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The ISEAS – Yusof Ishak Institute (formerly Institute of Southeast
Asian Studies) is an autonomous organization established in 1968. It
is a regional centre dedicated to the study of socio-political, security,
and economic trends and developments in Southeast Asia and its
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
18-J04018and
Indonesia 01 Trends_2018-11.indd 2
China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
2018 no. 11
Trends in
Southeast Asia
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Published by: ISEAS Publishing
30 Heng Mui Keng Terrace
Singapore 119614
[email protected] http://bookshop.iseas.edu.sg
The author is wholly responsible for the views expressed in this book which
do not necessarily reflect those of the publisher.
18-J04018and
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
FOREWORD
THE EDITORS
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
Series Chairman:
Choi Shing Kwok
Series Editor:
Ooi Kee Beng
Editorial Committee:
Su-Ann Oh
Daljit Singh
Francis E. Hutchinson
Benjamin Loh
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Indonesia 01 Trends_2018-11.indd 5
China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
18-J04018and
Indonesia 01 Trends_2018-11.indd 6
China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Indonesia and China’s Belt and Road
Initiatives: Perspectives, Issues and
Prospects
EXECUTIVE SUMMARY
• For Indonesia, which is keen to accelerate its infrastructure
development, Belt and Road Initiative (BRI) is seen as an
opportunity to tap into China’s huge financial resources and
technological capability.
• There has however been no concrete BRI project agreed to between
China and Indonesia so far. While China considers all projects,
including infrastructure projects and economic interactions as
part of BRI, Indonesia only considers those infrastructure projects
initiated during the Xi Jinping period as BRI projects.
• Indonesia has offered several broad areas for cooperation under the
BRI framework and carefully selected project locations to minimize
political risk for the Joko Widodo government. But no agreements
have been signed yet as China requires detailed project proposals
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
18-J04018and
Indonesia 01 Trends_2018-11.indd 7
China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Indonesia and China’s Belt and Road
Initiatives: Perspectives, Issues and
Prospects
INTRODUCTION
The Belt and Road Initiative (BRI) was first introduced by Chinese
President Xi Jinping in October 2013. Initially, the proposal offers
cooperation in infrastructure development covering the overland “Silk
Road Economic Belt” and the sea-based “Maritime Silk Road”. Later the
proposal has been extended to also cover non-infrastructure investment,
including cultural ties and people-to-people exchanges.2 In recent years,
BRI has become China’s global banner for promoting its international
position as the leader of open economic cooperation.
For developing countries that are keen to accelerate their economic
development, BRI is seen as an opportunity to tap into China’s huge
financial resources and technological capability. Specifically, for
Indonesia, a country that is currently embarking on massive infrastructure
development, BRI is considered a good alternative financing source.
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
1
Siwage Dharma Negara and Leo Suryadinata are Fellow and Visiting Senior
Fellow respectively at the ISEAS – Yusof Ishak Institute, Singapore. They wish
to thank Tham Siew Yean and Cassey Lee for comments and suggestions made
on an earlier draft and to Pearlyn Pang for producing the map in Figure 7.
2
J.E. Hillman, “China’s Belt and Road Initiative: Five Years Later”, CSIS,
2018 <https://www.csis.org/analysis/chinas-belt-and-road-initiative-five-years-
later-0> (accessed 25 February 2018).
18-J04018and
Indonesia 01 Trends_2018-11.indd 1
China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
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could benefit from BRI cooperation,3 and after the BRI forum, Indonesia
proposed a list of projects for cooperation under BRI.
Despite this interest to participate in BRI, however, there is as yet
no concrete BRI project agreed to between China and Indonesia. Also,
both countries have different perceptions on what BRI projects are.
While China considers all projects, including infrastructure projects and
economic interactions as BRI projects, Indonesia only sees infrastructure
projects started during the Xi Jinping period to be such. Since China
perceives BRI cooperation as a totality of China–Indonesia economic
interactions, this paper’s discussion also touches on China’s trade,
investments, loans and tourism in/with Indonesia in order to provide a
more complete picture.
While there have been a large number of analyses with regard to
BRI, including its potential geopolitics and geostrategic impacts on
countries along the belt route, there is not much analysis regarding how
the countries in the maritime silk route perceive BRI. This paper aims
to fill this gap by examining how different stakeholders (state, business,
media and society) perceive BRI. It explains Indonesia’s key interests in
BRI cooperation, describes the proposals from Indonesia, and assesses
how BRI cooperation will affect relations between the two countries.
Indeed, China–Indonesia economic relations have been improving
since normalization in the late 1980s. Trade relations have improved
significantly. In addition, Chinese FDI and many Chinese projects in
Indonesia have been increasing. Some of these projects have already
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
3
Fabian Januarius Kuwado, “Hadiri OBOR di China, Jokowi Intip Peluang
Jalur Sutera Modern”, Kompas, 13 May 2017 <http://nasional.kompas.com/
read/2017/05/13/15183741/hadiri.obor.di.china.jokowi.intip.peluang.jalur.
sutera.modern> (accessed 27 February 2018).
