Wednesday, May 27, 2009
Sino-Indonesian Relations hit new Highs
Less than 20 years ago, they were still enemies. Today, China has become one of Indonesia's largest economic partners.
Since both nations resumed diplomatic relations in July 1990 - 23 years after Indonesia cut ties with the world's most populous nation following the failed communist coup attempt which the Chinese government was accused of being involved in - the economic relations between the two has continued to thrive.
And economic relations (borrowing a phrase from the stock market) are hitting new highs during the economic crisis, at a time when China seems to be the only one capable of helping many countries cope with the crisis given its huge foreign exchange reserves. Indications of warmer relations are indeed plentiful.
Three weeks ago, public utility PT Perusahaan Listrik Negara (PLN) signed two loan agreements worth US$1.061 billion with Bank of China and China Export Import Bank, to finance its 10,000 MW coal fired power plant projects. This happened at a time when all banks in developed countries refused to lend.
The loans will enable PLN to continue its 10,000 MW power projects despite the crisis - which is good for Indonesia as well as for Chinese companies that got most of the contracts to build the plants.
Two months ago, both countries' central banks signed a multi-billion dollar currency swap agreement under which Indonesian firms can buy Chinese products worth up to $15 billion using the yuan, while Chinese firms can buy Indonesian products of the same value using the rupiah. As far as Indonesia is concerned, the deal helps ease pressure on the rupiah, while China's producers can expect steady orders from Indonesia despite the crisis.
Indonesia imported $15.2 billion worth of goods from China last year, while exporting $11.5 billion worth of goods to the country, according to Bank Indonesia statistics. Indonesia mostly sells natural resources and energy products to China, including palm oil, mining products and energy, and imports a wide variety of manufactured products from China, ranging from toys, home appliances, electronic goods and cellular phones, to food and giftware. As in many countries around the world, cheap Chinese-made manufactured products are dominant in the Indonesian market.
Last but not least, Chinese and Indonesian engineers and workers are busy putting the finishing touches on the Suramadu bridge, linking Surabaya and Madura Island. The 5.4-kilometer bridge, which is mostly financed with soft loans from China and scheduled for inauguration next month, will become a proud symbol of economic partnership between both countries, comparable to the Istora Senayan football stadium in Jakarta built by the Russians in the 1960s as a symbol of the then close partnership between both countries.
The Suramadu bridge, which will become the Indonesia's longest, is being worked on by the Indonesian consortium of PT Adhi Karya and PT Waskita Karya, along with a Chinese consortium of China Road and Bridge Corp. (CRBC) and China Harbor Engineering Co. Ltd (CHEC).
The loans for the PLN power projects and the Suramadu bridge mark a new phase the Indonesia-China economic relations. While in the past China was merely known here as the provider of cheap goods, it now also acts as a financier of mega projects in Indonesia - a role previously played by the United States, Europe, Japan and the World Bank.
Reports say PLN is eagerly offering its Second Phase 10,000 MW power projects to Chinese companies, and Chinese firms that are now building the Suramadu bridge have been asked to build several other bridges in Indonesia too. Thus, more Chinese funds are expected to flow into the country in the future, making China one of the largest lenders to Indonesia.
As lender, China has different characteristics to Europe, the US, Japan and international financial institutions such as the World Bank and the IMF that are controlled by the above-mentioned developed countries. While the latter group sets the adoption of the "Washington consensus" - a standard set of policies including privatization of state enterprises, free trade, deregulation and restraint in public spending - as requirements for their clients to get loans, China does not care about all these things.
In fact, all Chinese companies operating here, including those building the Suramadu bridge, are state-owned.
China's motive is business. They will lend as long as it will benefit the loan recipients as well as themselves (Chinese companies). The loans for the PLN projects and the Suramadu bridge, for instance, will ensure the projects being worked on by the Chinese firms will not stop halfway and the projects will help build the firms' reputations as world-class enterprises in the long term - a reputation that will make it easier for them to get projects from other corners of the globe.
Closer relations with China will undoubtedly have a positive impact on the Indonesian economy.
On the other hand, it could also inspire a new debate about the most suitable economic system for Indonesia. There are still many people here who categorically reject the Washington consensus and believe Indonesia has taken a wrong path by implementing privatization and liberalization enforced by the IMF during the previous economic crisis. For these people, China, the new good friend of Indonesia, is a good model.
The author is a staff writer of The Jakarta Post.