Japanese investors may target China, warns JETRO

Adianto P. Simamora, The Jakarta Post, Jakarta

The Japan External Trade Organization (JETRO) warned that more Japanese investors would shift their investment plans to China if the government here failed to improve the investment climate and provide tax incentives.

President of JETRO's Jakarta Center Hiroyuki Kato said on Wednesday that since the country plunged into a combination of economic and political crises in the late 1990s, Indonesia had gradually lost its charm for foreign investors.

"The government must take steps as quickly as possible to provide incentives if they want to attract foreign investors, particularly Japanese, to this country," Kato told The Jakarta Post on Wednesday.

He explained that China had become a favorite investment destination for Japanese investors because its government had been actively providing various incentives, in addition to the favorable investment climate and the availability of cheap and high quality raw materials.

Kato gave as an illustration the fact that Japanese investment in China had increased by 85 percent during the April-September 2001 period, while Japanese investment in Indonesia had declined by 18 percent during the same period.

"I'm afraid that more Japanese investors will continue to select China if the government does not take immediate action to provide (tax) incentives," he said.

JETRO has repeatedly called on the government to provide tax holidays to allow the country to compete with neighboring nations in attracting foreign investment, particularly from Japan.

The organization said that if the government were to provide such tax incentives, Japanese investment here would increase and could generate up to 80,000 jobs per year.

"I have met with both the Coordinating Minister (for the Economy) Dorodjatun Kuntjoro-Jakti and Minister of Finance Boediono to discuss this problem, but the ministers did not give any clear answers," Kato said.

Japan is the largest foreign investor in Indonesia. Last year, foreign direct investment (FDI) approvals dropped to US$9 billion from $15.42 billion.

Since the 1997 regional financial crisis, the Southeast Asia region had been losing out to China in attracting FDI. With cheaper labor costs and high economic growth, China absorbs about half of all FDI in Asia, excluding Japan. All the Southeast Asian nations combined get only 20 percent.

There are now growing fears among Southeast Asian nations that with the entry of China into the World Trade Organization (WTO), China will lure more investors away from the region.

The Investment Coordinating Board (BKPM) is proposing the launching of a tax holiday scheme to attract foreign investment. The board's chairman, Theo Toemion, claimed that he had already obtained the support of President Megawati Soekarnoputri for the plan, although he admitted that it would still have to be discussed by the Cabinet, probably at the end of the first week of May.

But Boediono is likely to object to the proposal on account of the current weak fiscal situation.