Wed, 31 Mar 2010

Indonesia is now one of the “new horizons” for foreign companies in China planning to relocate plants inland or outside the country because of rising labor and logistics costs, a survey by the American Chamber of Commerce in Shanghai showed.

The proportion of companies with such plans doubled last year compared with 2008, AmCham Shanghai said Tuesday as quoted by Bloomberg.

The survey was conducted in December with 202 foreign-invested manufacturers in China with a combined total of 1,500 factories.

Southwest or central Chinese cities such as Chongqing, Wuhan and Zhengzhou, and emerging Asian economies including India, Vietnam and Indonesia are “new horizons” for their lower-cost, export-driven operations, AmCham Shanghai said.

Multinational corporations still prefer China in order to benefit from the nation’s rapid expansion, the survey said.

“China was one of the few profitable regions for many multinationals in 2009, clearly demonstrating the China market’s importance to company growth prospects,” AmCham Shanghai said in a statement.

About 83 percent of those surveyed said their operations in China are to supply the local market, compared with 71 percent two years ago, according to the survey.

Chinese Prime Minister Wen Jiabao is scheduled to visit Jakarta on April 23, where he will discuss how to enhance Chinese investment in the country. Wen’s visit is part of the celebration of the 60th anniversary of China-Indonesia relations.

Industry Minister Mohammad Hidayat said the Indonesian government would use the opportunity to court Beijing’s support for more investment by Chinese companies in the country.

Unlike cooperation in trade, cooperation in investment with China, especially in manufacturing industry, is still something that needs to be worked on, Hidayat said.

With the full implementation of the ASEAN-China Free Trade Agreement (ACFTA) earlier this year, the government effectively has scrapped 6,682 tariff lines in 17 sectors, including 12 in the manufacturing sector and five others in the agriculture, mining, maritime sectors.

Similarly Indonesia will enjoy zero duties in China on its exports, most of which are raw materials, unlike Chinese exports which are mostly manufactured products.

The agreement has become a major source of contention among some business leaders in Indonesia, who have called for a revision of the agreement or a delay in the implementation of some of its trade provisions to protect local industries.

China’s Ambassador to Indonesia Zhang Qiyue said recently that Indonesia is lagging behind other members of the Association of Southeast Asian Nations (ASEAN) in making use of the financing facilities that are made available under the umbrella of the ACFTA.

She said that unless Indonesia started to snap up some of the financing facilities provided by China, these facilities would quickly be exhausted by other ASEAN countries making more effective use of them.

The agreement should not be seen only in terms of Indonesia versus China, but also in terms of competition between members of ASEAN, Zhang said Thursday.