Tue, 04 Feb 2003

The year of the Ram for RI-China

Bob Widyahartono, Member, Indonesian Council on World Affairs, Jakarta

The inauguration of Hu Jintao as the fourth generation of China's leadership at the end of November 2002 marked a new era for the country in becoming more mature with opening up and internationalization.

In 1982 Deng Xiaoping tipped the scales against Mao Ze Dong's appointed successor Hua Guofeng. With the re-entry of Deng Xiaoping and his leadership of China, Deng successfully argued for a more pragmatic line. The open-door policy, together with other reforms, led to the "self-responsibility system", the first stage in its transformation toward private enterprise. In 1992, Ziang Zemin was entrusted with the leadership of China in 1989 until the end of November 2002.

In 1993, Zhu Rongji was entrusted with the leadership of economic policies as well as de facto control over the economy until the National People's Congress is scheduled to convene, which is in March 2003. What will Hu Jintao bring as the successor of Jiang Zemin? How will his team set up policies to enhance productivity and social development?

China has to tackle specific problems, such as the reform of state-owned enterprises, the somewhat delayed development of rural areas in western regions and increasing unemployment, including urbanizing regions from the west to the coast, developing the amount of treasury bonds and solving non- performing loans of inefficient banks, and so forth.

The continuing expansion of foreign direct investment, the recovery of the physical infrastructure and domestic demand, among other things, reflects the pace of improvement in China's productive capabilities.

As a combined effect of these factors, China's economy in 2003 is estimated to be a strong 7.6 percent, while its inflation rate is forecasted at 0.6 percent, which partly reflects the accelerated increase in private consumption.

The rate of exchange has been kept stable since 2000 at 8.3 renminbi to the U.S. dollar, and it is assumed to remain at this rate for 2003.

Indonesia posted a growth of 3 percent in 2002, underpinned by an increase in consumption and stimulated by government consumption, despite decreases in exports and investments. Due to economic stagnation and the large depreciation of the rupiah to the dollar, Indonesia's dollar-denominated per capita income has been below that of China's since 1998. In 2001, it was $676 and for 2002 the assumed figure is about $720.

Indonesia's economy for 2003 is forecasted to grow by 3.2 percent under the impetus of consumption, which should remain strong, and from a recovery of exports and hopefully by investment growth, which is expected to start by mid-2003.

Although the rupiah's exchange rate to the U.S. dollar stands at about Rp 8,900 we still have more work ahead of us to keep it stable from the impact of growing international tension between the U.S. and Iraq. The inflation rate was 9.6 percent last year.

After the normalization of diplomatic ties between both countries in 1990, relations gained enough momentum to grow. Some Indonesian businesses did not hide their investments channeled through Hong Kong to China.

Our main commodities exported to China include plywood, pulp and paper, palm oil, shrimp and fresh fish, natural rubber and some minerals. Indonesia imports machinery and electronic equipment, motorcycles, steel, crude oil, tobacco and others. China has since become a reliable trading partner in addition to Japan, Hong Kong, Taiwan, the U.S. and Europe until up to the 1998 crisis. As of 1999, there has been a gradual increase in trade and Indonesia has regained its surplus.

We cannot expect substantial foreign direct investment flow from China because they need to build up their economy through investments and exports. Our businesses should not only focus their relations with the coastal regions of China, but gradually build interactions with counterparts in western regions, which many still refer to as the hinterland, in trade as well as investment.

The year 2003, which is also the Year of the Ram, will provide challenges, opportunities as well as competition in building a new outlook on Sino-Indonesian economic relations.

The writer is also a senior lecturer in international business at Trisakti University, Jakarta.