Fri, 16 Jul 2010


By Anton Alifandi
With the onset of a new free trade agreement, Indonesians are concerned that cheaper goods from China will threaten the future of their manufacturing industries.

You would be hard pressed to find a building that is more than a century old in Surabaya, a port city of three million people on the island of Java.

Surabaya has been an important commercial centre since the days of the Dutch East Indies and is now the second largest city in Indonesia.

As in many cities in tropical Asia, the climate and the preference for ever newer buildings conspire to erase any remnants of the distant past.

So, I was a little surprised to be reminded by a story in the local newspaper, that I had arrived in Surabaya on a time-honoured date: the 717th anniversary of its founding.

Historical battles

I know the history well enough.

As a schoolboy in Indonesia, I had read about how the founder of Java's Majapahit Kingdom repulsed an invasion by Kublai Khan's navy in 1293.

The Great Khan, grandson of Genghis and the fifth great ruler of the Mongols, wielded power over a vast empire, including most of modern-day China.

A busy street in Surabaya's old commercial district
Tensions between Indonesia and China date back several hundred years

And he had his eye on adding Java to his territory.

But the ruler of the Javanese kingdom of Singasari had flatly refused to capitulate and even cut off the ear of the Mongol emissary.

So Kublai Khan sent 1,000 ships and 30,000 men to crush Singasari and conquer the island.

It did not quite work out like that.

National pride

The history of 13th Century Java is complicated.

The king of Majapahit, another of the island's rival kingdoms, initially helped the invaders defeat Singasari, but then turned round to drive out the Mongols from Java altogether.

Majapahit went on to become the greatest kingdom in the entire Indonesian archipelago.

To drive out the mighty Mongol empire may be no mean feat for a nascent kingdom from a small island, but I think it is safe to say that outside Indonesia, not many people will have heard of this famous victory.

Outside Indonesia, people are much more familiar with the story of how a divine wind, or kamikaze, rescued a different island state, Japan, from Kublai Khan's invading navy.

But Kublai Khan's failed invasion is an important landmark in Indonesian history and is still taught to instil a sense of nationhood.

Unclear economic future

My own journey to Surabaya was meant to report on a more peaceful - though possibly far more significant - exchange between Indonesia and China: the economic impact of a free trade agreement between the two countries.

The agreement, which came into effect this year, has caused a lot of consternation in Indonesia.

Sandal stall in Indonesia
Indonesia's footwear exports are thriving, despite the competition

Industry groups and members of the Indonesian parliament sought to delay its implementation for goods such as textile, footwear and steel, because they fear that a huge and sudden influx of cheap Chinese goods will cause Indonesian factories to close and drive up unemployment.

In a wholesale market, traders told me that Chinese textiles can undercut Indonesian products by 25% to 30%, while a short tuk-tuk ride away in a shopping centre, Chinese plastic sandals - flip flops - sell for US$0.50 (0.30), 20% cheaper than similar locally made sandals.

So the outlook seemed grim for labour-intensive industries in Indonesia, but even here the picture is not as clear-cut as it seemed at first.

'Adapt and innovate'

The owner of a textile shop told me that in fact he still preferred to buy Indonesian fabric, despite the difference in price.

He said with imported Chinese fabrics, he could not always order the same items again, apparently because the fabrics it sold to Indonesia were just leftovers - excess loads of products that were really meant for export to Europe or North America.

After the initial shock of the Chinese trade invasion, the market in Indonesia has apparently stabilised

I went to a suburb on the outskirts of Surabaya where small businesses employing between two and 10 people have been making shoes and sandals for years.

One craftsman, wearing only shorts in the tropical heat and humidity, showed me two pairs of sandals, one imported from China and one locally made.

He told me that they were not really direct competitors because they were made from different kinds of plastic with different designs.

Another shoemaker told me that a few months earlier he feared for his livelihood when Chinese goods started flooding the local market, but now he could not keep up with demand.

He still had plenty of orders from the outer Indonesian islands, Sumatra, Borneo and Papua.

This man credited modern technology for the upturn in his business.

Giant cooling towers of the Shougang Capital Iron and Steel Factory in Beijing, China
China's growing industrial power is producing cheap exports

He said that while he was too old to start using laptop computers, his children always searched the Internet for the latest footwear design from around the world to keep him up to date with the latest trends.

After the initial shock of the Chinese trade invasion, the market in Indonesia has apparently stabilised.

Even in the unglamorous flip-flop business, people adapt and innovate.

Recent figures show that Indonesian footwear exports are actually rising - even though Indonesia's trade balance with China is in deficit.

It seems that unlike the failed Mongol invasion of Java 700 years ago, in commerce, both sides can win.