Ammon News - UDON THANI, THAILAND (Reuters) - Steel girders jut from the low skyline of the Thai city of Udon Thani near the Laos border as workers lay cement for a new shopping mall, one of many illustrating a boom in the Thai economy beyond the bright lights of Bangkok.

The malls, factories and construction sites in Thailand's northeast are emerging alongside its farms as a potent economic fuel in one of Asia's top emerging markets. Growth in Thailand, Southeast Asia's second-biggest economy, has begun to slow, but the economy of the northeast is in the grip of a boom.

The economic renaissance of "Isaan", Thailand's poorest and most populous region, has coincided with expansionary policies - from wage increases to farm subsidies - that are enriching an area at the heart of a "red shirt" protest movement that backed Prime Minister Yingluck Shinawatra in a 2011 election.

As a new middle class emerges, investors and companies are taking note. CLSA emerging markets guru Chris Wood cites the region in explaining long-term bets on Thailand.

"There is a macroeconomic ramping up of the northeast," he said.

The potential may never be realized if a crucial 2.2 trillion baht ($71 billion) infrastructure program becomes a casualty of the feuding between Yingluck's ruling Puea Thai Party and its opponents.

But if the plan went ahead, as is generally expected, it would change the entire economic structure of the northeast, said Rahul Bajoria, an economist at Barclays Capital.

"It's the next entry point for investors and consumers - if they link it up to China, it becomes the entry point to Thailand, not Bangkok," he said.

"But it's been difficult for the bureaucracy to execute programs because they don't know who will be in power in a year or two."

Economic growth in the region reached 40 percent from 2007 to 2011, against 23 percent for the country and just 17 percent for greater Bangkok.

Monthly household income rose 40 percent between 2007 and 2011, the biggest jump of any Thai region. Interviews with businessmen and investment data suggest the trend is continuing.

The number of private investment projects in the northeast rose 49 percent in 2012 from the previous year, with the total amount invested more than doubling to $2.3 billion, according to the Bank of Thailand. Much of it is concentrated in property - from high-rise condominiums to town houses and shopping plazas.

"The northeast has a large population, a dense population, so the income is big," said Naris Cheyklin, chief financial officer of Central Pattana Pcl CPN.BK, referring to the one-third of Thailand's 68 million people who live there.

In April, Central Pattana opened a 2.75 billion baht ($88.7 million) mall in Ubon Ratchathani, near the southern tip of Laos, their third in the region.

POLITICALLY DRIVEN BOOM

Politics explains part of what is going on.

Yingluck's government brought in a nationwide minimum wage of 300 baht ($10) a day in January. In some Isaan provinces, that was an increase of 35 percent, among the biggest gains in the country, on top of a nationwide 40 percent rise in April 2012.

Many workers, such as those building the 168 Platinum Mall in Udon Thani, are happy to return to the northeast for wages that are now on a par with Bangkok's.

Isaan's "red shirts" are among the staunchest supporters of Yingluck's brother, former prime minister Thaksin Shinawatra, who was ousted in a 2006 coup but influences policy from self-imposed exile in Dubai.

While in power from 2001, his populist policies - from virtually free healthcare to low-interest loans to the rural poor - made him a hero in Isaan.

The red shirts formed the core of a movement that paralyzed Bangkok in April-May 2010 in protest at the government of then Prime Minister Abhisit Vejjajiva and the forces that ousted Thaksin - the traditional Bangkok elite including top generals, royal advisers, business leaders and old-money families.

Those protests were put down with force, but the red shirts got their revenge in the 2011 election and now see the rewards.

"A lot of the boom is upcountry, and that is politically driven, partly, because that's where Thaksin's supporters are," said Wood at CLSA.

The poverty rate in Thailand fell to 13 percent of the population in 2011 from 58 percent in 1990, according to the World Bank, but per capita gross domestic product in Isaan in 2011 was still less than an eighth of that of Bangkok at $1,600 a year, according to the state planning agency, the NESDB.

That is changing. Government policies have pushed up purchasing power by subsidizing agricultural products such as rice, tapioca and rubber. Under Yingluck's government, farmers have been paid 15,000 baht per metric ton of unmilled rice, a 50 percent premium over market prices, according to exporters.

"During the Thaksin and Yingluck era, a lot has been given to Isaan, and the amount of money being poured into the region is significantly more than previous governments spent," said Ittiphol Treewatanasuwan, mayor of Udon Thani, once a U.S. Air Force base for anti-communist operations in Southeast Asia.

Lives are being transformed. Panjaporn Phatanapitoon, general manager of the 168 Platinum Mall, said people in the northeast were now better educated, attitudes were evolving fast and urbanization would come much more quickly than in Bangkok.

REGIONAL INVESTMENT

The 2006 coup that toppled Thaksin caused years of unrest, but political calm has returned since Yingluck's election win.

"When we change the politicians, they change the policy. If there are more changes to these policies, it will damage the economy," said Uthai Uthaisangsuk, a senior vice president at property developer Sansiri Pcl SIRI.BK.

Sansiri is developing two $127 million condominium projects in Khon Kaen, 240 miles northeast of Bangkok, in 2013 and plans a third for $35 million in 2014.

"At least five years and then we'll get something done," Uthai said, highlighting the need for a high-speed train and further infrastructure.

Now such plans are in hand, given impetus by floods that devastated the industrial central region, near Bangkok, in late 2011.

"Logistics providers and consumer products are moving upcountry because of the floods," said Patan Somburanasin, general manager of TPARK, a logistics company and subsidiary of TICON Industrial Connection Pcl TICON.BK, which is investing up to 2 billion baht in a 79-acre logistics park in the northeastern city of Khon Kaen.

Isaan should also profit as factories and distribution centres move in ahead of an EU-style ASEAN Economic Community (AEC) planned by the Association of Southeast Asian Nations (ASEAN) from late 2015 or 2016.

The AEC's East-West corridor, a motorway and infrastructure route for trade, will stretch from Vietnam's Danang port through Laos, Thailand and Myanmar to the Andaman Sea, cutting through the center of the northeast and its commercial hub of Khon Kaen.

That will support Thailand's ambitions to position itself as a gateway to China via road and rail links through Laos, itself seeing dramatic economic change.

The infrastructure program and the urbanization it will foster, if the plan goes ahead, will support Thai growth into the future, Credit Suisse said in a report, raising its estimate of trend GDP growth in 2014 to 2018 to between 4.5 and 5.0 percent from 4.2 percent.

No wonder, then, that Thai manufacturers such as CP All Pcl CPALL.BK, Thai Beverage Pcl (TBEV.SI) and Siam Cement SCC.BK, plus foreign firms with Thai plants such as Panasonic Corp (6752.T), Kraft Foods Group Inc (KRFT.O) and Fraser and Neave Ltd (FRNM.SI) are gravitating towards the northeast.

"If you look at all the corporates, every single large cap out there, they don't talk about Bangkok any more. They talk about provincials," said Patrick Chang, head of ASEAN equity for BNP Paribas Investment Partners. "The sexy stuff is the provincial urbanization and the way it impacts consumption." ($1 = 31 baht)