China and Indonesia show commitment to trade and trade links

China Plus Published: 2018-05-11 22:35:11
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By Ding Heng

China is creating a growing number of economic and business opportunities for Indonesia - this is perhaps one thing Indonesia feels certain about after Chinese Premier Li Keqiang wrapped up his latest visit to the southeast Asian country.

Li oversaw the signing of seven agreements with Indonesia. Most of the deals will see China help the country build infrastructure, such as railway, dams and highways.

Despite being the largest economy in southeast Asia, Indonesia was lagging behind its regional peers like Singapore, Malaysia and Thailand in infrastructure, according to statistics from the World Economic Forum in 2015. Indonesia's logistics cost is estimated at 26 percent of its GDP, compared to just 8 percent in Singapore and Malaysia's 14 percent.

A man pushes an artificial stroller carrying passengers at a railway track at Kampung Bandan in North Jakarta, Indonesia, Sept. 8, 2015.[Photo: Xinhua]

A man pushes an artificial stroller carrying passengers at a railway track at Kampung Bandan in North Jakarta, Indonesia, Sept. 8, 2015.[Photo: Xinhua]

That's why Indonesian President Joko Widodo decided to make infrastructure a top priority of his government after he took power in 2014. A key measure is to push forward a strategy calling for categorizing the archipelago country into six economic corridors, and plans are underway to strengthen infrastructure connectivity in each corridor.

Seeing the apparent similarities and potential compatibility between Jakarta's planned corridors and the China-proposed Belt and Road Initiative, China is ready and willing to help Indonesia realize its goal. One of the seven new agreements signed during Li Keqiang's visit will focus on just that.

As a matter of fact, China has been participating in Indonesia's infrastructure construction for years. A flagship project is a $5 billion high-speed railway, which is set to connect Jakarta with Indonesia's third-largest city, Bandung. The 142-kilometer rail line will cut travel time between the two cities from three hours to 40 minutes, paving the way for an increased flow of labor in the region. The railway is also expected to help bolster local tourism and real estate sectors.

The railway is being built by China Railway Corporation, while China Development Bank is providing most of the loans. Therefore, people who are skeptical may assume that such a strategic project is now controlled by China. But such assumptions are wrong. The project is run by a consortium consisting of Chinese and Indonesian state-run companies, with the Chinese side holding only a 40-percent stake.

Since the project was signed in 2015, the railway's construction has progressed slower than expected. Ownership rights of 40 percent of the project's land are yet to be resolved at this point.

From the new agreements signed during Li Keqiang's visit, we can probably tell that Indonesian officials have promised to the Chinese side to resolve the land ownership issue as quickly as possible. In April, Indonesian State-owned Enterprises Minister Rini Soemarno also went on record saying that the issue was likely to be fully resolved in May.

Hence, confidence is still very strong on both sides that it will not take too long before people in Indonesia can enjoy high-speed railway services.

Apart from infrastructure, the Chinese Premier has also promised to increase agricultural imports, including coffee and tropical fruits, from Indonesia. In particular, China will consider increasing palm oil imports from the world's largest palm oil producer by at least 500,000 tons in 2018.

Indonesia is running a trade deficit with China. In 2017, it bought $13 billion worth of goods more than it sold to China. Therefore, a promise from China to buy more goods is good news for the country. But China's plan to boost imports is perhaps more than just an effort to reduce the trade imbalance.

Indonesia is facing many uncertainties in its palm oil business. The European Union (EU) is seeking to ban palm oil imports used in biofuels, claiming the palm oil industry is causing serious deforestation in countries like Indonesia. Indonesia sees the EU move as protectionism because many other vegetable oils used to make biofuels are produced in EU countries.

In January, the World Trade Organization (WTO) ruled in favor of Indonesia, asking the EU to change its years-long anti-dumping duties on Indonesian biofuels which are mostly made from palm oil.

With the WTO ruling in mind, the EU's possible ban does look like a form of protectionism. Compared to punitive duties on biofuels, a ban targeting the raw material could deal a much heavier blow to Indonesia.

Against such a backdrop, a 500,000-ton import increase from China is helping inject a dose of optimism to Indonesia's palm oil industry.

Amid a perceived rise in protectionism in today's world, it is indeed time for China to seek common ground with emerging markets like Indonesia to pledge their joint support to the WTO and free trade, as well as seeking ways to align their economic strategies.

(Ding Heng is a CRI English reporter)

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