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Hot issues in Sino-RI relations
Since the resumption of diplomatic relations in 1990, Sino-Indonesian economic relations have improved significantly
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ince the resumption of diplomatic relations in 1990, Sino-Indonesian economic relations have improved significantly. Trade and investment increased steadily in terms of volume and value.
Both countries also signed a strategic partnership in 2005 in which cooperation (not only in the economic but also the culture and defense sectors) was included in the agenda to strengthen existing relations.
Other efforts are also underway to sustain the impressive achievements in trade, investment and energy cooperation, for example, through trade fairs and regular meetings between the business community and policy makers.
Apparently, both countries are entering the golden years of their diplomatic relations, in which policy makers do not regard differences of national identity or capability between the two countries as a serious problem. President Susilo Bambang Yudhoyono’s upcoming visit to China seems to symbolize such convictions.
Nevertheless, the confidence of policy makers that Indonesia and China are currently on the right track to mutually beneficial bilateral diplomatic relations is not entirely shared by the general public.
There are two crucial issues that need to be addressed seriously if these golden years are expected to last for long.
The first is related to trade. There is a perception that China poses a challenge to the development of the Indonesian agricultural and industrial sectors. This perception emerged shortly after the signing of the ASEAN-China Free Trade Area (ACFTA) in 2002.
Most people are of the opinion that Indonesia’s agricultural products and manufacturing goods are extremely uncompetitive against China’s. Instead of seeing the ACFTA as an instrument to strengthen the interdependence of the ASEAN regional economy with China, most people see it as a cutthroat competition that will have negative impacts on the development of Indonesian economic capabilities in the long term.
Unless the government undertakes serious measures to improve the competitiveness of the Indonesian agricultural and manufacturing sectors, it is projected that the pace of de-industrialization in Indonesia will intensify.
Further, the dehumanization of Indonesian workers, who depend on the agricultural and industrial sectors, will become an inevitable fact of life in the near future.
To cope with this problem, policy coordination and harmonization between government agencies that deal with trade and the agricultural and industrial sectors needs to be strengthened and integrated.
Promoting trade liberalization with China without considering the importance of industrial development policies or without paying proper attention to the issue of broad-based economic growth will result in the trade relationship between China and Indonesia being limited to importing and exporting.
The second issue is related to investment. Almost no one doubts that Japan, the United States and Europe’s role in investment in Indonesia can be overtaken by China.
The rise of China, as illustrated by its achievements and status as the country with the world’s largest foreign reserves, may also provide a ray of hope to Indonesia in coping with the problem of attracting foreign investment for infrastructure development.
Decision makers in Jakarta may also think it is within China’s economic interests to channel back its abundant foreign reserves in the form of foreign direct investment, to reduce the increasing pressure from the United States and Europe regarding yuan appreciation.
With the view to building roads, bridges, ports and the energy sector, it is no wonder government institutions in Jakarta dealing with foreign investment are very keen to tap into China’s massive foreign reserves.
While this seems reasonable, it is worth mentioning that plans for foreign investment contain quid pro quo elements. With a population reaching 1.3 billion, China is also facing an unemployment problem. It is likely that China may expect Indonesia to offer a special plan for its foreign investment in Indonesian infrastructure projects, for instance, by allowing Chinese companies to bring in their own workers from China.
In addition, foreign direct investment in infrastructure development is generally in short-term turnkey projects with a small number of workers compared to investment in the manufacturing industrial sectors.
Another problem exists if Indonesia wants to invite small and medium enterprises (SMEs) from China to assist in the development of Indonesia’s manufacturing industrial sectors.
The efficiency of China’s SMEs can be partly attributed to the distinctiveness of its political environment. In Indonesia’s case there is a labyrinth of business regulations, at both local and national levels, and the rights of workers to express grievances about working conditions are legally justified.
Differences of political identity and economic capability still really matter in shaping the future of
the Sino-Indonesian economic relationship.
The writer is the chairman of the Department of International Relations postgraduate program at the School of Social and Political Sciences, University of Indonesia.
