Thailand’s industrial sector is on the brink of crisis because it is not growing fast enough and faces fierce competitors. Rapid advances in technology, competition from China, and a planned increase in the daily minimum wage could all lead to a massive collapse. Local businesses are calling on the government to take action against the dumping of low-priced Chinese imports to prevent more factory closures.

According to the Nation newspaper, data from the Thai Industrial Engineering Bureau and KKP Research Center show that a total of 488 factories closed in the first five months of this year, an average of more than 97 per month, compared with an average of 57 factories closed per month in 2021 during the coronavirus epidemic, the situation is not optimistic.

VMIVME-7807-414001 Overall, from 2021 to May this year, it is estimated that more than 3,500 factories have been shut down, mainly in the plastic products, leather products, rubber and rubber products, food, machinery and mechanical products, metal products, wood processing and wood products industries. Thai public television reported that most of the closures were large factories, while the new factories that opened were small factories.

Many factories have closed

Two Japanese automakers, Subaru and Suzuki, have announced that they will close their production bases in Thailand by the end of this year and next year, respectively, due to falling demand for cars. From the beginning of last year to the first quarter of this year, 1,700 factories closed, a testament to the seriousness of the situation.

Due to the economic downturn, rapid technological change, slower-than-expected global economic recovery and fierce competition from Chinese companies, many local factories are at risk of closure. “When big companies close, thousands of suppliers are affected,” said Tanit Solat, vice president of the Thai Federation of Trade and Industrial Employers.

He was referring to Japanese automakers and other big companies pulling out of industrial real estate and shutting their doors in Thailand. The Office of Industrial Economics’ Manufacturing Production Index (MPI) for December 2022 to March 2024 shows that manufacturing activity has experienced a prolonged contraction. KKP Financial Group’s Bodard Research Center is concerned about the rising number of plant closures, which accelerated in the second half of last year.

An average of 57 plants will close each month in 2021, rising to 87 in 2022 and almost doubling to 159 in the second half of 2023. “From the beginning of last year to the first quarter of this year, 1,700 factories closed and 42,000 workers were laid off,” KKP Research said.

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While it is impossible to assess the true situation from the number of companies closing alone, the number of new factories opening also suggests a slower pace of growth than in the past. According to KKP, the net number of new plants – openings minus closures – fell to 50, down sharply from 150 new plants per month.

VMIVME-7807-414001 This data points to the poor health of Thai industry. Some industries, such as leather, rubber products, agribusiness, wood products and machinery production, are in serious trouble. Most of the factories that closed were large companies, while the new factories that opened were small companies. “In general, small factories are financially vulnerable, while large factories have more capital,” KKP explained.

“The closure of large factories reveals structural flaws in Thai industry,” the research center said. Factory closures have coincided with a rise in bad loans, formally known as non-performing loans, on the balance sheets of financial institutions. The rise in bad debts suggests that the contraction in manufacturing is not a temporary problem. KKP said the closure of large factories highlighted structural flaws in Thai industry.

Who can survive?

For the foreseeable future, some industries may survive, while others may not. KKP Research divides Thai industry into three categories. The first includes production that follows the economic cycle, meaning that production is likely to resume if demand picks up. This group accounts for about 47% of value-added manufacturing production. The second group is Mired in unusually high inventories, which can only be recovered if they are reduced.

The third category is the victim of structural problems, such as hard drive manufacturing that has been replaced by solid-state drive technology, or steel production that has been affected by cheap imports from China. According to KKP Research, this group accounts for 35 percent of value-added manufacturing.