Thailand losing battle for Japanese investment: Lessons from Vietnam

November 28, 2024

BANGKOK – Over the past decade, Thailand has been a primary destination for Japanese investment. Japan’s net foreign direct investment (FDI) in Thailand accounts for 22% of its total investment in Southeast Asia (second only to Singapore) and over 36% of Thailand’s total foreign investment.

Japan began investing in Thailand in the 1960s, becoming one of the first foreign countries to establish a presence in Southeast Asia. At the time, Thailand attracted Japanese investment due to its high economic growth rate (averaging 5% annually), low labour costs, robust infrastructure, and political stability.

However, rising geopolitical tensions, particularly the intensifying trade conflict between the US and China, have significantly impacted global trade and investment. Since Donald Trump’s first term as US president, trade between the US and China has declined from 16% of total US trade in 2016 to just 11% in 2023.

Foreign businesses in China have sought to mitigate risks by diversifying investments to other countries, a strategy widely known as “China Plus One”. Japan has also relocated investments out of China as part of this approach.

Comparing Japanese investments during 2014–2020 and 2021–2023, Japan’s net investment in China decreased by ¥0.3 trillion (-39%). In contrast, Japanese investments in Southeast Asia rose by ¥1.1 trillion (+33%), driven by the region’s proximity to China and its well-established supply chains.

CHART: THE NATION

However, Thailand is no longer the top destination for new Japanese investments in Southeast Asia. From 2021 to 2023, Vietnam overtook Thailand as the second-largest recipient of Japanese investments in the region after Singapore. Vietnam’s net investments from Japan surged