JAKARTA -
Chinese manufacturers, including foreign
manufacturers based in mainland China, are poised
to relocate production to Indonesia. Following a
memorandum concluded in July, one of China's
largest manufacturers, located in Guangdong province, is
expected to be among the first Chinese companies
to relocate some manufacturing to the Southeast
Asian archipelago.
Indonesia's Trade
Minister, Mari Pangestu, who accompanied President
Susilo Bambang Yudhoyono to Beijing in July, said in
a recent interview that manufacturers in China are
increasingly looking to expand into other
countries such as Indonesia, Thailand and Vietnam
to avoid quota problems in developed country
markets. Some of these companies in China could
relocate to Indonesia as soon
as the next six to 12 months. But Pangestu said
some have only started their feasibility study.
"They are trying to understand the investment
climate and business conditions in Indonesia," she
said.
Precisely for this reason, Pangestu
led a large delegation of Indonesian business
leaders to China, preceding a four-day reciprocal
visit by Yudhoyono to Beijing. "Chinese
manufacturers are facing a lot of pressure from
developed countries because of the surge of
Chinese imports in light industrial products," she
said. "So Chinese companies as well as foreign
companies based in China, are planning to
diversify their production outside China."
Pangestu said the situation in China today
is similar to that which Japan faced in the 1970s.
"Like Japan then, China faces a lot of trade
tension with the US. Japan relocated the bulk of
its production overseas subsequently." She said
the Chinese are just beginning to explore the
possibility, looking to Indonesia, Vietnam and
Thailand as possible locations. "Indonesia has the
advantage because we also have a larger pool of
resources - including labor and a large domestic
market."
One of China's largest trading
companies in Guangdong, the center of China's
light manufacturing, is planning initially to open
a trading office in Indonesia. Pangestu said the
idea is to relocate in stages, eventually
establishing production plants in Indonesia. "It
is good for us because it will help develop our
light industry again. The company will export
products from Indonesia back to the Chinese market
and regional and global markets."
She
added that the relocation will involve other
export-oriented production, such as garments,
footwear and furniture. Indonesia is particularly
suited to furniture manufacturing because of the
abundance of raw materials. "The Chinese are new
to the game of foreign investment. With the
exception of the large companies, many of the
medium-sized companies have not really ventured
abroad before. So for them it is a new
experience." One of the agreements with the
Chinese is to develop an industrial park to cater
to medium-sized Chinese companies.
Pangestu said that, also like Japan in the
1970s, China is preoccupied with its need for
energy and is looking for energy security through
investment overseas. China's initial investments
in Indonesia have been in energy as it realizes
Indonesia is an important future energy source. In
these cases, the investors were CNOOC and
PetroChina.
Pangestu confirmed that there
is "a lot of interest from China" in Indonesia.
"There is an obvious complementarity between
Indonesia and China. We have a common objective to
gain from this complementarity. Jointly, we can
develop our resources and industries to our mutual
benefit. We are increasing our bilateral trade as
well as expanding our exports to other parts of
the world. China is our fifth-largest trading
partner, and the fastest-growing one." Last year,
Indonesia exported foods worth US$4.6 billion to
Indonesia - up 21% over 2003.
So far,
however, the total invested is modest. Pangestu
said Chinese investment totals about $1.2 billion
in oil and gas, as CNOOC and PetroChina took over
the interests of other foreign oil companies in
Indonesia. Another $1-$2 billion has been mostly
invested in agriculture and trading.
China's state-owned companies - backed by
their government - have shown keen interest in
participating in Indonesia's ambitious program to
rebuild the country's infrastructure. Indonesia
has a long wish list of infrastructure projects
that it wants to build over the next five years,
costing $145 billion. The private sector is
expected to fund 60% of the cost. Pangestu said
China has now offered concessional loans totaling
$800 million to Indonesia. Half of that amount was
offered during the presidency of Megawati
Sukarnoputri. However, it took a long time to
identify projects for funding.
During his
visit to Indonesia in April, China's President Hu
Jintao offered another $300 million towards
Indonesia's infrastructure program, and Pangestu
said Beijing offered a further $100 million during
Yudhoyono's recent visit. She said a number of
projects have been earmarked for the loans, which
will fund building of bridges, power plants and
railway tracks in West Java. But she also noted
that these projects are not commercially viable,
and need government involvement to get them off
the ground.
A number of
government-to-government memoranda of
understanding (MoUs) were signed last month,
particularly in the energy sector. One of the
projects is a $2.1 billion coal-fueled power plant
in Muara Enim, South Sumatra, which will have a
total capacity of 2,400 megawatts. Another is the
development of the 1,320-megawatt, coal-fueled
Tanjung Jati A power plant in central Java,
expected to cost $1.1 billion.
Still
another agreement covered construction of a
150,000-200,000 barrel-a-day oil refinery in
Indonesia's East Java province - a venture between
the Indonesian state-run oil and gas company,
Pertamina, and the Chinese Petroleum &
Chemical Corporation (Sinopec). Pangestu said
production from the refinery will be primarily for
domestic consumption.
