THE RELATION BETWEEN INDONESIA-CHINA IN ECONOMIC FIELD:

THE CHALLENGES AND OPPORTUNITIES

Written by:
Wira Arif Budiman
(A Magister Student of International Relation, Universitas Indonesia)
Words count: 2724
A. Background
Development of basic infrastructure in Indonesia does tend to displaced from year to
year. Before the economic crisis, the budget for infrastructure development in Indonesia
is only five per cent of gross domestic product. After the crisis, the budget was sadder
for only 2 percent. To catch up, it needs funds about 1,300 trillion within five years to
build the infrastructures.
In addition to causing high economic costs due to lack of infrastructure,
economic growth is also inhibited and just be in the range of 7-8 percent. To achieve
growth in gross domestic product (GDP) by 6 percent, it requires the infrastructure
funding by 5 percent per year of total GDP. In addition, when compared with other
developing countries, Indonesia has the lowest financing and the role of the private
sector is very insignificant. By the purposes of the infrastructure fund of Rp. 1,303
trillion, state-owned enterprises (or in Indonesian called as BUMN) in charge of the
infrastructure is available only Rp. 306 trillion.
The main indicator of poor availability of infrastructure in Indonesia is the high
poverty rate, followed by the high amount of unemployment. The majority of poor
people in the region are not touched by the public service. They live in lagging regions
that are difficult to access. This fact makes the government's awareness stamped after
the earthquake and tsunami in late 2004. As a solution, the government started
infrastructure development scenario. Why infrastructure? It is because the trigger for the
development of infrastructure will impact the other sectors, notably economic growth.
The rationale, if the basic infrastructure provided, the quality of people's lives will be so
much better.
Indonesia, in the implementation of development, has a vision as stated in Law
No. 17 Year 2007 on the National Long-Term Development Plan (or in Indonesia called
as RPJN) 2005-2050, that "Indonesia is an independent, advanced, just, and
prosperous". Indonesia has the aspiration to become a developed country and in the top
ten major countries in the world by 2025 with a per capita income reached USD 1425015500 and eight of the world in the year 2045 with a per capita income reached
$44.500- 49,000. The economic growth target will be achieved if there is an
acceleration in the realization of investment, both real sector and infrastructure. In
RPJMN 2010-2014, Indonesia is targeting average economic growth of 6.3-6.8% per
year until 2014.

The challenges to improve its economic growth and competitiveness encourage

Indonesia to continue to make improvements on a few things; one of them is the
improvement of the quality of infrastructure. Based on information from the global
competitiveness index (CGI) showed that Indonesia's economic competitiveness 20132014 period is ranked 38 of 148 countries that increased from the previous period.
Indonesia's overall infrastructure quality 2013-2014 period is at rank 82 out of 148
countries in the ranking of the previous period was 92.
Since Jokowi sworn as the President of Indonesia on October 20, 2014 and then,
one of his vision and mission priorities is infrastructure. As quoted by the daily news of
Kompas, President Jokowi highlights the lack of infrastructure development in the sea,
the development of airports, as well as the addition of the railway line. For marine
infrastructure, he said, if it can be maximized, then the future is no longer inequality
among the regions. He termed the concept of marine infrastructure development with
the term of "marine highway".
Meanwhile, for the development of the airport, President Jokowi said that he
will apply the concept of cooperation with private investors. According to him, the idea
came by the problem of slow pace of development of Soekarno-Hatta, whose influence
on the increasingly muddled the scars flight schedule. Furthermore, President Jokowi
also highlighted the infrastructure surrounding the rail line. According to him, it should
be done by adding railway lines in Java, while building a train line in the mining areas
in Sumatra and Kalimantan.
To realize the agenda, President Jokowi gives the investment opportunities as
much as possible to foreign investors to invest their funds in Indonesia. But, it is seen
from the development, President Jokowi more likely to cooperate with China than Japan
to build infrastructure in Indonesia.
The Proximity of President Jokowi and Chinese President Xi Jinping
increasingly close assessed should be beneficial for Indonesia. One of them is to
implement the commitments on investment in Indonesia.
President Jokowi requested, in his speech at the APEC summit in Beijing, 8-12
November 2014 on the countries in Asia Pacific to come and invest in Indonesia, was
met with a great enthusiasm by the Chinese. China then immediately makes a massive
investment plan in Indonesia. Scoping investment was concreted by President Jokowi
through his visit to Beijing on 25 to 27 March 2015. During the visit, President Jokowi
managed to agree on eight memorandums between Indonesia-China.
The Eighth memorandums of understanding between Indonesia and China are as
follows:
1.
2.

