Indonesia Economic Relations with China: An Indonesian Perspective

By

James Hutagaol

Introduction

•Indonesia restored its diplomatic relation with China in 1990

•Indonesia and China’s economies are more or less on the same level of development, albeit China’s economy more diversified.

•China’s trade and investment policies are likely to have impacts on Indonesia

Looking Forward for questions :

•Why Indonesia and China?

•What economics relations has been

gained so far?

•Will be the economics relations be mutually beneficial to the economics of Indonesia?

Why Indonesia-China

Historical Background :•Indonesia froze its diplomatic relation with China in 1966 following the abortive coup at the end of September 1965, for which Indonesian government blamed the Indonesian Communist Party (PKI).The Indonesian government had accused China as providing supports for the PKI, especially in the aftermath of the coup.

•China’s support for communist insurgencies in Southeast Asia had in the past become one of the sore points in the relationships between Southeast Asian countries especially Indonesia and China.

Current Situations :•Rapid growth and catch-up

•Globalization and opening up the markets

•FTA, WTO, APEC

Indonesia’s Economic Relations With China

• The period of the suspension of diplomatic relation commencing in 1967

• The reopening of direct trade between two countries from 1985 on• Indonesia-China trade grew remarkably from very negligible levels

since 1985 • The increasing economic and trade cooperation after the normalization

of diplomatic relation.• China gained political points with Indonesia by offering a substantial

assistance package when latter suffered the Asian financial crisis.• Indonesian trade with China increased significantly since then with

exports to China far exceeding imports from China.

Gradual Steps :

Indonesia’s Economic Relations with China

Basis of the relationship between Indonesia and China :

• Indonesia is strategically important to China.

•Significant political and economic changes.

•The changes influenced the way the two countries considered each other’s position in the regional as well as in global setting.

•The normalization of China-Indonesia relations, especially economic ones, had been primarily driven by two countries’ efforts to integrate their respective economies into the global market

Indonesia’s Economic Relations With China

Indonesia perspective on China is a pragmatic one:

China has always posed the most serious threat to regional security. This stems from the perception that Beijing supported the failed coup by the Indonesian Communist Party in 1965.

Economic relations between Indonesia and China began to improve when in 1985 the Indonesian Government gave the go ahead to the business community to re-open direct trade relations between two countries and that became an important first step toward normalization as bilateral trade immediately blossomed and developed in Indonesia’s favor.

Economic and Trade Relations

•There is room for further expansion of economic and trade relations between Indonesia and China, but concerns are being voiced from the Indonesian business community because of growing competition from China in its domestic market.

•China’s exports are growing strongly, and other countries producing cheap manufactured goods may find China a competitor.

•But this does not mean countries like Indonesia are swamped. In fact, Indonesia enjoys not only an overall trade surplus with China, including its oil and gas exports, but even in manufactured goods.

•Robust trade, particularly Chinese imports of Indonesian goods.

•China seems to be employing a coherent strategy to improve ties with Indonesia.

•China suffered from a lack of vision in its relation with neighbors.

•China’s natural strategic ambition is to look south to a region of opportunity.

•Certain degree of political quid pro quo:

China support Indonesia’s effort to safeguard its sovereignty. Indonesia has always held an one china policy.

•China’s businesses are looking outward for investment opportunities.

•China’s relations are guided by a philosophy of mutual prosperity: get rich together.

Bilateral Relations :

China basic Economic Indicator Source: Indonesian Trade Minister office and IMF

INDIKATOR

TAHUN PRINCIPAL RATE (Yuan per US$)

PRINCIPAL RATE, PD. AVERAGE

EXPORTS (Million US Dollars)

IMPORTS (Million US Dollars)

POPULATION (Millions)

