Sino-Indonesia ties: Economy comes first

Sino-Indonesia ties: Economy comes first

Urip Hudiono, The Jakarta Post, Jakarta

If there is anything we can say about the Sino-Indonesian
relationship, it is probably the fact that politics have always
come second to sociocultural and economic ties.

Indeed, from an anthropological point of view, Indonesians
could well trace their ancestral origins to the people who once
populated the southern part of China, and -- like the Japanese
and Koreans -- have strong influences of Chinese culture that for
centuries has been the region's de-facto hegemon.

Chinese merchants, meanwhile, had also been arriving in the
archipelago as early as the fourth century, trading ceramics,
cloth and wood with locals.

These merchants -- along with workers from China -- eventually
became the next wave of Chinese settlers here, and literally a
part of Indonesia, as their descendants were born and raised
here, but with many maintaining close ties with their country of
origin.

So despite Indonesia having had its ups and downs in walking
the diplomatic tight rope between the politically divided China
(the People's Republic of China) and Taiwan (the Republic of
China), socioeconomic relations with both have managed to survive
and even flourish to this day.

Indonesia first signed a bilateral trade agreement with China
in 1953, after officially establishing diplomatic ties on April
13, 1950. Initial two-way trade value was only US$7.4 million in
1954, but steadily grew to $129 million over the next five years.

Due to its "One China Policy", Indonesia has no official
diplomatic relations with Taiwan, yet trade and investment
between the two were nevertheless established by as early 1952
through efforts by the region's ethnic Chinese network.

It was through this network as well that economic ties between
Indonesia and China were rescued when Jakarta severed its
diplomatic relations with Beijing in 1965, following an alleged
failed coup d'etat blamed on the Chinese-affiliated Indonesian
Communist Party (PKI).

Direct trade between the two countries then ceased, but
continued indirectly by proxy through Hongkong and Singapore,
averaging some $200 million a year.

Fortunately, direct trade between China and Indonesia was
later restored in a 1985 agreement, which preceded a full
normalization of all diplomatic ties in 1990. Since then,
bilateral trade between China and Indonesia has flourished, with
the balance always in Indonesia's favor.

In 2004, the trade value stood at $13 billion, up 31 percent
from 2003's $10.2 billion, and almost matching Indonesia's $13.5
billion export-import flow with the United States. For this year,
the Indonesian Chamber of Commerce (Kadin) expects trade with
China to reach $15 billion, and up to $20 billion in 2006.

In terms of the commodities being traded, data shows that
China's exports to Indonesia include electrical machinery and
equipment, electronic goods and home appliances, textiles and
motorcycles. China's principal import commodities, meanwhile, are
mostly resource-intensive goods like crude oil, natural gas, palm
oil, paper, pulp and timber.

This two-way trade will likely increase drastically following
the signing of a 25-year contract that China awarded in 2002 to
Indonesia for the supply of $8.5 billion worth of liquefied
natural gas (LNG) from Tangguh in Papua province to China's
Fujian province.

Investment from China to Indonesia is similarly on the rise.
Data from the Indonesia's Investment Coordinating Board (BKPM)
shows that total Chinese investment in Indonesia for the five
year period ending 2004 reached $6.5 billion, with investments in
the energy sector alone reaching $1.2 billion.

On the other hand, data from the Chinese government shows that
Indonesian investments in China have reached at least $2 billion
as of 2003.

Indeed, during his visit to Indonesia for the Asian-African
Summit in April, Chinese president Hu Jintao said that the
increased prosperity of China has allowed its enterprises to
become investors, eyeing ASEAN countries -- including Indonesia
-- as potential investment destinations.

At that same summit, Coordinating Minister for the Economy
Aburizal Bakrie said that a group of Chinese businessmen had
committed to invest $10 billion in Indonesia in the near future,
in projects such as toll roads, electricity, palm plantations and
those in the energy sector.

Current investors from China include the country's two largest
oil companies, PetroChina and Chinese National Overseas Oil
Company (CNOOC).

Many of China's well-known electronic appliance manufacturers,
such as Cang Hung, Kang Cia and TCL, are also investing and
marketing their products here in Indonesia. Likewise, motorcycle
manufacturer Jia Ling have also set up an assembly and spare
parts plant.

Bank of China, meanwhile, resumed its operations in Indonesia
in 2003 to help facilitate the fast growing trade and investment
between the two countries.