China doubles investment in Indonesia during first half of 2022

Dandy Koswaraputra
China doubles investment in Indonesia during first half of 2022 A worker mans a nickel smelting furnace at Indonesian mining company PT Vale’s plant in Soroako, South Sulawesi, Indonesia, March 30, 2019.
[Bannu Mazandra/AFP]

China more than doubled its investment in Indonesia in the first half of 2022, compared to the same period last year, driven by the construction of nickel smelters, according to Indonesian government data released Monday.

Chinese investments in Indonesia reached U.S. $3.6 billion from January to the end of June, compared with $1.7 billion in the first half of 2021, according to the Indonesian Ministry of Investment.

Investment Minister Bahlil Lahadalia said the country’s “downstreaming” sector would continue to attract investments. Downstreaming refers to a government policy that requires companies to refine commodities here to make exports more valuable and to create more jobs.

“I have a conviction that Indonesia will still be a choice for investment, especially in the downstream sector,” Bahlil said during a news conference broadcast live on YouTube.  

“China is really pushing hard with downstreaming. So, the way I see it is even though there is a slowdown there [in China], investment here will be just fine.”

Indonesia imposed a ban on nickel ore shipments in 2020, prompting the European Union to seek a review by the World Trade Organization. Still, Jakarta has said that it will apply a similar downstream policy to other commodities such as bauxite, copper and tin. The smelter operations, which extract metal from ore, are exempt from the ban.

In addition to discussing the first-half China investment figures, Bahlil said foreign direct investment in Indonesia rose 63.6 percent on a yearly basis in the third quarter, to 168.9 trillion rupiah ($10.83 billion).

“The growth of 63 percent is the biggest ever recorded, so this is extraordinary,” he said.

‘Zero-COVID’ policy

The boost in Chinese investment could be attributed to the government’s downstreaming policy, said Tauhid Ahmad, executive director at the Institute for Development of Economics and Finance (INDEF), a Jakarta think-tank.

“China is building a lot of factories here,” Tauhid told BenarNews, adding that he expected China’s investment this year could top $7 billion, up from $3.2 billion in 2021.

He said China’s “zero-COVID” policy, which had resulted in widespread lockdowns, could force Chinese businesses to look elsewhere for growth.

Chinese-linked companies dominate the nickel smelter industry in Indonesia, according to information from the Ministry of Energy and Mineral Resources. These firms include PT Sulawesi Mining Investment, PT Virtue Dragon Industry, PT Huadi Nickel Alloy and PT Harita Nickel.

In May, China’s Zhejiang Huayou Cobalt Co. said it would partner with EVE Energy, a maker of batteries for electric vehicles, to establish a $2.08 billion nickel and cobalt plant on Halmahera, an island in the Moluccas chain.

Meanwhile, Indonesia’s coordinating minister for maritime affairs and investment, Luhut Pandjaitan, told Reuters news agency that his country’s exports could hit a record $280 billion this year, with nickel-based steel shipments rising sharply following the ban on nickel ore exports.

Exports could rise to more than $300 billion by 2024 as the government prepares to regulate exports of other commodities, Luhut told Reuters.

China is the second largest investor in Indonesia after Singapore, whose investment in the country reached $6.7 billion in the first half of this year.

Last year, Indonesian President Joko “Jokowi” Widodo broke ground on a U.S. $132 billion “green” industrial zone on Borneo to be built with investments from China and the United Arab Emirates and electrified by a Chinese-funded hydropower plant.

When finished the 30,000-hectare (116-square-mile) industrial zone in North Kalimantan province would be almost as big as the island-nation of Malta and be a manufacturing hub for solar panels, batteries for electric cars, industrial silicon and other products.

The government is targeting 2024, Jokowi’s final year in office, to complete construction of the project.

China is also funding projects in Indonesia as part of Beijing’s Belt and Road Initiative (BRI) worldwide infrastructure-building program. These include the Jakarta-Bandung high-speed rail project, which is expected to be completed in June 2023.

Indonesia owes $17.28 billion in “hidden debt” to China, more than four times its $3.9 billion in reported sovereign debt, according to a 2021 study by AidData, a United States-based international development research lab.

Nearly 70 percent of China’s overseas lending is directed to state-owned companies and private-sector institutions. For the most part, the debts do not appear on government balance sheets, AidData said.


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