Japanese investors may target China, warns JETRO

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.