The ranks of young women working inAt KV Electronics factory on the outskirts of Bangkok, young women struggle to fill a backlog of orders, making components for industrial machinery.

Owner Katiya Greigarn is a worried man in spite of the buzz of activity. He fears that Chinese competition could wipe out the Thai electronics sector.

KV has been feeling the pressure, adjusting by diversifying its product line, improving quality, cutting manufacturing runs and targeting industrial products rather than consumer goods.

Yet China’s rapid technological progress, low labour costs and economies of scale are keeping the squeeze on KV. “If the customer wants to compare us on price, I say ‘Don’t bother, it’s a waste of time’,” says Mr Katiya.

The problems faced by companies such as KV help explain trade tensions that have flared between China and some of its neighbours in spite of the generally positive impact of Chinese demand for raw materials on the regional economy.

The impact of China’s growth is ambiguous in countries with a significant manufacturing sector, including Thailand, Malaysia, South Korea and Taiwan. According to a study of trade data by Standard Chartered, the export production profiles of Vietnam and Indonesia vary significantly from China while those of Thailand and Malaysia overlap much more.

South Korea and Taiwan overlap less but depend more on high value-added manufacturing, which is likely to be among China’s next targets as it moves up the value chain. Countries competing more directly with China have been at the forefront of central bank intervention in markets to limit the appreciation of their currencies against the renminbi.

“Our clients in Thailand and Malaysia have very strong concerns about the competitiveness of Chinese exports,” says Tai Hui, the Standard Chartered head of Asia research in Singapore.

Exports to China from other Asian manufacturing countries are soaring, however, albeit flattered by comparison with a year ago when there was a collapse of trade during the financial crisis. South Korean and Taiwanese exports in December to China were each up more than 90 per cent. Malaysian exports to China jumped 52.9 per cent in November. This suggests that far from damaging its manufacturing neighbours, China is emerging as an important source of alternative demand.

Qu Hongbin, HSBC’s China chief economist, says the figures reflect a trend for Chinese imports of Asian manufactured goods to rise as Beijing switches its economic focus from investment to consumption in an effort to rebalance its economy.

Components for assembly into products for re-export to the west now make up less than 50 per cent of China’s imports of Asian manufactures, says Mr Qu, reflecting a gradual replacement of the export- driven economic model by a new one in which Chinese consumers will be much more important.

“China has already become an increasingly important source of growth for exports from other countries,,” he says.

That process will almost certainly be economically beneficial for Thailand and the other Asian exporters . But it is not much help to KV Electronics, which must find a way to fend off Chinese rivals.

Mr Katiya says the answer is to move into even more specialised manufacturing. The company is also diversifying into services, repairing industrial electrical and electronic goods and offering bespoke design and small production runs for Thai clients. He hopes that suppliers from China will find it harder to compete.