Japanese Capital Investment Plan 2010 (Manufacturing Sector)

Note: The figures above show aggregation of corporations who responded in the year 2009 and 2010
Source: Survey of Business Sentiment on Japanese Corporations in Thailand for the Spring, H1/2010 by JCC, Bangkok

In its Spring 2010 poll of Japanese corporations in Thailand, the JCC’s Economic Survey Team found that businesssentiment rose generally in the second half of 2009 and picked up more steam in the first half of 2010.

Of 375 companies responding, 74% noted increased confidence during January-June 2010, up 3 points from the previous six months. That follows what was a huge jump in positive sentiment from 15% in H1 2009 to 71% in H2 2009.

Although growth since early 2009 has been substantial, the percentage of companies reporting that business will improve in the second half of 2010 decreases to 59%. Many respondents simply anticipate business holding at current levels in the coming months. Only 10% of companies said they expect a decline in H2 2010.

As a strong sign of recovery, the amount of planned investment capital for 2010 is up 74.7% y-o-y among respondents. A total of 148 companies said they increased their investment outlay this year. The transportation equipment and electrical/ electronic machinery industriesare leading the way. Expansion of operations is the main factor fueling the increase.

While there were some strong performers in 2009, only 33% of companies surveyed said their sales increased last year. For 6% of respondents, growth rates actually exceeded 20%. Most of the enterprises with substantial growth were in the food and electrical/electronic machinery industries.

DI by Industry ( Business sentiment Deteriorating-Improving)

Source: Survey of Business Sentiment on Japanese Corporations in Thailand for the Spring, H1/2010 by JCC, Bangkok

But optimism is running high that 2010 will be much more fruitful, as a robust 83% of companies project sales expansion this year compared with 2009. More than one-third predicts a jump of greater than 20%.

Sixty-three percent expect net profits to increase this year, well above the 36% figure in 2009.

Further indicating a recovery trend, 62% of companies anticipate their whole-year exports in 2010 to exceed those in 2009. When comparing H1 2010 with H1 2009, 58% reported increases. As for their opinion of the global economic picture in 2010 and beyond, Japanese manufacturers in Thailand regard India, ASEAN and China as growth markets. Thirty-four percent of respondents expressed concerns over the European market and 19% did the same about the market back home in Japan.

Twenty-one percent of companies surveyed concentrate on domestic sales in Thailand and do not export.

In 2009, ASEAN was the main sourcing center of parts and materials for 62.4% of respondents. This included Thailand for 51.4%. Japan was the biggest source for 28.5% of companies. Planned procurement for 2010 shows the shares of ASEAN and Thailand increasing and Japan’s falling.

Strong Thai-Japanese Partnership

With projects totaling 77.38 billion baht in 2009, Japan remains the top single-country investor in Thailand. In the 2004-2009 period, the Thailand Board of Investment approved nearly 750 billion baht worth of projects by Japanese investors. In 2009, trade between the two countries reached 1.39 trillion baht. Thailand’s main exports to Japan include auto parts, integrated circuits, data processing machines, prepared poultry and preserved fish. The principle imports from Japan are machinery and parts, iron and steel, integrated circuits, and auto accessories.

Boasting a current membership exceeding 1,300 companies, the JCC has a history of more than 50 years in Bangkok.

Even with the warm ties, the chamber’s spring survey also looked at challenges and concerns. Competition, price wars and rising costs were indicated by companies as the main challenges facing them in 2010. But the political unrest in Thailand during April and May this year was also a concern. Some 47% of companies said that situation had an impact on their business operations.

Respondents in the chemical, machining and trading industries also said the Central Administrative Court’s 2009 suspension of projects in the Map Ta Phut Industrial Estate and nearby Rayong had an effect on their businesses. The court halted 76 projects worth hundreds of billions of baht at Map Ta Phut in eastern Thailand, saying they had not yet met health and environmental requirements under Section 67 of the Constitution.

In August this year, the Office of Natural Resources and Environmental Policy and Planning released the muchanticipated list of harmful activities that are subject to screening before projects suspended by the court over pollution concerns can resume. Publication of the list is now expected to provide clear guidance for investors on health and environmental impact assessments and other requirements. The Administrative Court in Thailand has since ordered permits issued and cleared the way for all but two of the projects under injunction to proceed.

Companies in the survey were also asked to indicate ways the Thai government can make the investment environment more effective for them. The top suggestions were to continue improving customs procedures, soften the tax system particularly for corporate taxes, and enhance opportunities for human resources development in Thailand.