Memorandum of economic cooperation between the Ministry for Economic Affairs

and National Development and Reform Commission of the PRC.
Memorandum of cooperation of Fast Rail Development Project of Jakarta-Bandung
between SOE Ministry and the National Development and Reform Commission of
the PRC.

3.
4.
5.
6.
7.
8.

Memorandum of cooperation of maritime and SAR between BASARNAS and the

Ministry of Transport of the PRC.
Protocol to the Agreement between the Government of the PRC and Indonesia in
the prevention of double taxation between the two countries.
Cooperation Framework 2015-2020 between Lapan Space and Space Agency of
PRC.
Memorandum of cooperation with mutual support between the Ministry of StateOwned Enterprises and China Development Bank.
Memorandum of Understanding between the governments of China and Indonesia
in the prevention of double taxation between the two countries.
The Memorandum of Understanding of cooperation in industrial and infrastructure
between the Ministry of SOE (BUMN) and the National Development and Reform
Commission of the PRC.

The investment values of China that will be invested for infrastructure in

Indonesia is very fantastic. National Development Planning Agency (or in Indonesian
called as BAPPENAS) said China is ready to pour capital up to US $ 100 trillion to
finance infrastructure projects in Indonesia, the investment commitment equivalent to
Rp. 1361.5 trillion, by assuming that the current exchange rate of 13.615 per US dollar.
In addition, the influx of Chinese investment is also coupled with the influx of
foreign workers from them. However, this is a problem for Indonesia because the
unemployment rate is still above 5 percent despite the trend is decreasing according to
the period of the past year. According to data from the Central Statistics Agency (or in
Indonesian called as BPS), Indonesia's labor force in February 2015 as many as 128.3
million people, increased by 6.4 million people compared to August 2014 or increased
by 3.0 million people compared to February 2014. The working population in February
2015 as 120.8 million people, increase of 6.2 million compared to August 2014 or
increased by 2.7 million compared to February 2014. Unemployment rate (or in
Indonesian called as TPT) in February 2015 decreased by 5.81 percent compared to
August 2014 TPT (5.94 percent), and increased compared to TPT February 2014 (5.70
percent). During the last year (February 2014-February 2015) the increase in
employment occurred mainly in the Industrial Sector as many as 1.0 million people
(6.43 percent), Social Services Sector as many as 930 thousand people (5.03 percent),
and the Trade Sector as 840 thousand people (3.25 percent).
In this regard, it can be predicted that competition among the workforce of
Indonesia and China will increase if the implications of these investments impact on the
prevalence of foreign labor in Indonesia. It is not just a concern for the community but
included among entrepreneurs as well. They are concerned that Indonesian workers will
be unable to compete in terms of quality because our capability is still less than the
other countries. The quality of labor force also related to the education and training
system that did not answer to the needs of business world.
But those concerns immediately denied by the Ministry of Manpower, Hanif
Dakhiri who reports about the exodus of foreign workers from China to Indonesia. The
minister confirmed, it is very selective in issuing a permit employs Expatriate (in

Indonesia called as IMTA) to ensure there is no violation of employment rules,

especially during a work permit in Indonesia.
Furthermore, he also confirmed that there are others requirements beside
Indonesian language, it is a requirement of competence, terms of office should be
appropriate. To issue about the positions, not all positions can be occupied by foreign
labors. Then there is the requisite assistance for the transfer of technology, it is a
requirement expansion of employment opportunities, said Hanif. Additionally, he has
also added a comparison between the expansions of foreign labor with local labor is
about 1 in 10. That is, if one of foreign worker to enter Indonesia, the company must
hire 10 local workers.
In short, the purpose of this essay is to provide an overview and framework
whether the massive investment is to give a positive impact for Indonesia, or even that
will cost the Indonesian economy. Moreover, is it true that the government declared that
the exodus of workers from China just an issue that is spread to create public panic, or
the issue really is and will be the first Indonesian unemployment rate becomes higher,
so that will cause the negative impact on economic growth in Indonesia? The questions
that appear on the surface are an interesting phenomenon to study.
B. Framework
The emergence of China as a new economic power in the world is not something
impossible. In fact, the economic rise of China is expected to end the attitude of US
unilateralism as a result of the absence of a new force capable of defeating the United
States after the collapse of Soviet communism. Meanwhile, the economic power of
Europe and Japan is estimated to have stagnated so that the strength of the Chinese
economy is expected to be the economic power in the Asia-Pacific Region to drive the
growth and global economic dynamics.
The rise of China as a new force in the world carries significant geopolitical
changes in the last decade. China's economic rise dramatically can be a boon for
countries in Asia, including Indonesia. It is based on the assumption that the solidarity
of the countries in the region are increased to counter or minimize the influence of
western countries, especially the United States.
The China's economic revival, according to some parties should be utilized as
well as possible by other Asian countries, including Indonesia. In this regard President
Jokowi which has a program to build infrastructure to give a broad space for foreign
investors to invest in Indonesia. Infrastructure improvement program was welcomed by
Chinese saying that China is ready to invest funds in very large quantities to build
infrastructure in Indonesia, the value is not less than 100 trillion US dollars.
However, most other parties, especially among academics worried about China's
true intentions in such investment. It is based on the allegation that China is like the
United States that is just looking for profit. The opinion is raised, because, basically, the
main objective of a country to invest in another country is to give priority to its own
national interests.

