November 3, 2016

INDONESIA: Why Indonesia Is Chasing China's Billions. China Is Now The No. 3 Investor In Indonesia Behind Singapore And Japan.

Bloomberg News, USA
written by Staff
Monday October 31, 2016

China’s investment in Indonesia has more than doubled since 2015 as President Joko Widodo’s five meetings with Xi Jinping in the past two years start to pay off.

Foreign direct investment from China stood at $1.6 billion in January to September, up from about $600 million for the whole of last year, according to figures from the Indonesia Investment Coordinating Board. Chinese investors pledged $6.1 billion in investment in Indonesia in the nine-month period.

China is now the No. 3 investor in Indonesia behind Singapore and Japan, overtaking the U.S. this year, as the world’s second-largest economy looks to shift more of its excess manufacturing capacity offshore. It reflects China’s deepening ties with Indonesia after becoming the nation’s biggest trading partner five years ago and is a win for Widodo as he pushes ahead with an ambitious program to build roads, ports and railways.

“The potential of realized investment from China will remain high in the coming years and it will remain in the top five,” said Azhar Lubis, the board’s deputy chairman for investment supervision. “The biggest challenge is how that interest or those plans can be realized soon.”

The U.S.’s share of FDI to Indonesia has declined to 2 percent from 8.3 percent in 2013, despite President Barack Obama pledging stronger ties with Asia. China, on the other hand, has increased its push in Southeast Asia with its “One-Belt, One Road” policy, investing in infrastructure across the region to revive an ancient trading route stretching from Asia to Europe. The project was discussed by Xi and Jokowi, as the Indonesian president is known, when they met in Beijing in March last year.

Neighboring Philippines is also seeking more investment from China, with President Rodrigo Duterte announcing an easing of ties with the U.S., a military ally, after meeting Xi in Beijing in October. The Philippine government said the trip would yield $24 billion of state and business deals.

Growth Forecast

Lubis said Chinese investment was mainly directed to mineral smelters, such as nickel and bauxite, as well as in the cement, automotive and steel industries. Chinese FDI in the nine-month period went to 1,205 projects.

Singapore remains the top investor in Indonesia, with $7.1 billion in the first nine months of the year, compared to $5.9 billion in 2015. FDI from the U.S. slumped to about $400 million from $2.4 billion in 2013.

Jokowi is seeking to boost growth to 7 percent by 2019, a pledge he made when he came to office in 2014. Last week, Finance Minister Sri Mulyani Indrawati said the economy will probably expand 5 percent this year.

“We need investment and China they have excess capacity,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. “The two countries need each other.”
The growing economic ties comes at the same time that political tension between the two nations intensifies over lucrative fishing grounds in the South China Sea.

Indonesia’s Fisheries Minister Susi Pudjiastuti has said tensions with China are now manageable.

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