18-J04018and
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
ECONOMIC RELATIONS
Trade Relations
After the normalization of ties in 1989,4 economic relations between
China and Indonesia have intensified. Improved political relations have
helped the two countries open up their economies further. In 1998,
the share of bilateral trade with China was only around 4 per cent of
Indonesia’s total trade value. This is relatively tiny when compared to the
share of bilateral trade with Japan, Indonesia’s traditional trade partner
since the 1970s, which reached 18 per cent that same year (Figure 1).
The share of bilateral trade with China has however been continuously
increasing since then. In 2016, it reached 17 per cent. In contrast, the
share of bilateral trade with Japan has continuously declined from 21 per
cent in 2000 to around 10 per cent in 2016.
Significantly, the trade balance between the two countries tilted
towards China’s advantage after the 2008 global financial crisis. China
has enjoyed a growing trade surplus with Indonesia as bilateral trade
between the two countries went from US$8.7 billion in 2004 to US$47.6
billion in 2016. Indonesia’s trade deficit with China reached US$14
billion in 2016 (Figure 2). Meanwhile, that same year, Indonesia still
enjoyed a trade surplus with Japan and the United States of around
US$3.1 billion and US$8.8 billion, respectively.
In tandem with the growth of trade, investment from China has also
increased. Since Jokowi came to power in late 2014, Chinese FDI in
Indonesia has increased dramatically. China’s ranking as a source of
Indonesian inward FDI has moved up from tenth in 2008 to third in
4
Leo Suryadinata, Indonesia’s Foreign Policy under Suharto: Aspiring to
International Leadership (Singapore: Times Academic Press, 1996).
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
Indonesia
18-J04018and
4
Figure 1: Indonesia’s trade with its three major partners (% share of total trade)
25%
01 Trends_2018-11.indd 4
China's Belt and Road Initiatives
20%
15%
10%
5%
0%
China Japan US
6/6/18 12:59 PM
Figure 2: Indonesia’s trade balance with three major partners
(US$ billion)
30.00
20.00
10.00
0.00
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
-10.00
-
-20.00
15.00
10.00
5.00
0.00
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
18-J04018and
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
2016.5 Based on BKPM data, the realization of Chinese FDI has increased
drastically from US$174 million in 2010 to US$2.7 billion in the third
quarter of 2017 (Figure 3).
If we examine the sectoral distribution, most Chinese FDI in
Indonesia goes to metal, machinery, and the electronic sector, amounting
to more than US$3 billion in total for the period 2010–17. In this
category, the bulk of Chinese investment went to mineral (nickel)
processing. The second largest sector is electricity, gas and water, which
has FDI realization amounting to more than US$1.2 billion in total in the
same period (Figure 4). For this category, the biggest share of Chinese
investment went to power generation projects.
The majority of Chinese FDI projects are located in Central and
Southeast Sulawesi, which are mineral-resource rich (nickel and
ferronickel) regions in Indonesia (Figure 5).
Overall, the size of Chinese FDI in Indonesia remains small compared
to that from Japan. However, considering the trends and the potential
impact of BRI, it is very likely that Chinese FDI will surpass FDI from
Japan in the next few years, especially when Chinese FDI becomes
more diversified, going beyond the mineral processing sector and move
towards the property, e-commerce and other sectors. Some Chinese
FDI may move via third countries, such as Hong Kong or Singapore,
before coming to Indonesia.6 This is not a new phenomenon and predates
even the era of the New Order.7 There are several factors that may
explain this phenomenon. First, Hong Kong and Singapore have much
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
5
BKPM, “Realisasi Penanaman Modal PMDN-PMA Triwulan IV dan Januari-
Desember Tahun 2016”, Press Release, 25 January 2017 <http://www.bkpm.
go.id/images/uploads/investasi_indonesia/file/Bahan_Paparan_TW_IV_2016.
pdf> (accessed 21 January 2018).
6
Tao Kong and Pierre van der Eng, “Mixed messages of Chinese investment
in Indonesia”, East Asia Forum, 18 May 2017 <http://www.eastasiaforum.
org/2017/05/18/mixed-messages-of-chinese-investment-in-indonesia/>
(accessed 21 January 2018).
7
Suryadinata, Indonesia’s Foreign Policy under Suharto, p. 107.
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China's Belt and Road Initiatives : Perspectives, Issues and Prospects, ISEAS - Yusof Ishak Institute, 2018. 6/6/18 12:59 PM
Copyright © 2018. ISEAS - Yusof Ishak Institute. All rights reserved.
Indonesia
18-J04018and
Figure 3: Realized FDI in Indonesia from three major countries (US$ million)
6,000.0
01 Trends_2018-11.indd 7
5,000.0
3,000.0
2,000.0
1,000.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
China Japan US
6/6/18 12:59 PM
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