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?