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Indonesia must diversify China trade

With China’s demand for commodities showing a downward trend, Indonesia needs to explore cooperation in alternative sectors with the world’s second-biggest economy as the latter transitions from a manufacturing economy into a consumer- and service-led economy, experts and analysts have warned.

Fedina S. Sundaryani (The Jakarta Post)
Jakarta
Wed, September 14, 2016

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Indonesia must diversify China trade Delegates of the China Council for the Promotion of International Trade (CCPIT) meet with Trade Ministry officials in Jakarta on Dec. 15, 2015. The CCPIT opened its representative office in Indonesia on Tuesday to promote bilateral trade between the two countries. (Courtesy of Trade Ministry/File)

Indonesia must diversify China trade

With China’s demand for commodities showing a downward trend, Indonesia needs to explore cooperation in alternative sectors with the world’s second-biggest economy as the latter transitions from a manufacturing economy into a consumer- and service-led economy, experts and analysts have warned.

China has been a major export destination for Indonesian commodities, particularly coal and gas. However, the ongoing global economic slowdown and China’s effort to promote the use of renewable energy has seen a brake being applied on the import of those commodities.

In 2013, China imported 266.7 million tons of coal from all over the world but this dropped to 155.9 million tons last year, according to data from the Geneva-based International Trade Center.

(Read also: Indonesia leans toward China)

Indonesia’s coal exports to China nosedived from 89.7 million tons in 2013 to 36.7 million tons in 2015. The export of liquefied natural gas to China, meanwhile, increased slightly from 2.3 million tons to 2.8 million tons in the 2011 to 2015 period.

In anticipation of Beijing’s attempts to transition from a growth model based on construction and heavy industry toward greater reliance on consumer spending and services, calls are mounting for the Indonesian government to take advantage of the change despite the economic turbulence that would occur during the transition period.

China’s economy grew 6.7 percent in the first quarter of 2016, the slowest in seven years, and remained unchanged in the subsequent quarter.

A recent report by Deutsche Bank indicates that even a 1 percent point slowdown in China’s real GDP could lead to a 0.5 percent decline in the global GDP and an almost 1 percent point drop in Indonesia’s GDP.

In order to tackle this, Bank Central Asia chief economist David Sumual said Indonesia could take advantage of China’s consistent oversupply of processed goods and import them for domestic infrastructure needs.

“We can also invite China to invest more here, especially in the infrastructure and manufacturing sectors, which the government has been focusing on. This way, the global overcapacity can be handled and we can fulfil our investment needs,” he told The Jakarta Post recently.

Meanwhile, HSBC Indonesia managing director Ali Setiawan said that China’s slowing economy was Indonesia’s chance to get creative as it had been spoiled for several years by China’s high demand for commodities. “We can no longer rely on China now that their growth is slowing down. Back then, there was a lot of development that needed a lot of commodities and we, like many other emerging countries, were spoiled. Now it’s time for us to get creative and think up new ways to grow,” he said.

President Joko “Jokowi” Widodo displayed strong signals during the G20 Summit early this month, indicating that Indonesia would continue to maintain strong economic ties with China,

Several notable projects between the two countries have emerged recently, including Indonesia’s first ever high-speed railway, secured in a US$5.1 billion deal between a China-Indonesia consortium and a multi-billion dollar financing agreement between the China Development Bank and Indonesian state banks.

Speaking to reporters last week, Investment Coordinating Board (BKPM) chairman Thomas Lembong said that Chinese investors had already expressed great interest in Indonesia’s industrial sector, especially in the cement, metals and smelter sectors.

The government’s enthusiasm for Chinese investments is palpable with the BKPM having established a “China Desk” earlier this year to help answer all investment-related questions from Chinese investors.

The BKPM recorded last year $21 billion in investment commitments from China. Of this amount, the agency has seen $2.1 billion in realized commitments. With the new China desk, the agency is aiming for a 42.86 percent commitment increase to $30 billion this year.

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