Hopes Still Low for Chinese Investment in Indonesia

Indonesian President Joko Widodo (Jokowi) visited China twice in his first year of presidency alone. In contrast, he made their first state visit to america only in October 2015. Nevertheless, although Sino–Indonesian relations are currently conditioning, economic, and geostrategic obstacles will probably limit progress.

When the Jokowi administration came to power in 2014, it inherited an already strong connection with China. Under previous president Susilo Bambang Yudhoyono (SBY), relations upgraded to some comprehensive strategic partnership within 2013, which saw improved cooperation in areas for example defence and scientific study. In 2010, China also became Indonesia’s largest trade partner and committed to assist Philippines in infrastructural development.

There was an expectation that Sino–Indonesian relations underneath the domestic-focused Jokowi administration would be strong. During his first state visit to China for the 2014 APEC Summit, Jokowi told the press that he hoped the connection would ‘materialize into more concrete outcomes’. Since then, relations possess primarily focused on trade and investment, particularly the development of ocean going infrastructure.

Chinese President Xi Jinping has ensured his support for creating Indonesia’s maritime infrastructure through pledging to sponsor projects through the Maritime Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB). Indonesia has already been a founding member of the AIIB and is committed to injecting more than US$400 million in participating funds. As of October 2015, China offers offered up to US$100 billion in total investments in various projects. These include joint-venture infrastructural projects between the Indonesian government and Chinese investors. Among the most controversial of these projects is a planned bullet train connecting the cities of Jakarta and Bandung.

The biggest challenges for Chinese traders in Indonesia continue to be problem and bureaucratic red tape. According to a study by the Indonesian Investment Coordinating Panel, only 7 percent of planned Chinese investments from 2005 to 2014 have been realised. However, in recent months, there have been signs that things may be improving. As part of the latest instalment in the economic reform program, the Jokowi administration is set to implement Three hundred new measures to cut some of the impediments of doing business in Indonesia. Among these measures are sets of policies that reduce the time for obtaining investment permits and loosen what’s needed for hiring foreign employees.

However, there are still strong limitations inside the Sino–Indonesian relationship. There is still common suspicion within Jakarta’s policymaking as well as defence circles over China’utes intentions in Indonesia. Indonesia’utes trade relations with China are particularly of concern with a domestic political actors. The actual China–ASEAN Free Trade Agreement (CAFTA) offers transformed China into Indonesia’s biggest trade partner. While the value of bilateral trade has increased from US$36 billion in 2010 to US$48 billion in 2014, the trade deficit during the same period has increased from US$4 billion to US$13 million.

Since its implementation in 2010, CAFTA has come under fire for employee layoffs in local production and for floods of Chinese consumer goods that compete straight with local manufacturers. The current lifting of visa limitations for Chinese tourists offers apparently worsened this situation. In recent months, there has been an increase of crackdowns upon illegal migrants and illegal imported goods from China.

Defence relationships are even more difficult. While Philippines and China have begun family interaction on some non-traditional security problems, China’s assertive behaviour within the South China Sea continues to be of concern to Jakarta. Indonesia continues to call for the peaceful mitigation of tensions and for a binding code of carry out for ASEAN and China.

While Philippines is not a claimant in the South China Sea disputes, China’s claimed nine-dash line does overlap using the waters of Indonesia’s resource-rich Natuna Island destinations. Indonesia has been beefing up its military presence on the islands in recent years. In August 2015, Indonesia upgraded its main naval foundation in West Kalimantan, which overlooks the Natuna Islands. In September, Defence Minister Ryamizard Ryacudu also announced plans to deploy unmanned aerial vehicles as well as an additional 2000 army personnel to patrol and safeguard the islands.

There have been serious initiatives by both China and the ASEAN member-states to mitigate tensions in the South China Sea. Most recently, China hosted the first ever China–ASEAN Defence Ministers’ Meeting. Among it’s outcomes, China might maintain maritime drills with some ASEAN nations, which would promote a degree associated with cooperation and mutual knowing. Yet, as it remains unlikely that China’s land reclamation efforts on Mischief Reef will stop anytime soon, China’s encroachment on waters adjacent to Indonesia will continue to be the thorn in the relationship.

Historical animosity, industry imbalance, and geostrategic concerns limit the progress of Sino–Indonesian relationships. Despite claims that the Jokowi federal government is leaning towards China, the relationship between Indonesia as well as China will likely continue to remain as it was under SBY. There’s definitely potential for some degree associated with progress but this is dependent on whether China’s planned investments can be realised. This will require real reforms to make it easier for Chinese language investors to do business.

In the long term, Philippines will also need to vamp up its lawful infrastructure to guarantee the rights associated with workers and to protect its environment. Otherwise, China’s growing business presence in the country, along with its actions in the South China Sea, may jeopardise ongoing efforts to improve Sino–Indonesian relations.

Don’t expect too much from growing Sino–Indonesia ties is republished with permission from East Asia Forum