Beijing, Jakarta put business
before history By Bill Guerin
JAKARTA - China's growing appetite for
natural resources and Indonesia's position as
Asia's resource-richest country are pulling the
longtime regional adversaries together in a
mutually beneficial commercial embrace.
Indonesian President Susilo Bambang
Yudhoyono, who has made several state visits to
China since taking power in 2004, has prioritized
building up better bilateral relations with
Beijing. The two countries last year signed a
strategic partnership in Beijing
during Yudhoyono's
four-day state visit to the Middle Kingdom,
placing Indonesia in the ranks of only a few major
countries to be afforded that cooperative status.
Those diplomatic niceties have paved the
way for more bilateral trade and investment deals.
Two-way trade is expected to reach US$16.7 billion
this year, and China is now Indonesia's
fourth-largest trading partner after the United
States, Europe and Japan. Both countries' trade
representatives talk about nearly doubling trade
volumes to $30 billion by 2010.
For the
first time, Indonesia this year became the biggest
global supplier of non-oil-and-gas products to
China, according to Indonesia's Central Bureau of
Statistics. China ranked as the fourth-largest
importer of Indonesia's non-oil-and-gas products,
valued at $3.4 billion over the first nine months
of this year.
And there is plenty of room
for growth. Indonesia has an estimated 177
trillion cubic feet (5 trillion cubic meters) of
proven and potential natural-gas reserves.
According to industry estimates, China currently
burns through 1.52 trillion cubic meters of
natural gas per year, and its domestic reserves
are expected to run dry by 2020. China has only
2.1% of the world's known crude-oil reserves, and
currently imports more than 40% of its
fast-growing petroleum needs.
The two
countries recently established the China-Indonesia
Energy Forum, which now facilitates hundreds of
millions of US dollars' worth of Chinese
investments in oil, mining, energy and
infrastructure projects in Indonesia. According to
the state news agency Antara, these include power
plants, telecommunications, railways, toll roads,
and improvements to existing trade and transport
facilities, including the airport and seaport in
Papua, Indonesia's easternmost, resource-rich
province.
China, which has accumulated
more than $1 trillion in foreign reserves and has
recently commenced providing financial aid to its
poorer Southeast Asian neighbors, has agreed to
provide $800 million in soft loans to Indonesia
for investment projects. Meanwhile, Chinese
companies are increasingly staking out
Indonesia-based investments and buying into
primary-commodity producers of palm oil, pulp and
paper, as well as stakes in oil and gas concerns.
Recently inked projects include $8 billion
worth of mining and energy deals in West Java,
South Sumatra and South Sulawesi. This includes a
planned $2.24 billion 55-45% joint-venture deal
between China's Huadian Power International Corp
and Indonesian coal miner PT Bukit Asam Batubara
to build a 3,240-megawatt power plant in southern
Sumatra's Jambi province. The deal, which will be
financed chiefly by the Bank of China, was
announced after Indonesian Vice President Jusuf
Kalla led a high-level business delegation to
China.
Yet the growing economic ties cut
both ways. China and Indonesia frequently compete
for the same global market segments. China's
recent rise is widely believed to have come
directly at Indonesia's expense, as global
manufacturers opted out of Southeast Asian
countries for China's cheaper labor and larger
unified market.
The two countries are now
fierce competitors in the electronics, furniture,
and textiles and clothing export industries, and
China's lower costs are driving many Indonesian
consumer-goods manufacturers into bankruptcy.
Indonesia's domestic markets are swamped with
cheap Chinese imports, many of which are allegedly
smuggled in without paying customs duties or
value-added taxes.
There are concurrent
concerns about the unregulated flow of natural
resources to China. The two countries agreed in
2003 to cooperate in combating the massive trade
in illegal timber flowing from Indonesia to
China's huge wood-processing industry. A damning
report last year by the Environmental
Investigation Agency found that some 300,000 cubic
meters of illegal merbau (durable,
termite-resistant wood of the ipil tree) logs are
shipped every month from Indonesia to China.
