Puspa Delima Amri

Puspa Delima Amri
CSIS

Many people believe that Nov. 10, 2001, the day China was
officially admitted to the World Trade Organization (WTO), will
go down in history as one of the most important events of the
decade. The world's most populous country had successfully ended
its 15-year struggle to join the only global international
organization dealing with the rules of trade between nations.

China went through considerable pain and struggle to fight for
accession to the WTO for obvious reasons. Accession to the WTO
will mean enabling the opening up of China to take place within a
legal framework and in accordance with a set schedule. In line
with her efforts to integrate herself into the world economy,
China has struggled to liberalize her domestic economy and carry
out a series of reform programs over the past decade. Her
diligence and commitment awarded her entrance into the
prestigious organization.

While a part of the world is applauding China for her success,
various mixed emotions and reactions come to surface in other
parts. With her vast growth and enormous size, the recent
developments will surely alter the map of world trade and
investment.

Consider the following prominent facts about China. According
to the 2001 World Development Indicators, China ranks sixth on
total gross domestic product (GDP). Her trade value falls at the
ninth position, while topping the world notch on the amount of
foreign direct investment (FDI) inflows. Over the last decade
China has experienced an average real rate of growth of 10
percent per annum and her exports quadrupled from US$62 billion
to $250 billion per the 1990-2000 period. With a population
approaching 1.3 billion, China's domestic market possesses
evident strength.

In the last few years, during which events led up to China's
WTO accession, Southeast Asian countries, particularly Indonesia,
increasingly felt a visible amount of anxiety. China is real, her
development is awesome and at the same time scary. Among the most
serious concerns is competition in third markets, which arises
from similarities in products exported to the world.

Calculations from World Bank economist Sethaput Suthiwart-
Narueput (2002) show a high correlation of export structures
between Indonesia and China. Analysts have predicted that apparel
and textile industries in developing East Asian countries are in
danger of being hurt by China's WTO accession, as quotas on
Chinese apparel and textiles in the U.S. and the EU will be
removed. Using a Computable General Equilibrium (CGE) Model
analysis, Suthiwart-Narueput predicted a significant decrease in
Indonesia's textiles and apparel industries, as a result of
China's WTO entry.

From the investment side, China also poses a threat to
Indonesia, especially with regards to foreign players. While
China is becoming a more and more attractive investment
destination, Indonesia has suffered from relocation by foreign
investors, due to serious political and security concerns, and an
unhealthy investment climate.

What then, are our options? Are we left with only threats? Are
there no potential benefits arising from the situation?

It is clear that we need to formulate a strategic response to
these challenges. Economist Hadi Soesastro stressed the need for
Indonesia to hone its abilities to launch an effective
antidumping project (Kompas, April 2002). It is critical for us
to understand China's economic development and find out how to
prevent devastating competition, which means finding niches,
complementary opportunities and benefit from China's fast-growing
domestic markets.

Embracing the opportunity means reaping the benefit from the
opening up of market access to China. We must not forget that
there are 1.3 billion people that need to conduct their daily
activities and for that they are in great need of energy
resources.

Here is one of the main spots that we can turn into our
benefit. We may lose in competition in third markets, but there
is definitely room for increased trade between China and
Indonesia. More over, bold entrepreneurs would realize that a
potential opportunity also lies in investing in China.

However, we must keep in mind that we need to prepare and
anticipate the structural changes that will happen in China, and
recognize that our comparative and competitive advantage needs to
be continuously strengthened; companies must focus on
specialization and product differentiation, including in terms of
quality. A comprehensive program and action plan needs to be
designed to anticipate the institutional, human resources and
infrastructure needs to support such a development. The bottom
line is that we need to restructure and maintain our competitive
edge.

Up until now, the government of Indonesia has yet to formulize
a clear policy that serves as a response to the China challenge.
Despite the diplomatic visits made by both former president
Abdurrahman Wahid and President Megawati Soekarnoputri, a formal
and comprehensive response has yet to be drawn up. This is of
utmost importance because whether or not we can embrace the
opportunity remains to be seen. We need to continue to grapple
with the issue of how best to respond to engaging economically
with China. We have to start launching activities to study the
meaning of strategies for Indonesia that could play in the
country's interest.

On a final note, while it is important to recognize the
importance of the China challenge, let's not waste our time
exaggerating the depth of the situation. China still has to prove
she's worthy of the benefits from this new arrangement, as she
will still have to deal with various domestic issues. China is
facing a major challenge in adaptation to its own country to
deliver its commitment as a WTO member. Instead of falling to
pieces worrying and developing unfounded fear, we should direct
our efforts to shape up and rise to the challenge.

In the end, we're the ones who make the final call. As the old
time favorite saying goes, we can choose to see the glass as half
full or half empty. Do we want to sit around and wait for this
"new kid on the block" to realize the threats she poses, or are
we going to wake up and fight to realize the potential benefits
she brings about?