The 27 joint-venture deals signed by Indonesian and Chinese businesspeople during President Susilo Bambang Yudhoyono’s visit to Shanghai on Monday are further evidence of the accelerating expansion of the countries’ economic ties, especially since the launch of the Indonesia-China strategic partnership agreement in Jakarta in April 2005.
Under the latest agreements, Chinese companies will invest US$5 billion in oil, bauxite, nickel mining and smelting, fisheries, power generation, agribusiness and infrastructure in various provinces in Indonesia.
These deals also show how China’s insatiable appetite for raw materials such as minerals, oil, other commodities and Indonesia’s abundant natural resources make the two economies complement one another in many areas.
True, many local companies have complained about the fierce competition posed by the cheap Chinese products that have been flooding our markets. However, we should not be too preoccupied with the negative side of the booming China-Indonesia economic relations.
Indonesia is in a position to benefit more than suffer from the Chinese economy. In fact the persistently high prices of our major commodities, such as palm oil, rubber, cocoa, coal and other minerals should be attributed to the robust demand in China, as demand from other countries has been declining. China has now become the world’s second-largest importer of oil after the United States, thereby prompting Chinese companies to search for oil resources overseas, including in Indonesia, to secure stable supplies. China also accounts for nearly 35 percent of the world’s coal consumption.
As China’s economy continues to boom and the number of its middle-class consumers increases to build up massive purchasing power, it will not only need various consumer goods from Indonesia but could also become the supplier of millions of tourists as well.
It is China’s insatiable demand for basic materials to feed its booming manufacturing industry that has forced the world’s second-largest economy to invest billions of dollars in natural resources development in Indonesia.
But Indonesia also can benefit from China’s position now as a huge global production or assembly center within complex, modularized global production systems. For example, Malaysia, Thailand and the Philippines have built manufacturing industries that can supply components and parts to be assembled by giant manufacturers in China.
But to be able to tap into the modularized global production systems centered in China, as other ASEAN countries have, Indonesia should first remove bureaucratic, regulatory and infrastructural barriers to domestic and foreign investments.
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