Indonesia-China partnership
Indonesia-China partnership
The strategic partnership between Indonesia's President Susilo
Bambang Yudhoyono and Chinese President Hu Jintao declared here
on Monday ushers in a new, more vigorous phase of cooperation
between the two countries in politics, economics, law and
security.
However, the most significant and immediate effect of the
agreements will most likely be felt in the economy as each
country will become more confident in tapping each other's
comparative and competitive advantages.
Bilateral economic ties, which have been thriving after the
resumption of diplomatic relations in the early 1990s, will
expand more robustly thanks to the heightened momentum provided
by the overarching political umbrella that the two leaders have
established.
A stronger partnership with China, which could become the
third-largest economy in the world after the U.S. and Japan
within a decade, is indeed a strategic move.
Even though Indonesia and China often compete fiercely with
each other in several manufactured exports, each economy actually
complements the other. Take for example China's insatiable demand
for natural resources. The robust pace of its economic growth
during the past two decades has made China's manufacturing sector
sizzle with an insatiable appetite for raw materials, which are
abundantly available in Indonesia. President Susilo's estimate
that bilateral trade would triple to $20 billion within three
years is not too optimistic.
Analysts have estimated that China's oil demand has been
increasing by more than 30 percent a year, making it the world's
second-largest oil importer after the United States. Just look at
how aggressive China has been in acquiring oil mining concessions
around the world, including in Indonesia, to secure its energy
supplies.
China also accounts for nearly 50 percent of the world's
cement consumption and 35 percent of the world's coal
consumption. Hence, Indonesia benefit from the booming Chinese
economy and China can in turn secure the supplies of raw
materials by investing directly in natural resource-based
projects in Indonesia.
China can also use Indonesia as a beachhead to tap the markets
in the 10 ASEAN countries through the ASEAN free-trade
arrangements.
However, the partnership pact and the string of other
agreements signed by Indonesian and Chinese leaders have yet to
be translated into concrete trade and investment deals between
the business communities of both countries and this is where the
government and businesspeople still have to do a lot of homework.
Most foreign investors remain waiting on the sidelines,
expecting comprehensive measures by Jakarta to improve the
business climate. New foreign investors will only be willing to
bring their capital into the country when the general business
climate has the minimum levels of legal and institutional
infrastructure that allow for reasonable risk calculations.
But it is comforting to learn that the government will not
allow market forces to entirely determine the sectors in
Indonesia where investors from China may go but will instead
direct them to basic infrastructure, mining, agriculture and
fisheries.
Focusing efforts to attract investment in selected categories
of industries is likely to be more effective in view of the
heightened international competition to attract foreign capital.
This investment-targeting policy is necessary to enhance
development with equity to correct the disparities of development
between the provinces or regencies and wide wealth gap between
groups of people, which has in the past been the main cause of
ethnic conflict.
A better-targeted policy is also imperative in the promotion
of trade with China, whose imports have edged more than a few
Indonesian manufactures out of the market.
Many local industrial companies have also been adversely
affected by Chinese products, especially those smuggled into
Indonesia, and letting market forces completely determine the
kinds of imports coming from China would be detrimental to the
country's sound economic development.