Economist: Chinese investment could become a new pillar for Indonesia's economic growth
Jakarta (ANTARA) - Amid risks of an upcoming economic slowdown in Indonesia, including those stemming from global geopolitical tensions, the latest analysis from Bank Central Asia (BCA)’s economics team assesses that China has the potential to provide several positive boosts to national economic growth.
Indonesia’s economy grew by 5.61% year-on-year in the first quarter of this year, primarily driven by factors such as high government spending and increased consumption during Ramadan and Eid al-Fitr.
However, the economic outlook for the remainder of the year is at risk of weakening, as reflected in the manufacturing purchasing managers’ index (PMI) which contracted last month.
“Unfavourable global conditions mean that Indonesia’s GDP growth may have peaked in the first quarter of 2024. However, some external support can still be expected, as indicated by the influx of foreign direct investment (FDI) from China,” as quoted from BCA’s The Focal Point report released last week.
Based on data from the Ministry of Investment and Downstreaming of the Republic of Indonesia, the value of investment from China in the first quarter of this year increased by 22% compared to the previous year, reaching $2.2 billion (1 USD = Rp17,375).
This growth in investment from China outpaced the overall FDI growth of 8.5%.
Another positive aspect is that investment from China in Indonesia is likely to become increasingly diversified, not only concentrated in the nickel downstreaming sector but also expanding into other manufacturing sectors.
This is driven by prospects of domestic demand and lower import duties for exports to the US market.
In addition, investment from China not only helps drive industrialisation but also creates more jobs compared to investments from other countries.
Calculations from BCA’s economics team show that investment from China creates 18.4 jobs for every $1 million, higher than the average from other countries at 17.3 jobs.
Amid the weakening rupiah, cheap imports of goods from China are also seen to help maintain domestic price stability, which in turn supports maintaining public consumption levels.
On the other hand, the relatively stable conditions in China’s bond market provide opportunities for the Indonesian government to obtain cheaper sources of financing for the state budget (APBN).
The Indonesian government has increased the issuance of China-denominated bonds through Dim Sum Bonds in recent months and plans to issue Panda Bonds next month. Nevertheless, the BCA economics team’s report also highlights potential risks from the increasing investment and imports on the current account balance and the competitiveness of local industries.