Thursday, July 28, 2011, 00:00

Balancing act


Balancing act

Chinese Premier Wen Jiabao’s visit to Indonesia on April 29, his first since he assumed office in 2003, was a momentous event. He is among the new-generation Chinese leaders who have pulled millions of people out of the depths of poverty, led their country to new heights of economic success, and are achieving a lot more. Moreover, as Premier of his country, which has emerged as the world’s second largest economy, and a potent challenger to the US’ number one position, Wen made commitments of billions of dollars in commercial loans for infrastructure development in Indonesia.

But the newspapers in Indonesia seemed more interested in dishing out stories of the royal wedding in Britain, pushing Wen’s historic visit to Indonesia, touted to be one of the emerging market economies in the world, to “second position”. For the moment, Indonesia, one of the worst sufferers of the global economic slowdown, has a lot more serious things to worry about than the “fairytale” wedding in the UK.

Increasing trade deficit with China is certainly one. This is an area which keeps worrying business people in this country. In fact, Indonesians have been complaining about this, particularly since ASEAN-China Free Trade Agreement (ACFTA) was signed on Jan 1, 2010.

In 2010, the deficit, which actually began in 2008, stood at $5 billion. There is no sign of easing as yet.

Hari Sungkari, owner of PT. Mitra Mandiri Informatika, cites several reasons, the first being the fact that cheaper Chinese products suit Indonesian people’s craze for foreign items.

Moreover, Sungkari explains, Indonesia has zero percent import duty on finished products while it has imposed import duties on raw materials.

“Since Indonesia has to import some raw materials, its finished products become more expensive than Chinese products,” he adds.

Riyodian B. Pratikto, operational director of one of the state-owned companies, agrees. “Chinese products are all over Indonesian markets because they are much cheaper. Our products cannot compete with Chinese products although our products sometimes (are of) better quality,” he says. “The other day I saw an (made-in-China) electronic toy, a helicopter with remote control. The price is $30. We buy similar products made in Japan or Taiwan for at least $175,” he adds.

However, Chinese Ambassador to Indonesia, Zhang Qiyue, underscored a spirit of mutual benefits when he wrote in Kompas daily on April 28, “China always holds the principle of mutual benefits in the economic and trade cooperation between the two countries, and does not have the intention of having trade surplus.” Significantly, he had written this before Premier Wen arrived in Indonesia.

The Chinese intention was unequivocally reflected in Wen’s pledge of $8 billion in commercial loans for infrastructure development, $1 billion of soft loans, and commercial agreements of $10 billion from Chinese private sectors to their counterparts in Indonesia. This is besides the promises of an operational fund of 1 billion yuan ($154 million) for maritime security, conservation of marine environment, and explorations of marine resources.

The Chinese premier and Indonesian President Susilo Bambang Yudhoyono also agreed to increase bilateral trade between the two countries from $42.8 billion in 2010 to $80 billion by 2014.

Clearly, the onus is now on the Indonesian government and business leaders to catch up on the trade balance. But many aren’t really convinced they can do it.

“We cannot compete,” says Agus S., a mining industry observer. “Almost 90 percent of the minerals mined here (manganese, tin, nickel, etc.) are bought by China. We don’t have a processing industry, so we export these minerals unprocessed,” he explains.

“In China, the government supports industrialization. All infrastructure and human resources needed for it are prepared efficiently. They have clear directions and policies. Our government, on the other hand, does not have any direction for (its) industries. What we need is a great leader – someone who has vision and guts, and does not have conflict of interests,” Agus adds.

Fashion designer Carmanita complains of lack of government help for local industries. “Do you know 60 percent of our needs for silk yarn are (met) by China? Now when we buy silk yarn from them, we have to go through the tender/bidding process. We are in serious trouble now. Why can’t the government develop a strong silk industry so that we can (meet) our domestic demand ourselves and lower the trade deficit?” Carmanita asks.

Johan Mulyawan, general manager of Pigeon Corp, says the competition is “fierce” – all the more reason he wants Indonesians to be more creative and innovative in their businesses.

There is an urgent need to understand the market and come up with unique products, he says, underscoring the need for “good and reliable partners” in China.

“The Indonesian Embassy there has to be pro-active in looking for business opportunities. If I am not mistaken, they have several activities, but in small scales. The Chinese do not like small-scale,” Mulyawan adds.

Bilateral trade, explains Hari Sungkari of PT. Mitra Mandiri Informatika, is not just about maintaining trade balance. “Domestic economic stability and employment should also be ensured,” he says.

Some call for more help from the Chinese government. “The Chinese government needs to make things easier for Indonesian business people (keen) to enter potential industries and markets in China,” says strategic consultant Alfiantono.

“The Indonesian government (also) has to initiate serious talks with China about it. We need solid cooperation between the governments and the private sectors. The Indonesian government has an obligation to answer questions on good and viable businesses in China, or which Chinese companies they recommend (for) joint ventures, etc.,” Alfiantono adds.

Some also look to those who are doing business in China. “Several Indonesian conglomerates have invested in China… in property, pulp, and chemical industries,” a senior bank auditor says on condition of anonymity.

According to him, these conglomerates should help other Indonesian businesses enter the Chinese market, and also advise the Indonesian government on how to increase their competitive advantages.

The bank auditor lists the advantages of investing in China: good and reliable infrastructure, low corruption (it is much easier to get licenses), good relationship between industries and applied technology. “China is protective with import and have nationalism to their own products,” adds the auditor.

However, many Indonesians are quite happy with being in their own country, and not really keen to go to China to do business. Their only hope is that they stay afloat in business.

“At this moment, I don’t plan to enter the Chinese market,” says property businessman Sudiyanto. “I have to think how to overcome the backlog of public housing projects here. The backlog is approximately 8 million units. Every year we have a deficit of 400,000 units. No time and resources to go to China,” he adds.

China Daily Asia Weekly on May 06, 2011, page 19