1973 1.99 5,876.10 5,207.56 892.10

1974 1.96 7,107.89 7,791.15 908.60

1975 1.86 7,689.00 7,925.58 924.20

1976 1.94 6,943.44 6,660.14 937.20

1977 1.86 7,519.65 7,148.24 949.70

1978 1.68 9,954.86 11,130.90 962.60

1979 1.56 13,614.10 15,620.60 975.40

1980 1.50 18,099.30 19,941.30 996.13

1981 1.70 22,007.00 22,015.00 1,008.40

1982 1.89 22,321.00 19,285.00 1,020.60

1983 1.98 22,226.00 21,390.00 1,039.60

1984 2.32 26,139.00 27,410.00 1,054.90

1985 2.94 27,350.00 42,252.00 1,070.20

1986 3.45 30,942.00 42,904.00 1,086.70

1987 3.72 39,437.00 43,216.00 1,104.20

1988 3.72 47,516.00 55,268.00 1,121.90

1989 3.77 52,538.00 59,140.00 1,139.20

1990 4.78 62,091.00 53,345.00 1,155.30

1991 5.32 71,910.00 63,791.00 1,170.10

1992 5.51 84,940.00 80,585.00 1,183.60

1993 5.76 90,969.60 103,088.00 1,196.40

1994 8.62 121,047.00 115,681.00 1,208.80

1995 8.35 148,797.00 129,113.00 1,220.52

1996 8.31 151,197.00 138,944.00 1,246.20

1997 8.29 182,877.00 142,189.00 1,242.80

1998 8.28 183,589.00 140,305.00 1,253.90

1999 8.28 195,150.00 165,788.00 1,264.80

2000 8.28 249,297.00 206,132.00 1,275.10

2001 8.27 266,620.00 243,521.00 1,285.00

Basic Economic Indicator Indonesiasource: Indonesian Trade Minister Office and IMF

INDIKATOR

TAHUN MARKET RATE (Rupiah per US

$)

EXPORTS (Millions US

Dollars)

IMPORTS (Millions US

Dollars)

GDP (Billions Rupiah)

POPULATION (Millions )

1973 415.00 3,211.00 2,729.10 6,753.40 128.80

1974 415.00 7,426.00 3,841.90 10,708.00 132.00

1975 415.00 7,102.00 4,769.80 12,642.50 135.67

1976 415.00 8,547.00 5,673.10 15,466.70 133.53

1977 415.00 10,853.00 6,230.30 19,010.70 136.63

1978 442.05 11,643.00 6,690.40 22,746.00 139.80

1979 623.06 15,591.00 7,202.30 32,025.40 143.04

1980 626.99 21,909.00 10,834.40 45,445.70 147.49

1981 631.76 25,164.50 13,272.10 58,127.20 151.31

1982 661.42 22,328.30 16,858.90 62,475.70 154.66

1983 909.27 21,145.90 16,351.80 77,623.00 158.08

1984 1,025.94 21,887.80 13,882.10 89,885.00 161.58

1985 1,110.58 18,586.70 10,259.10 98,406.00 164.63

1986 1,282.56 14,805.00 10,718.40 110,697.00 168.35

1987 1,643.85 17,135.60 12,370.30 128,630.00 172.01

1988 1,685.70 19,218.50 13,248.50 149,395.00 175.59

1989 1,770.06 22,159.50 16,359.60 179,608.00 179.14

1990 1,842.81 25,675.20 21,837.00 210,866.00 179.48

1991 1,950.32 29,142.00 25,868.80 249,969.00 181.39

1992 2,029.92 33,966.90 27,279.60 282,395.00 184.49

1993 2,087.10 36,823.00 28,327.80 329,776.00 187.59

1994 2,160.75 40,055.00 31,983.00 382,220.00 190.68

1995 2,248.61 45,417.00 40,630.00 454,514.00 194.75

1996 2,342.30 49,814.00 42,929.00 532,568.00 196.81

1997 2,909.38 53,443.00 41,694.30 627,695.00 199.87

1998 10,013.60 48,847.40 27,336.90 955,753.00 204.42

1999 7,855.15 48,665.40 24,004.30 1,109,980.00 207.44

2000 8,421.77 62,124.00 33,514.80 1,290,680.00 210.49

2001 10,260.90 0.00 0.00 0.00 214.84

China’s trade with Southeast Asia (US$ million)1988-1996

Rapid Growth Source: FAWP Vol. 12 & World Bank

Benefits for Indonesia from the economics relations:

•Indonesia has much to gain from an open and effective relationship with China.

•Indonesia can do protect national interests in dealing with China is to strengthen the fundamentals of government and economic management.

•Developed to strengthen the capacity of Indonesian institutions to conduct official economy diplomacy.

Research Design: Internet (Archive Data)

Advantages:

•Accurate (facts are dependable, trusted, reliable sources)

•Practical and efficient (saving time)

•Affordable (saving money)

Disadvantages

•Overwhelmed/confusing (hard to focused, must be really selective or make effective choices)

•Unrelated subjects

•Unreliable sources (anonymous researchers, institutes.)

•Hard to make selections from many data.

Conclusions:

Promote an Indonesia-China bilateral relationship largely on the basis economic and trade relation.

Three things:

•Increasing economic ties will inevitably lead to a greater political understanding between Indonesia and China.

•Decreasing regional suspicion of China.

•Increasing its latitude in endeavors abroad.