Indonesia turns to China for capital and trade

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BUSINESS

Ayomi Amindoni
The Jakarta Post   WED, 27 JAN, 2016 2:43 PM

JAKARTA – Indonesia will change its exports and foreign direct investment (FDI) strategies by catering to China, which is currently in a crucial transition from having an economy based on investment, to one that is based on consumption.

Indonesia once enjoyed a commodity boom in coal and crude palm oil (CPO), but missed a chance to create a downstream industry. Thus, the prolonged moderate prices of commodities have made Indonesian exports to China diminish.

“It was good during the good times, but now their demand is different and they already offer investments. Shifting from trading to investment is important,” said Finance Minister Bambang Brodjonegoro during the Mandiri Investment Forum 2016 in Jakarta on Wednesday.

He pointed out that Malaysia and Vietnam created downstream industries and now change commodities into finished goods. Those kinds of goods were in line with China’s growing consumer demands.

When the Chinese economy was slowing because of reduced investments, which in turn reduced demand for raw materials import from Indonesia, both Malaysia and Vietnam managed to maintain their exports of finished goods to China.

“It’s ironic for us. Our exports to China are experiencing a negative growth because of low demand. We really need to change immediately and start trying to export finished goods,” he said.

At the same time, Bambang continued, Indonesia should attract more capital or foreign direct investment (FDI) from China. Despite the high volume of capital inflow from that country, it is still less than what comes from Singapore, the US, Japan and some European countries.

Furthermore, he added that the Investment Coordination Board (BKPM) recorded a lot of investment commitments from China, but only few of them were realized. Singapore, Japan, Taiwan and the US are among the countries with a high number of actual investments.

“Our challenge is to attract potential investment from China and realize the investment in the field. Unfortunately, China is below 10 percent. It means from 100 commitments only 10 become real investments. Too many commitments, but few achievements,” said Bambang.

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