RI-PRC blateral economic ties

Mari Pangestu, Economist , Centre for Strategic and International Studies, Shanghai, China

Part 2 of 2

There are specific areas of cooperation that could be strengthened such as the great potential in resource based sectors where Indonesia has comparative advantage. The rapid growth experienced by China will mean increased demand for fuel and other resources it does not have in sufficient quantities in the foreseeable future.

China has been a net oil exporter since 1993 and its two largest fields in Daqing and Shengli are mature and already experiencing declining production.

According to the East West Center in Hawaii, China is currently importing 1.4 million barrels a day and it is projected that this level will more than double by 2010. Other than crude oil, Indonesia has and should continue to promote increased sales of LPG (liquefied petroleum gas) from various production centers, including the planned new Tangguh LPG center to Guandong, since Indonesia is geographically closer than other suppliers. This will need a proactive and coordinated approach by our government.

Another area to be pursued is increasing the import quota for CPO, another on going issue. The advantage in future of China's commitments in the World Trade Organization and possibly as part of an ASEAN-China Free Trade Area, is the removal of such quotas altogether.

However, Indonesia would still have to be a competitive supplier of CPO as it will have to compete with Malaysia. Investments by China in palm oil estates in Indonesia would also enhance the trade of CPO to China and this process should be facilitated as much as possible.

In the services sector, tourism has been high on the list for promotion. An important development in 2000 was the cooperation in tourism by simplification of visa procedures from the Indonesian side. Tourists from China can now obtain their visa within one day and can enter Indonesia at any point. From the Chinese side, the Chinese government formally ratified Indonesia as a tourist destination of Chinese citizens for traveling overseas.

It will also arrange so that Chinese tourists going to Indonesia will travel in tour groups organized through authorized travel agents, guaranteeing that they would not over stay in Indonesia. There are currently about 10.3 million tourists from China traveling abroad. Of course there needs to be proactive promotion from the Indonesian side to promote Indonesia to the Chinese tourists and adequate supporting facilities, including Mandarin speaking tour guides.

On investment, much more can be done both ways. There is still a lack of promotion both ways, and lack of knowledge and understanding by Indonesian investors with regard to the potential of China. Much more can be done.

The China Committee in the Indonesian Chamber of Commerce (KADIN) is a good start, but perhaps the idea of an Indonesian Chamber of Commerce based and set up in China -- like other countries have -- could be pursued to facilitate businesses interested in coming to China.

However, a broader view than these specific issues will be needed for countries like Indonesia and ASEAN to engage with China. China's entry into the WTO is not only important as part of their process of opening up, but it is important for putting a framework and schedules, removing partly the uncertainty of the direction of reforms in China.

For instance tariffs will come down further from the current average of 18.5 percent to 9.4 percent by 2005 in manufacturing and from 20 percent to 17 percent by 2004 in agriculture. A tariff rate quota will be established for bulk commodities with quota quantities to be increased over time.

Being a member of the WTO, will also mean greater certainty that China will have to abide by the international rules of the game with regard to the sensitive issues which have affected countries like Indonesia such as dumping and use of subsidies. Thus similarly the ASEAN-China Free Trade Area idea that has just been launched, could serve the same purpose of outlining the process of opening up and the rules of the game. It will also serve to enhance our understanding of China.

Whatever we may think, we need to learn more about China, its economy, its people and its vision forward. They are going to be the most dominant neighbor we will have in the foreseeable future -- it is both competition, challenge and opportunity. At the end of the day Indonesia will have to do its homework in terms of finding the competitive niche where it can compete with China in the world market, in its own market and in the Chinese market.

This will require completing its own reform process with a view and vision of the way ahead, and understanding in a comprehensive and coordinated way the reforms, institutional needs, human and physical infrastructure needs and so on that will be needed to realize such a vision. Countries like Indonesia then need to do their own homework in configuring their competitiveness vis a vis China.