Vice President Boediono has called on Chinese businesses to open factories in Indonesia to benefit from the country’s wealth of natural resources, favorable labor conditions and growing domestic market.
“This is the right moment for Chinese entrepreneurs to increase investment in Indonesia, as we have huge potential,” the vice president said on Saturday during a business dialogue at Hotel Grand Sahid Jaya in Central Jakarta, as part of Chinese Prime Minister Wen Jiabao’s visit.
The Chinese head of state’s first visit to Indonesia came as Southeast Asia’s largest economy has seen its balance of trade with China deteriorate over past years, with the implementation of the Asean-China Free Trade Agreement only accelerating the trend.
Local industries, especially in the textile, footwear and garment sector, have suffered as Chinese goods have flooded the market.
“We can use this opportunity to balance trade, as well as open up cooperation and investment,” Boediono said. “China ranks 13th in investment in Indonesia, far below other countries.”
Chinese investment of just $170 million last year will be dwarfed by an expected bilateral trade volume of $40 billion this year, which is expected to double by 2015.
China’s exports to Indonesia reached $20.4 billion last year, while Indonesia’s shipments to China totaled $15.7 billion - a trade deficit of $4.7 billion, according to government data. Aside from the poor showing against China, Indonesia has been a strong performer in global commerce, running an overall trade surplus of $22 billion.
“Indonesia expects that China will also be a locomotive of development here,” Boediono said.
The vice president said the government had decided to shift its economic policy from dependence on the sale of natural resources to establishing its manufacturing industries.
“We want to see Indonesian-made goods complement Chinese goods in the world market, including in China’s market,” Boediono said.
He also pointed out that Indonesia’s demography offered vast potential for cooperation with China, which expects to see an aging population.
“It is not limited to natural resources and markets, but it goes back to basics on the aspect of demography,” he said.
“Indonesia has a large, young population that over the next 10 to 30 years will be [extremely productive]. Meanwhile, census data in
China shows a contrary situation that opens the way for complementary cooperation, mainly in industry.”
China has been actively seeking investment opportunities abroad as labor costs at home have been rising in line with growth, and the government is eyeing a transformation to a value-added economy rather than relying only on manufacturing.
“Labor costs in China are becoming less competitive compared to what Indonesia can offer. So, this is a strong reason for the Chinese to relocate their industries here,” said Poltak Hotradero, head of research at the Indonesia Stock Exchange.
He added that after a series of suicides at high-tech company Foxconn last year, China’s government had set of goal of seeing wages double in the next four to five years.
However, Indonesia’s lingering bottlenecks, such as a lack of infrastructure and pervasive red tape, are still a ball and chain for attracting investment from China or otherwise, Poltak said.
Indonesia’s private sector is also keen for more Chinese investment. Wen is optimistic about investment, with the Chinese government committing $8 billion of financing support for its companies to invest in Indonesia.
“Through the end of 2010, the number of Chinese companies investing in Indonesia had grown to more than 1,000 firm with investment of more than $6 billion, generating tax revenues of more than $1 billion, and we employ more than 30,000 workers in Indonesia,” Wen said.
He also voiced optimism over the Indonesian government’s blueprint to transform the economy over the next 15 year.
The Chinese trade mission backed up talk with action, with $10 billion in commercial agreements signed by representatives of Chinese firms who had accompanied Wen on his first-ever trip to Indonesia.