China strengthens grip on Indonesia

China has further cemented its role as one of Indonesia’s strategic partners going forward with the Asian powerhouse’s commitment to continue with the rising trend of investment flowing into the archipelago.

Speaking in a forum attended by Indonesian and Chinese business players, Chinese Ambassador to Indonesia Xie Feng said China saw great potential for bilateral cooperation between the two countries.

China’s realization of foreign direct investment (FDI) in Indonesia grew by a staggering 291 percent to US$1.5 billion from January to September compared to the same period last year, according to Investment Coordinating Board (BKPM) data.

“China will continue to encourage more enterprises to invest in Indonesia and help speed up Indonesia’s economic growth,” Xie said on Wednesday.

President Joko “Jokowi” Widodo has held five meetings with Chinese President Xi Jinping in the past two years, a sign of deepening ties between the two countries that look to expand economic cooperation from electricity and mining to new sectors such as e-commerce and tourism.

Both countries have recorded investment cooperation in more than 3,000 projects over the last five years, to the point that approximately one fourth of Indonesia’s electricity is generated by power plants built by China, the world’s second-largest economy.

Meanwhile, tourism is deemed as promising with Jokowi targeting half of his 20 million foreign tourist target by 2019 to come from China. As of September this year, 1 million Chinese tourists visited Indonesia.

This year, most investment from China has been seen in the steel and mineral processing sectors, which includes smelters in Sulawesi. Chinese investors are also going large in the cement and automotive industries, signaling a commitment to Indonesia’s infrastructure push, with ventures in cement plants in Kalimantan and Papua for instance.

The strength of cooperation between the two Asian countries is also evident with the investment commitment from China Development Bank (CDB) of $14.4 billion for 57 projects since it entered Indonesia in 2006, although only $9.7 billion of the commitment has been realized.

Going forward, CDB is looking at projects on power plants, as well as sea transportation-related infrastructure.

“Indonesia and China have [...] synergy on the Chinese Silk Road concept and Indonesia’s aim to be [a] global marine fulcrum. CDB wants to actively cooperate in that sector,” CDB general manager Xiamen branch Yang Aiwu said.

CDB, however, gave no comment on the reason behind the delayed disbursement for Indonesia’s first high-speed railway connecting Jakarta and Bandung, West Java, which requires $5.1 billion investment that may well be mostly funded by a CDB loan.

Chinese investors, now one of Indonesia’s top trading partners and a top-five foreign investor in the country, previously saw a low ratio of investment realization-to-commitment from 2005 to 2014 as only 7 percent of Chinese investment commitment was realized during the period, BKPM data showed.

“In terms of doing business, they are pretty fast at making cooperation agreements, but then it becomes very difficult in the execution phase,” said Indonesian Chamber of Commerce and Industry (Kadin) vice chairman for international relations Shinta Kamdani.

In tackling the issue, the BKPM earlier this year launched a special information desk — the “Chinese desk” — to facilitate Chinese investors and assist them with their investment plans.

The Chinese Embassy in Indonesia highlighted land acquisition difficulties, a changing policy environment, as well as difficulties in acquiring work permits for foreign workers as the top-three hassles Chinese business players faced in investing in the country, said counselor for economic and commercial affairs Wang Liping.

Meanwhile, Center for Reform in Economics (CORE) Indonesia research director Mohammad Faisal expected that investment from China would significantly increase in various sectors.

“Tourism [investment] has been pretty insignificant. We expect it [China] to invest in Indonesian tourism destinations next year, as well as other sectors such as telecommunications,” he said.

Faisal also warned that investment from the Asian giant was usually followed by Chinese workers and products flowing into the country, which could potentially affect domestic human resources.