Chinese manufacturers redirect investment to Thailand as Vietnam loses favour

Chinese manufacturers are redirecting capital towards Thailand as the China-plus-one hedge that once ran chiefly through Vietnam loses commercial edge. Figures from the Chinese Ministry of Commerce put Chinese investment in Thailand at US$5.33 billion in 2025, against US$2.46 billion in Vietnam. For Asia-Pacific asset owners, that gap is a capital allocation fact, not a diplomatic mood. Narrower profits at home, still-expanding Chinese capacity and a hedge against tariffs and geopolitical risk are pushing firms into neighbouring production bases. Thailand has taken the larger share of the latest outlays. The question for investors is whether that capital is building durable local industry or renting a label.

The pipeline is broader than a few headline plants. In the first half of 2026, Thailand's Board of Investment approved incentives for 321 mainland China-funded projects, about a quarter of all projects approved in the period. The associated capital was 45.7 billion baht, equivalent to 9.7 billion yuan or US$1.4 billion. From 2021 to 2025, mainland Chinese investment totalled 132.5 billion yuan, growing 56 per cent a year on average. Thailand has entered the top four Asean recipients of Chinese foreign direct investment, alongside Singapore, Indonesia and Malaysia. Investors can no longer treat the country as a residual manufacturing sleeve. The project count is large enough to matter for local banks, industrial landlords and component suppliers.

Commissioned plants offer clearer evidence than announcements. Donald Low, professor of public policy at the Hong Kong University of Science and Technology, argues that Thailand can absorb electronic components, machinery, electric vehicles and solar panels because its manufacturing base is more advanced than Vietnam's. China-funded factories can join supply chains already being extended into Asean, using infrastructure that is already in place. BYD's Rayong plant is the case officials cite: a US$490 million factory with annual capacity of 150,000 units and 10,000 Thai workers, which produced its first electric vehicle in 2024. A similar Vietnamese project, unveiled the same year, is still delayed. Staffed capacity supports revenue and local procurement. Announced capacity can be deferred. Investors underwriting Chinese offshore capex should price the difference.

Vietnam's weaker pull is a cost and governance story, not merely Thailand's gain. Low points to assembly saturation, infrastructure bottlenecks and rising labour costs, with US levies added on top. Chinese goods found to have been diverted through Vietnam face punitive tariffs of 40 per cent. He describes a local view that tariff-avoidance investment transferred little technology, did little to upgrade the economy and may have squeezed domestic firms. Vietnam, as he frames it, is no longer a low-cost, low-income economy and is looking to raise its industrial and technological capability rather than take more low-end assembly. Mandates that still use Vietnam as the default China-plus-one sleeve should assume the cheapest form of the hedge is harder to scale.

Thailand has a reasonably mature, sophisticated manufacturing base that is more advanced than Vietnam's.

— Donald Low, professor of public policy at the Hong Kong University of Science and Technology

The error is to treat Thailand as a clean substitute. A trade official in the Board of Investment's China office, not authorised to speak and declining to be named, said some firms still want a made-in-Thailand label and see the country as the next Vietnam. The access argument is concrete. Bangkok has 17 free trade agreements covering 24 partner economies, and a reciprocal arrangement with Washington that includes possible zero-duty treatment for certain products. Vietnam's US trade surplus is twice Thailand's, and its transshipment rules are stricter. The official described US scrutiny of Thailand as relatively lower, though origin checks still apply. Shandong Bailong Chuangyuan Bio-tech made the arbitrage explicit in a December exchange filing, saying it had raised 748 million yuan to expand Thai operations on the back of raw-material costs, tariff advantages and a way around trade barriers. That is a use of proceeds investors should underwrite, not a footnote.

Origin enforcement has already produced findings, and Bangkok is tightening its own checks. Dan Martin, an international business adviser at Dezan Shira & Associates, warned that Washington can use Section 301 probes to look past the stated country of origin, and that Thailand can come under the same scrutiny as Vietnam. The Department of Foreign Trade has stepped up monitoring of Chinese-origin goods and is drawing watch lists for sectors exposed to circumvention, according to Thai media reports. Bangkok is also working with Washington on supply-chain inspections and stricter origin certification, to limit retaliation and to protect local producers. Last year, Thailand's Anti-Dumping and Subsidy Consideration Committee found that certain Chinese steel pipes had been slightly altered or shipped through the country to evade duties. In February, the US Department of Commerce found that pipes finished in Thailand from Chinese steel billets had circumvented anti-dumping duties.

What should endure is capital tied to local and regional sales. Siwadee Suksawate, commerce consul at the Thai consulate in Guangzhou, cites a market of 66 million people and says newer inflows are drawn by real advantages and are less likely to be transshipment. She notes tax and other incentives for hi-tech electronics in the Eastern Economic Corridor. Liu Quanlei, chairman of the Chinese Enterprises Chamber of Commerce in Thailand, sees more firms putting sales in Thailand and Asean first, led by Huawei and ZTE, by Haier, Midea and TCL, and by BYD and Chery. Officials and business leaders in Thailand, Vietnam and China say an extended trade truce could reduce the incentive to divert exports. Investors should underwrite localisation and origin compliance, not the next label.