The Determinants For Inward FDI From China To Thailand

Since the Chinese economic reform in1978, China has attracted an increasing inflow of foreign funds. One of them is FDI, which is much needed by developing countries to boost economic growth. Thailand, as a developing country which strongly needs FDI, sees China as a fierce competitor with comparatively lower labor cost and a larger market size. However, in the past20years, Thailand remains attractive to FDI investors, including Chinese investors.Hence, this research attempts to find out what attracts Chinese FDI into Thailand. First, this paper looks at the trend of Chinese FDI flowing into Thailand over the past20years and compares the differences between the period prior to2005and from2006to2010. Next, the author analyzes past empirical studies to determine how Thailand attracts FDI during these periods. The analysis reveals5important factors which support Thailand to become an attractive FDI destination. These factors are1) government policies,2) openness of Thai economy,3) membership in a world economic group,4) abundant of natural resource and5) financial liberality.This paper finds that the most important inward FDI determinant for Thailand is the government policies, i.e. dual track policy and cluster policy. In addition, government organizations such as BOI, Board of Investment in Thailand, also help to boost inward FDI to Thailand. These government policies imply that the Thai government welcomes foreign investors and is ready to provide them with many benefits in support of their investment in Thailand. At the same time, the other determinants provide further support to encourage inward FDI and boost the Thai economy.Finally, this paper will look specifically at the natural rubber industry, where there’s a strong demand from China and therefore, attracts many Chinese investors. China’s strong demand for natural rubber is due to the extremely high growth of the automobile industry in China. And Thailand, which is now the largest exporters of natural rubber, has comparative advantage in high quality and cheap price.The findings of this paper will be of interests to foreign investors looking to invest in Thailand especially for Chinese investors. It will serve as a guideline to potential investors on the trend of foreign investment in Thailand and how to invest in Thailand. Furthermore, the Thai government can apply the findings of this paper to attract much more foreign investors.