RI is more dependent on Chinese goods

While Indonesian consumers can’t seem to get enough of cheap Chinese products, local manufacturing companies are also becoming more dependent on imported capital and intermediary goods from China to expand their businesses, the latest statistical data reveals.

Indonesia’s trade deficit in industrial goods with China widened last year to US$13.17 billion, an increase of 23.3 percent compared to 2010.

Recently issued data by the Industry Ministry, which compiled the trade figures for the January to
October 2011 period and a prognosis for the last two months of the year, shows that Indonesia imported $24.4 billion worth of industrial goods from China and exported $11.24 billion of manufactured goods.

The industrial goods from China mainly comprised electronic items, machinery and equipment, steel and derivative products, textiles and basic chemicals. Laptops and cellular phones topped the list of electronic goods, with the remainder being electronic components, while turbines along with fuel and lubricants contributed most to the machinery and equipment imports.

Yeane Keet of the Electronics Producers Association (Gabel), said that Indonesian manufacturers relied heavily on electronics imported from China. Chinese manufacturers, she said, benefitted immensely from integrated production chains.

“Our electronics industry lacks supporting industries, and thus we rely heavily on imported components, mainly from China, as well as other countries such as Malaysia, Vietnam and Thailand,” Yeane said.

The trade imbalance with China has been a major concern since the implementation of the ASEAN-China free trade agreement began gradually in 2004 with full implementation in 2010.

Indonesian Institute of Sciences (LIPI) economist Latif Adam said that the widening deficit stemmed from poor competitiveness in the domestic industry compared to China. He cited poor infrastructure that meant logistics accounted for 30 percent of total production costs in Indonesia, far higher than the 12 percent in China.

Indonesia’s high interest rates of around 12 to 13 percent also hampered local businesses from competing with Chinese manufacturers who benefitted from a 5 to 6 percent lending rate.

“China also has a clear industrialization strategy. Along with bureaucratic reforms, it has long been committed to restructuring industrial plant,” he said.

Agus Tjahajana, director general of international industry cooperation at the Industry Ministry, said on Wednesday that the rapid growth of imports from China had outrun the growth in Indonesian exports.

“Our exports (to China) only grew by 19.6 percent in the past five years, while imports expanded by 35.2 percent. The proportion of Chinese manufactured products in our total imports during the period also increased from 15.2 percent to 19.7 percent,” he told reporters at his office.

Agus said that the surging imports of industrial goods were partly driven by a higher demand for Chinese intermediary and capital goods from local industry, which still relied heavily on imports.

“What we must do is develop our downstream industry by producing most of the components necessary to support our industrial production,” he added.

Latif also said that the government needed to enhance the performance of state-owned enterprises, which at present dominated the upstream industry and which transferred their inefficiencies downstream.

“Without improving these conditions, we will see our deficit in industrial trade with China continue to rise in the future,” he said.