Asian AngleThailand’s ‘China plus one’ successes mask a middle-income quagmire

Thailand is often hailed as a poster child for the “China plus one” strategy, its industrial estates filled with new factories and its policymakers touting investment in electric vehicles and electronics. Thanks to its established industrial infrastructure, a domestic market of nearly 100 million people and its well-integrated presence in global automotive and electronics supply chains, Thailand is naturally positioned to attract advanced manufacturing firms seeking diversification away from China. For a nation long mired in the dreaded middle-income trap, these recent shifts seem to offer a chance to escape and join the ranks of developed economies. International media and financial institutions routinely spotlight Thailand’s rising levels of foreign direct investment, especially in the burgeoning EV sector. These upbeat narratives, buoyed by promising FDI figures and low unemployment rates, paint a picture of technological progress and a bright economic future. The surface impression is one of technological progress and strong growth in the years ahead. But a closer examination of other indicators – particularly wage growth, productivity and structural constraints – reveals a more complex reality. Will the influx of foreign capital truly lay the foundation for broad-based economic expansion, higher wages and productivity gains? Or does it risk worsening the very structural constraints that have long held the Thai economy back? Thailand’s position as a regional manufacturing hub, especially in automotive assembly and electronics, makes it a logical destination for corporations grappling with rising costs in China, trade tensions and supply chain vulnerabilities exposed by the pandemic. The evidence of this shift is clear: Thailand’s Board of Investment reported a decade-high in investment applications last year, spanning digital infrastructure, advanced electronics and the EV value chain – an upturn spurred in part by government incentives. Labour market indicators, such as a low unemployment rate hovering around 1 per cent, further suggest a resilient economy benefiting from the “China plus one” strategy, at least in the short term. This narrative begins to unravel when viewed through the lens of manufacturing wages, however. Despite the influx of investment, average manufacturing wages have remained stubbornly flat. According to the Bank of Thailand, nominal wages peaked in mid-2023 at 14,613 baht (HK$3,200) per month, only to stagnate or even slip slightly to 14,530 baht by the third quarter of 2024. This stands in stark contrast to neighbouring Malaysia, for example, where increased “China plus one” investment has driven considerable wage growth for skilled workers. Structural headwinds Thailand’s ability to upgrade its economy by leveraging “China plus one” investment is hampered by enduring structural challenges including a rapidly ageing population, persistent skills mismatches (such as a lack of digital fluency), limited bargaining power for workers, and a significant low-productivity informal sector. Indeed, in some cases, the very investments Thailand is attracting may exacerbate these weaknesses rather than alleviate them. Multinational corporations, for all their capital and technology, often keep high-value functions such as research and development or complex engineering in their established bases, relegating countries like Thailand to lower-value assembly roles. This cost-optimised model provides little incentive for firms to invest in long-term workforce upskilling beyond their immediate needs. Thailand’s experience with ‘China plus one’ serves as a cautionary tale Advanced components and technologies are typically imported, with Thai workers confined to the final, less lucrative stages of production. This perpetuates demand for lower-skilled labour, suppresses wages, and stunts the development of a domestic hi-tech ecosystem. Thailand’s automotive sector illustrates the ambiguous impact of the “China plus one” strategy. While the country marked a milestone with its first export of 660 EVs in April, this achievement has been overshadowed by the precipitous decline of its traditional vehicle industry. The Federation of Thai Industries reports that vehicle production last year declined by nearly 20 per cent to a four-year low, with domestic sales plunging over 26 per cent to their lowest point in 15 years, a trend that continued into 2025. The shift to EVs brings not just opportunity but disruption. EV manufacturing, with its lower mechanical complexity, demands less direct labour input per vehicle. The transition threatens not only jobs but also the extensive network of suppliers tied to internal combustion technology, many of which struggle to adapt to the different requirements of EV production, increasing the risk of obsolescence and job losses in the traditional vehicle sector. What must change Thailand urgently needs to address a number of structural weaknesses if it is to take full advantage of “China plus one” investment. Its logistics infrastructure ranks only 34th globally, according to the World Bank’s 2023 Logistics Performance Index, trailing behind key competitors such as Malaysia. This undermines its appeal to multinational firms that prioritise reliability, particularly in high-value industries. Meanwhile, the skills gap, worsened by an ageing demographic, restricts the type of investments Thailand can attract. With more than half its workforce in the informal sector and a continued reliance on low-skilled services, the nation’s upskilling efforts face formidable obstacles. Decades of underinvestment in education, vocational training, and research and development have left large segments of the workforce ill-prepared for higher-value roles. This persistent deficit risks locking Thailand into assembly-line functions, stifling productivity improvements and value-chain advancement. Thailand’s experience with “China plus one” serves as a cautionary tale. Promising FDI statistics and EV success stories can obscure wage stagnation, industrial upheaval and subdued growth prospects – as reflected in the IMF and World Bank’s recent downward revisions of Thailand’s 2025 growth forecasts to a modest 1.8–2 per cent. Instead of breaking free from the middle-income trap, Thailand could fall further into its grasp. The wider lesson for developing nations is clear: attracting foreign investment is necessary, but not sufficient, for sustained economic development. Without comprehensive structural reforms – expanding and improving education, aligning vocational training with future industries, investing in domestic R&D, modernising logistics, and creating pathways from informal to formal employment – Thailand’s developmental gains may prove fleeting. Donald Low is a senior lecturer and professor of practice in public policy at the Hong Kong University of Science and Technology. Thomas Lam Chun-kai is a Master of Business Administration student at the same university.

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}FDI figures hide the painful truth: an ageing workforce, structural challenges and low-value assembly threaten economic stagnation

FDI figures hide the painful truth: an ageing workforce, structural challenges and low-value assembly threaten economic stagnation