C. Analysis and Conclusion

President Jokowi has been determined to improve Indonesia's domestic economy in the
long term. To realize that vision, President Jokowi must find new investors who want to
invest their funds in Indonesia. With a unique style of diplomacy, President Jokowi has
been repositioning China. From the first as a threat to Indonesia because stormed the
market with their products, which are cheaper, now China should be a supporting
country that benefit the economy of Indonesia in the future.
Jokowi-JK government has indeed set a new record by setting the infrastructure
budget of Rp 290.3 trillion. This is much higher than the previous year, Rp 206.6
trillion. However, this step is insufficient. President Jokowi must find other sources of
funds because he has big dreams for this country.
President Jokowi believes that the massive infrastructure development could be
a key to strengthening the national economy. It had earlier been proven in history when
President Franklin. D. Roosevelt managed to reverse the US economy after the First
World War from sinking into getting better. Moreover, a study conducted in the United
States (Aschauer, 1989 and Munnell, 1990) showed that the rate of return on
infrastructure investment to economic growth amounted to 60% (Suyono Dikun, 2003).
While the World Bank study (1994) showed the elasticity of GDP (Gross Domestic
Product) for the infrastructure in the country is between 0.07 up to 0.44. It means that
the increase one percent availability of infrastructure will lead to GDP growth of 7% to
44%. It is a very significant number.
The total funds needed to realize the big idea of President Jokowi in the
improvement of infrastructure in the next 5 years, reaching about Rp 5,452 trillion. The
programs includes the construction of toll marine, power generation of 35,000 MW, fast
rail, port and road construction.
In fact, that figure cannot be gotten only from the State Budget (in Indonesian
called as APBN). The government is only able to provide 40.14 percent of the total
funds to build infrastructure. Therefore, the logical solution is seeking loans and holding
private investors. Dedy Priatna, Deputy of Infrastructure of the National Development
Planning Agency (or in Indonesian called as BAPPENAS), said 20% -25% of the
project to be built, will be funded by foreign loans. Meanwhile, 45% of other projects
will be cooperated with private companies.
China was chosen as the main business partner not without a reason. Actually,
the economic cooperation between Indonesia and China has been running long enough.
However, in the era of the previous government, Indonesia is always in an inferior
position than China.
China has emerged as a new economic giant in the world in the last decade.
What is the secret of China? One is that China puts the development of infrastructure as
a pillar for economic growth. It is one that encouraged the construction of port
infrastructure as supporting export and import activities. Port in Shanghai, Shenzhen,

Qingdao, Ningbo and Guangzhou are now developing to become the busiest ports in
international level.
As a result of China's infrastructure development, the productivity and efficiency
of their industries are increasing. It is then impact on the strength of competition in the
international market. In international trade, particularly in the export of goods trade, in
2008 China ranked top after Germany, with a market share of exports amounted to 8.9%
of total goods exports worldwide (International Trade Statistics, 2009).
In ASEAN, including Indonesia, China also began rampant. ASEAN markets
including Indonesia, has many similarities to the Chinese domestic market. It took them
a strong position to enter. Chinese companies have experience in serving the market
with lower incomes, so the deciding factor for most consumers is price. Thus, Chinese
companies provide goods that have the same quality, but provide lower prices than local
competitors. It makes producers in Indonesia at a loss to stem the invasion of Chinese
products.
On the other hand, in terms of the influx of workers from China to Indonesia is
also not an excuse. As we already know, since the beginning of 2016, all ASEAN
countries have agreed to implement the ASEAN Economy Community (AEC), which
all are welcome skilled workforces to compete for getting jobs. If labor in ASEAN
alone can compete, why China as the largest investor Indonesia should not be? This will
make the competition is getting better and competitive in the future. In addition, may be
many people are not aware that Indonesia actually has the same right to export its
workforce to China.
Finally, it is expected that the economic growth between the two countries will
more increase in the future. China is now considering Indonesia as a good friend.
Moreover, China sees Indonesia as a country that takes wing and could become their
strategic partner on the world stage. Therefore, the bilateral relations should be further
enhanced for the mutual benefit.