Indonesia Seeks More Chinese Investment in Infrastructure Projects

Tria Dianti and Ami Afriatni
181207-ID-China-investment-1000.jpg Laborers work at a construction site in Jakarta, Sept. 22, 2011.

Indonesia has proposed a series of new projects for Chinese investment as the sprawling Southeast Asian nation looks to boost its participation in Beijing’s One Belt, One Road international expansion program, a senior official said Friday.

The new projects would include power plants as well as industrial parks with manufacturing facilities on the major islands of Sumatra, Sulawesi and Bali as well as Kalimantan, the Indonesian portion of Borneo.

The projects could be valued at as much as U.S. $60 billion (872 trillion rupiah), said Ridwan Djamaluddin, a deputy minister at the Coordinating Ministry for Maritime Affairs.

“This is not only part of One Belt, One Road, but part of Indonesia’s vision to be the global maritime fulcrum,” he told BenarNews without providing details, noting that the new proposals were “currently in the discussion stages.”

Iwan Unsi, deputy director of the Investment Coordinating Board (BKPM), said Indonesia welcomed the prospect of increasing the size of Chinese investments in infrastructure projects, which already run in the 11-figure range in dollar terms.

“The projects are very significant because they concern electricity, energy and infrastructure, especially in four provinces – North Sumatra, Kalimantan North, North Sulawesi and Bali,” Iwan told BenarNews without elaborating.

Previously, Indonesian and Chinese officials agreed to construct a high-speed passenger train and power plants as part of One Belt, One Road (OBOR).

President Joko “Jokowi” Widodo, who is seeking re-election in April 2019, has embraced Chinese investment as he set upgrading his country’s infrastructure as a first-term priority.

Prabowo Subianto, Jokowi’s opponent in the upcoming election, has stated that he would pursue close relationships with both China and the United States, if elected president. However, in October, aides to Prabowo said Indonesia might also reconsider China-backed infrastructure projects should he take over as president next year.

Last year, Jokowi attended a two-day One Belt, One Road forum in China where Beijing laid out its plans to invest more than $1 trillion as part of its strategy of building a network of ports, roads and railways stretching through Southeast Asia, South Asia and beyond.

A “Maritime Silk Road” is part of China’s plan to boost its global trading links by developing overland and maritime routes connecting the world’s most populous nation to markets in Europe.

Railway project delayed

The railway linking the city of Bandung in West Java and the capital Jakarta, which has seen projected costs rise to $5.9 billion (85.6 trillion rupiah), is being constructed by a consortium led by China Railway International, according to information from the Indonesian government’s National Investment Coordination Board.

Jokowi launched the project in early 2016 to much fanfare but construction was delayed for about two years.

Bank Central Asia economist David Sumual acknowledged that several projects funded by China, including the Jakarta-Bandung high speed train, have faced obstacles and delays, but said Beijing was largely not to blame.

“The obstacles are not with China but in Indonesia because of land acquisition issues. Speeding up land acquisition remains our homework,” he told BenarNews.

Previously approved projects involving China include a hydroelectric project in North Kalimantan – located in the Indonesian section of Borneo – estimated to cost $25 billion (363 trillion rupiah) and a series of coal-fired power plants estimated to cost $12 billion (174 trillion rupiah).

In addition to China, Indonesia is seeking investments from European countries and the United States, Sumual said. To make that happen, the government has offered tax-exempt facilities to attract foreign investors.

Another economist said Indonesia’s efforts to attract Chinese investments were to be expected even though she warned against moving forward on the passenger rail project.

“It is only natural if Indonesia is now oriented toward China because China is one of the world’s largest economies,” said Enny Sri Hartati, an economist from the Institute for Development of Economics and Finance (INDEF).

“China is the number 2 export destination for Indonesia, but most of our exports are limited to commodities,” she told BenarNews. “Any investment should increase added value for our products.”

Enny suggested that Indonesia focus on cargo delivery over passengers.

“What Indonesia needs now is infrastructure to improve the mobility of goods, so as to reduce logistics costs,” she said.

Trading partners

Sino-Indonesian trade grew nearly tenfold from 2003 to 2010 alone, when the volume reached $36.1 billion (524 trillion rupiah), according to the International Institute for Sustainable Development, a Canada-based independent think-tank.

Last year, bilateral trade totalled $58.8 billion (853 trillion rupiah), with the balance favoring China.

In 2017, Indonesia imported Chinese goods, mostly electronics, valued at about $35.7 billion (518 trillion rupiah), and it exported $23.1 billion (335.5 trillion rupiah) in goods to China, according to official figures. Indonesia sent its trading partner mostly coal briquettes, steel and palm oil.

The Chinese-driven OBOR project represents an opportunity for Indonesia, said Lana Soelistyaningsih, an economist at the University of Indonesia.

“Today there are not many countries that are bilaterally willing to give project loans like China is doing. What we need now is money. China has it and is ready with the capital,” Lana told BenarNews.

“Now the choice is up to the government. If you only see the negatives, the government will not be able to move. But if the negative aspects can be mitigated, it’s fine,” she said.

In an interview with Reuters this week, Djamaluddin, the deputy Indonesian minister, conceded that his government needed to watch out for a potential scenario where China could attach strings to loans associated with Indonesian projects.

“We are fully aware that we must not let this cooperation end badly,” Djamaluddin told Reuters.

“Other countries have been forced to pay back loans and some have let go of their assets. We don’t want that.”


Add your comment by filling out the form below in plain text. Comments are approved by a moderator and can be edited in accordance with RFAs Terms of Use. Comments will not appear in real time. RFA is not responsible for the content of the postings. Please, be respectful of others' point of view and stick to the facts.