Although the report pointed the finger at
underground smuggling syndicates rather than
corrupt government officials, it concluded that
the only way to put an end to the illicit trade
was through strong concerted efforts by both
governments.
Prickly past The
growing commercial ties mark a significant turn
for the two countries, whose bilateral relations
have long been characterized by mistrust,
suspicion and resentment.
The two
countries broke off official relations in 1967 and
remained at diplomatic odds for more than 23 years
after Indonesian strongman Suharto unleashed an
anti-communist purge that drove thousands of
ethnic Chinese suspected of supporting the
Indonesian Communist Party (PKI) out of the
country. During the violence, angry protesters
destroyed the Chinese Embassy in Jakarta.
Suharto later implemented a set of
discriminatory measures known as the "Basic Policy
for the Solution of the Chinese Problem";
thereafter China vocally reasserted its historic
claims to the Natuna gas fields in Indonesia's
territorial waters by invoking an obscure ancient
map. Indonesia and China today still have
competing territorial claims, along with various
other regional countries, to the Spratly Islands.
Ethnic-Chinese business interests now
control vast swaths of the Indonesian economy,
which historically has often sparked violent
resentment across the archipelago. After the
1997-98 Asian financial crisis, Indonesian rioters
ransacked and burned down ethnic-Chinese-owned
businesses in Jakarta, and the Indonesian
government's tepid response to the violence and
looting was viewed with resentment in Beijing.
Thereafter, some big ethnic-Chinese Indonesian
tycoons shipped their money to Singapore and until
recently were reluctant to return it.
At
least for now, that bitter history is being
subordinated to economic interests. Significantly,
Beijing has recently playing a behind-the-scenes
role in persuading certain top Chinese-Indonesian
businessmen who fled with their capital to
Singapore in 1998 to bury that past and return to
Indonesia. During a meeting last year in Beijing,
Vice President Kalla met with several estranged
ethnic-Chinese businessmen, who agreed with
Chinese officials present to repatriate $1 billion
of their capital back to Indonesia, according to
news reports.
China clearly hopes that its
economic and diplomatic charm offensive toward
Indonesia will eventually pay strategic dividends.
Currently, 80% of China's oil passes through the
narrow and congested Malacca Strait, which
straddles peninsular Malaysia and the Indonesian
island of Sumatra. China's leaders have openly
expressed their concerns that in a potential
future conflict with the United States, that
country's navy would attempt to choke off China's
fuel supplies at the Malacca Strait.
Both
China and the US are quietly competing for
Indonesia's strategic attentions. That explains
why US President George W Bush paid a highly
unpopular visit to Indonesia during his pass
through the region last week, and why the US last
November lifted its six-year arms embargo against
the Indonesian military, imposed over concerns
about its spotty human-rights record.
Most
analysts believe China still has a long way to go
before its bilateral relations with Jakarta are on
par with the US and Japan. On the Indonesian
street, resentment against ethnic-Chinese economic
dominance still far outweighs mistrust of the
West's intentions. As more mainland Chinese
investments enter the country and many become
involved in politically sensitive extractive
industries, nationalistic politicians represented
in parliament could eventually find ethnic cause
to complicate the expanding economic relationship.
Yet with Indonesian unemployment hovering
around 10%, and with nearly 40 million people
living below the poverty level of 60 cents per
day, China's big-bang investments are helping to
spark economic growth and create badly needed
jobs. At least for now, Yudhoyono's pragmatic
government is willing to look beyond history and
ethnicity in the broader interest of business and
economics.
Bill Guerin, a
Jakarta correspondent for Asia Times Online since
2000, has been in Indonesia for over 20 years,
mostly in journalism and editorial positions. He
specializes in Indonesian political, business and
economic analysis, and currently hosts a weekly
television political talk show, Face to Face,
broadcast on two Indonesia-based satellite
channels. He can be reached at
softsell@prima.net.id.
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