The China model with different outcomes: Lessons from Kazakhstan and Thailand

Very few development stories have exerted a stronger gravitational pull on policymakers this century than China’s rise. For middle-income countries struggling with slowing growth and premature deindustrialisation, China appears to offer a comforting lesson: the state can plan, infrastructure can catalyse upgrading and industrial transformation need not depend on the conditionalities of international institutions. In an era of fading faith in the global economic system, this is an attractive proposition. 

Kazakhstan and Thailand have each internalised this lesson, albeit from very different starting points. Kazakhstan, a resource-rich and sparsely populated economy, aims to reduce its dependence on hydrocarbons. Thailand, by contrast, is a middle-income country struggling to move beyond assembly towards innovation. Their structural challenges differ, but over the past decade their development strategies have converged around a common theme of leveraging China’s capital, technology and geopolitical weight.

Astana has pushed multiple state-to-state projects involving domestic and Chinese state-owned enterprises (SOEs), capitalising on the country’s position between Europe and Asia and its proximity to China’s western provinces. In a similar vein, the Thai authorities have also leveraged China’s capital and technological outflow following the 2013 announcement of the Belt and Road Initiative (BRI). In addition to costly infrastructure with a long gestation period such as the Eastern Economic Corridor, Chinese firms have been invited to invest in future-oriented industries such as electric vehicles and solar panels.

On the surface, both countries appear to embrace a more interventionist state, abandoning the orthodoxies of the past. However, this reading confuses visibility with substance. Despite ambitious plans, deep pockets and expanding ties with China, neither has achieved sustained structural transformation. The reason is not a lack of ambition nor a shortage of capital. Rather, it is a misunderstanding of what China actually did.

China’s industrial policy, while trailing the precision of Japan, Korea and Taiwan during the immediate post-World War Two decades, has not been a polite invitation to firms to upgrade. China’s approach is more like a high-pressure system of rewards and sanctions. Local governments compete ferociously. Export markets impose unforgiving benchmarks. Firms are protected, but only conditionally. More importantly, commercial underperformance has been tolerated so long as it produced a wide enough learning spillover.

Neither Kazakhstan nor Thailand has replicated this discipline. In Kazakhstan, industrial policy is mediated through large SOEs and institutions that face soft budget constraints. Loss-making ventures are restructured, refinanced or quietly absorbed, often by leveraging the deep pockets of Samruk-Kazyna, its sovereign wealth fund. According to research by the Asian Development Bank, the Kazakhstani state made at least 24 fiscal interventions between 2009 and 2023, including both conventional bailout assistance targeted at specific banks, and more unconventional support measures. What is increasingly clear is that industrial policy has become a mechanism for stabilising incumbents rather than picking winners.

Thailand, by contrast, relies less on state ownership and more on incentives. Thai policymakers are generally viewed positively by the international business community for their hands-off approach in industrial policy formulation, preferring to encourage corporate behaviour by offering generous tax breaks. It was not until the 2000s that explicit policies targeted at specific industries were rolled out by the Thai government. Notwithstanding this marginal improvement, there has been a lack of an effective mechanism to enforce, monitor and evaluate the outcomes of such policies. According to Veerayooth Kanchoochat, who is now running as a prospective prime ministerial candidate in the upcoming Thai general election, this overly market-friendly approach is characterised as one laden with too many “carrots’” and almost no “stick”.

Both Kazakhstan and Thailand place tremendous faith in infrastructure. Railways, ports, logistics hubs and special economic zones feature prominently in their development narratives. This, to some extent, mirrors China’s experience, where infrastructure growth played a critical role in knitting together markets and supporting industrial clusters. However, once again, form is mistaken for function.

In Kazakhstan, infrastructure often substitutes for industry rather than supporting it. Logistics corridors and dry ports generate activity, but thus far the spillovers appear modest. Industrial zones exist, but without dense supplier networks or export discipline to further uplift the overall industrial ecosystem. While there are some bright spots, such as Kazakhstan’s growing demand for capital goods, which helps firms to engage in other productive responses, more in-depth research on this topic must be conducted before a conclusive position is made.

China built infrastructure to serve existing or rapidly emerging industrial ecosystems. Even when projects appeared excessive, such as the various “ghost towns” outside of the main cities, they were generally embedded in a broader process of urbanisation, manufacturing expansion and export growth. Redundancy was tolerated, at least until recently, because learning and reallocation followed.

Relative to Kazakhstan, Thai infrastructure is more functional, but it too risks becoming a stand-alone strategy. Connectivity is expected to attract investment almost automatically. Yet without strong domestic learning mechanisms, infrastructure alone cannot generate technological capability. Our preliminary survey on the much-touted Thai-Chinese Rayong Industrial Zone (TCRIZ), a joint project by a consortium of Chinese and Thai firms, shows that while the rhetoric surrounding it often emphasises industrial upgrading and regional integration, in practice the zone operates as a semi-autonomous space, insulated from local economies and institutions. Chinese firms at these sites often operate within insulated labour regimes, with Chinese expatriates dominating managerial and technical roles while locals are confined to low-skilled work. Cultural and linguistic barriers, coupled with limited regulatory oversight, further reinforce these divisions.

At heart, the bottleneck is political. China’s growth has not been painless. Lest we forget, in the years leading up to the 2008 Olympics, property developers dominated business headlines, buoyed by an infrastructure-led boom. Today, very few of those firms retain comparable influence. As Beijing shifted its priorities towards fiscal discipline and “high-quality growth”, the commanding heights of China Inc has shifted towards electric vehicle manufacturing and digital platforms.  The rise of firms such as BYD and Tencent is mirrored by the quiet retreat, consolidation or outright disappearance of once-dominant players.

This reordering was not abstract. Firms failed, jobs were displaced, capital was written down and entire regions lost favour. What mattered was not the absence of disruption, but the state’s capacity to manage and enforce it. Creative destruction, in other words, does not occur spontaneously through market forces alone. It must be politically organised, with the state willing to withdraw protection, absorb short-term pain, and override vested interests in pursuit of longer-term upgrading.

Contrast the Chinese experience to what is transpiring over in Kazakhstan and Thailand. They seek upgrading but fear dislocation, with powerful incumbent interest often holding the veto card. Kazakhstan’s elite coalition is built around resource rents and SOEs. As radical industrial reallocation threatens established distributions of wealth and influence, diversification has been pursued cautiously, narrowing the space for experimentation and reducing desired learning effects. 

Thailand’s incumbents are different but no less influential. Family conglomerates, ranging from agrifood (e.g. Charoen Pokphand Group (CP Group)) to banking (e.g. Bangkok Bank), continue to dominate Bangkok’s commercial landscape. Coupled with a largely conservative bureaucracy, the result is an economic strategy defined by stability and incrementalism. Upgrading is of course desired, but only so long as it does not unsettle the existing order.

China’s lessons are often misread. It is not that the state should do more. It is that the state should do harder things. Amongst other things, it should impose performance criteria, push infrastructure, and cull industries that are no longer helpful in promoting catching-up. These are inherently difficult.

In other words, Kazakhstan and Thailand are copying China’s scaffolding, ranging from plans, industrial zones and bureaucratic manoeuvring, but skirting around its uncomfortable core: relentless pressure on firms and institutions to perform. Their muddled-through strategies are rational, even understandable. However, development, as history repeatedly shows, is not a comfortable process.

Until both countries (and others who harbour similar ambitions) move beyond superficial imitation towards genuine institutional emulation, their China-themed policy ventures will continue to produce glossy projects, ambitious white papers, but ultimately disjointed outcomes.

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