Overview of risks when investing in Thailand

With the Belt and Road initiative, more and more Chinese enterprises are seeking investment opportunities in Thailand, which is one of the pivot countries on the outbound waterway. Recent statistics published by the Board of Investment of Thailand (BOI) show that total foreign direct investment in Thailand amounted to 141 billion baht (about US$4.2 billion) in the first six months of 2017, representing a 24% increase compared to last year, and China ranks as the third-largest investor. Facing such unprecedented opportunities, Chinese entrepreneurs should also realize the existence of various risks and understand their characteristics, which will lead to better prevention and mitigation of risk.

The Report on Analysis of Country Risks, published by China Export & Credit Insurance Corporation (Sinosure Country Risk Report), evaluates investment risk factors in different countries and gives out grades from one to nine. Both the 2015 and 2016 versions of Sinosure Country Risk Report rated Thailand as fifth grade, which means “moderate political and economic conditions, business environment relatively unstable, moderate risk level for international environment”. In general, the political and legal risks of investment in Thailand include the following major aspects.

Political risks

Political stability. The attitude towards foreign investors changes with the ruling parties and officials of a host country. It is not rare to see foreign-invested projects that have been properly approved being questioned or even rejected by newly formed governments.

Therefore, entrepreneurs’ ability to seize the right opportunities for negotiation of contracts, closing of deals and implementation of projects is very important. The military is very influential in Thailand and plays a major role on the political scene. Compared to the frequent changes of government before the military coup in 2014, the national order in Thailand has become relatively stable, but foreign investors should always stay alert and cautious when investing in projects or undertaking EPC [engineering, procurement and construction] works in Thailand.

It is strongly advised that Chinese enterprises should conduct extensive due diligence investigation on the local legal environment before making investment decisions, and ensure completeness and legal compliance of contracts, approvals and all other project-related documents in order to minimize the risks of being halted by a newly formed government for compliance defects.

Wang Jihong is a partner and Xu Yibai is an associate at Zhong Lun Law Firm