RI-China deals
RI-China deals
The string of economic, education and research cooperation
projects and loan agreements signed in the presence of President
Susilo Bambang Yudhoyono and President Hu Jintao in Beijing on
Thursday reflect the high confidence these two countries have in
the future outlook of their relations.
Several billion dollars worth of China-Indonesia joint
ventures in the development of oil refineries, highways, power
plants and coal transportation projects are also in the pipeline.
All this is the result of the strong commitment of both
Presidents Susilo and Jintao to translate the Strategic
Partnership Agreement they signed in Jakarta earlier in April
into concrete, feasible cooperation projects for mutual benefit.
The partnership agreement, which serves as an overarching
political umbrella for cooperation, has maintained the momentum
of the positive developments, especially in terms of bilateral
economic ties, which have been thriving since the reopening of
diplomatic ties in the early 1990s.
Both leaders fully realize that even though their countries
often compete fiercely with each other over a number of
industrial exports, their economies actually complement each
other in many areas -- China's insatiable appetite for raw
materials and Indonesia's abundance of natural resources.
Indonesia badly needs foreign technology and capital to
develop its natural resources, while China, with more than US$710
billion in foreign exchange reserves, has been shopping around
the world to secure stable sources of raw materials.
Indonesia can benefit from the booming $1.6 trillion Chinese
economy and China in turn can secure the supplies of various raw
materials by investing directly in natural-resource based
projects in Indonesia.
The robust pace of China's economic growth over the past two
decades has indeed made its manufacturing sector sizzle with an
insatiable demand for raw materials.
For example, China's oil demand has been increasing by more
than 25 percent a year, making it the world's second largest oil
importer after the United States. This has forced China to secure
a stable source of oil supplies by acquiring concessions from
around the world, including Indonesia.
China National Offshore Oil Corp. (CNOOC) and China National
Petroleum Corp. have been investing tens of billions of dollars
in acquiring interests in upstream oil entities in dozens of
countries, including Indonesia. China also has signed a long-
term contract to import 2.6 million metric tons of liquefied
natural gas annually from the Tangguh gas field in Papua,
starting within three to four years.
Indonesia has abundant coal resources, which China badly needs
to fire its power stations and manufacturing industries. Some
analysts estimate that China today uses almost 35 percent of the
coal in the world.
Given these mutual benefits, the objective of expanding the
two-way trade to $30 billion in 2010 from $13 billion last year
is not too tall an order in view of the robust increase in
Chinese investment in Indonesia because trade and investment is
closely interlinked.
It is the right policy on the part of the government to direct
Chinese investments to specific sectors such as energy and basic
infrastructure in view of Indonesia's large amount of petroleum
imports and inadequate infrastructure, which have eroded the
country's economic competitiveness.
This investment targeting policy will also be effective in
enhancing development with equity to correct the disparities of
development between provinces or regencies and wide gap of income
between groups of people caused by the growth-led development
policies of the past.
However, the big business deals with China should not lull the
government into complacency when it comes to doing its homework,
as it still needs further improvements to the overall investment
climate.
The first group of Chinese investors, who have entered
Indonesia consists mostly of state companies. But this capital
inflow will not be sustainable without the support of private
investors from China.
The problem though is that most foreign investors remain
waiting on the sidelines, expecting significant improvements in
the business climate. Investors are willing to stake out their
capital only when the general business climate already meets the
minimum degree of physical, legal and institutional
infrastructure.
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