar-Thailand trilateral highway project will aid in connecting South Asia with Southeast Asia. It is expected to expand land connectivity through Northeast India and Southeast Asia. For the development of India’s Northeast, the trilateral highway is the crucial entry point to ASEAN that facilitates trade, commerce, and people-to-people links.  The Trilateral project is critical not only for the road but also for the Dawei Project. Dawei, a port city in Myanmar, is being developed jointly by Myanmar and Thailand as a deep sea port and special economic zone. India also proposes connecting the port to Chennai, providing an alternate marine route to Southeast Asia and minimizing reliance on the crowded Malacca Strait, reducing shipping time.

Thailand assisted India in its fight against COVID by supplying oxygen and medical supplies to combat the devastating second wave. This exemplifies the evolution of the Indo-Thai relationship from economic cooperation to a solid bilateral connection.

Both countries have endured the wrath of terrorism in the past, and potential threats loom. This has caused both countries to recognize the importance of a strong and practical counter-terrorism strategy.

Lastly, the Indian Ocean and the Bay of Bengal are part of India and Thailand’s common maritime boundaries. Its geopolitical importance in the Indian Ocean and its long-standing vulnerability to sea-borne threats have forced India to maintain surveillance, ranging from the Malacca Straits to Madagascar, to secure its vital strategic interests.  As a result, India must work with its neighbours to ensure its economic and geopolitical well-being. Conversely, Thailand is a critical regional player due to its central location in Southeast Asia. To sustain its economic success, it must expand its market, which necessitates a stable regional climate. As maritime neighbours, India and Thailand face similar security concerns from rising non-traditional challenges such as terrorism, maritime communication security, and piracy. Given their geographical location, India and Thailand are uniquely positioned to shape the Indo-Pacific policy.

Conclusion

Thailand is strategically significant to China and India due to its Southeast Asian position, well-developed infrastructure, and potential as a partner in growing their respective economic and political power in the region.

Thailand is currently undergoing a new economic growth paradigm. The recent economic development model, ‘Thailand 4.0,’ was introduced by Prime Minister Chan-o-cha in 2016. This developmental model seeks to free the country from the middle-income trap,’ the ‘inequality trap,’ and the ‘balanced trap,’ and to propel the country towards the status of a ‘first-world country,’ one that is stable, affluent, and sustainable in the context of the fourth industrial revolution. Thailand’s economy is expected to increase due to the implementation of its new economic policy model, dubbed “Thailand 4.0,” which, according to the World Bank, contributes to ongoing improvements in domestic business mood. Furthermore, the World Bank’s Thailand Economic Monitor for 2018 forecasts 4.1% growth, indicating that Thailand’s economic recovery is spreading.

This allows India to expand its economic collaboration with Thailand in IT, pharmaceuticals, auto components, machinery, and alternative energy. Such investment incentives are also available to Chinese enterprises seeking fertile ground for expansion both at home and overseas.

The national dream of Thailand of the ‘golden peninsula,’ in which it would serve as Southeast Asia’s economic hub, the agenda is still part of modern-day Thai national planning, with connectedness at the center of its economic policies.

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