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China Doubles Investments in Indonesia through ‘Very Aggressive’ Approach, Official Says

Tia Asmara
Jakarta
2020-01-29
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Indonesian women examine scale models of Chinese-made bullet trains being exhibited at a shopping mall in Jakarta, Aug. 13, 2015.
Indonesian women examine scale models of Chinese-made bullet trains being exhibited at a shopping mall in Jakarta, Aug. 13, 2015.
AFP

China doubled its investments in Indonesia to U.S. $4.7 billion last year, replacing Japan as the second largest foreign investor after Singapore, according to figures released Wednesday by the Indonesian investment agency.

In the fourth quarter of 2019 alone, Chinese investments accounted for just over 20 percent of total foreign investments for the year, according to Indonesia’s National Investment Coordinating Board (BKPM).

“The government does not give priority to Chinese investment. It’s just that China is known to be very aggressive,” BKPM chairman Bahlil Lahadalia told reporters in Jakarta.

China also drove up investments from 2018, when it invested $2.4 billion in the Southeast Asian nation, down from $3.3 billion the year before.

“Chinese investors also conduct feasibility studies faster than Japan. For Japan, studies can take three to four years,” Bahlil said.

Japan fell a spot as it saw its investments drop from $4.95 billion in 2018 to $4.3 billion last year. Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance, blamed the decline on weakening car sales.

While retaining the top spot, Singaporean investments in 2019, valued at $6.5 billion, showed a significant drop from $9.2 billion spent the year before, according to the investment board.

China invested in capital-intensive sectors and large projects such as infrastructure and manufacturing, Bahlil said, adding that more than 1 million jobs were created last year, with the largest investments made in the transportation and telecommunications sectors.

Total actual domestic and foreign investment last year was valued at 809.6 trillion rupiah ($59.4 billion), exceeding the target of 792 trillion rupiah ($58.1 billion), BKPM said.

Bahlil said his agency would focus on speeding up approval of investments to make it easier for investors to do business in the country.

“We continue to focus on quality investment that engages medium and small enterprises to a create multiplier effects for the surrounding communities,” Bahlil said.

Jokowi’s priority

President Joko “Jokowi” Widodo, who was re-elected last year, has made improving Indonesia’s infrastructure a priority.

During his first term, Jokowi embraced Chinese investment, even attending the 2017 unveiling of Beijing’s One Belt, One Road (OBOR) initiative.

China then laid out plans to invest more than $1 trillion in building a network of ports, roads, railways and other logistics-related projects stretching through Southeast Asia, South Asia and beyond to boost global trading links to markets in Europe.

Multibillion-dollar projects under the OBOR banner in Indonesia feature the construction of a high-speed rail link and dams.

Jokowi’s focus on infrastructure has resulted in Beijing being awarded turnkey projects, where raw materials and labor are imported from China, Bhima said.

“Massive development in the smelter sector has also attracted Chinese investors to Indonesia,” the economist said.

Politically, he added, there is a sense that Jokowi is courting China in a departure from his predecessor, Susilo Bambang Yudhoyono, who sought to cultivate ties with European countries, the United States and Japan.

“Political preferences affect the flow of investment from China,” Bhima said.

To aid investment, the Jokowi government has proposed a series of omnibus bills to override laws seen as discouraging job creation. The Indonesian parliament has agreed to debate the bills this year, but labor unions said the proposed legislation could remove some of the protections enjoyed by workers, and make it easier for companies to fire employees and hire temporary staff.

Where investment money comes from does not matter, said David Sumual, an economist with Bank Central Asia.

“The rules must be clear: there must be transfer of technology and employment for locals,” he said, adding that Indonesia has had difficulty attracting investors because of red tape.

“We are not competitive with other countries in terms of labor regulations, taxation. Rules often change while investors need certainty,” he said.

Environmentalist concerns

Some Chinese projects in Indonesia have been criticized for their potential impacts on the environment and wildlife.

Last month, the government launched a coal-fired power plant in Java’s Banten province that is being built by the state-owned China Shenhua Energy Co. Ltd. (CSECL) at a cost of $1.8 billion. With the addition of a second unit in the same area to be completed next year, it will be the largest power plant in the sprawling archipelago nation, officials said.

Green energy advocates complain that the plant’s construction is not consistent with the government’s target of using renewable sources to power 23 percent of Indonesia’s energy plants by 2025 as stipulated in the National General Energy Plan.

Previously, environmental groups and scientists warned that a 510-megawatt hydropower dam being constructed in the Batang Toru rainforest on Sumatra Island by China’s ZheFu Holding Group, would threaten the survival of about 800 Tapanuli orangutan.

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