This article was originally published by the East Asia Forum on 7 November, 2015.
Indonesian President Joko Widodo (Jokowi) visited China twice in his first year of presidency alone. In contrast he made his first state visit to the United States only in October 2015. But although Sino–Indonesian relations are currently strengthening, economic and geostrategic obstacles are likely to limit progress.
When the Jokowi administration came to power in 2014, it inherited an already strong relationship with China. Under former president Susilo Bambang Yudhoyono (SBY) relations were upgraded to a comprehensive strategic partnership in 2013, which saw enhanced cooperation in areas such as defence and scientific research. In 2010, China also became Indonesia’s largest trade partner and committed to assist Indonesia in infrastructural development.
There was an expectation that Sino–Indonesian relations under the domestic-focused Jokowi administration would be strong. During his first state visit to China for the 2014 APEC Summit, Jokowi told the press that he hoped the relationship would ‘materialize into more concrete outcomes’. Since then, relations have primarily focused on trade and investment, particularly the development of maritime infrastructure.
Chinese President Xi Jinping has ensured his support for developing Indonesia’s maritime infrastructure by pledging to sponsor projects through the Maritime Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB). Indonesia is already a founding member of the AIIB and is committed to injecting over US$400 million in participating funds. As of October 2015, China has offered up to US$100 billion in total investments in various projects. These include joint-venture infrastructural projects between the Indonesian government and Chinese investors. Among the most controversial of these projects is a planned bullet train connecting the cities of Jakarta and Bandung.
The biggest challenges for Chinese investors in Indonesia continue to be corruption and bureaucratic red tape. According to a report by the Indonesian Investment Coordinating Board, only 7 per cent of planned Chinese investments from 2005 to 2014 have been realised. But in recent months, there have been signs that things may be improving. As part of the latest instalment in its economic reform program, the Jokowi administration is set to implement 300 new measures to cut some of the impediments of doing business in Indonesia. Among these measures are sets of policies that shorten the time for obtaining investment permits and loosen the requirements for hiring foreign workers.
But there are still strong limitations within the Sino–Indonesian relationship. There is still general suspicion within Jakarta’s policymaking and defence circles over China’s intentions in Indonesia. Indonesia’s trade relations with China are particularly of concern to some domestic political actors. The China–ASEAN Free Trade Agreement (CAFTA) has transformed China into Indonesia’s biggest trade partner. While the value of bilateral trade has increased from US$36 billion in 2010 to US$48 billion in 2014, the trade deficit during the same period has increased from US$4 billion to US$13 billion.
Since its implementation in 2010, CAFTA has come under fire for worker layoffs in local manufacturing and for floods of Chinese consumer goods that compete directly with local manufacturers. The recent lifting of visa restrictions for Chinese tourists has apparently worsened this situation. In recent months, there has been an increase of crackdowns on illegal migrants and illegal imported goods from China.
Defence relations are even more difficult. While Indonesia and China have begun cooperating on some non-traditional security issues, China’s assertive behaviour in the South China Sea remains of concern to Jakarta. Indonesia continues to call for the peaceful mitigation of tensions and for a binding code of conduct for ASEAN and China.
While Indonesia is not a claimant in the South China Sea disputes, China’s claimed nine-dash line does overlap with the waters of Indonesia’s resource-rich Natuna Islands. Indonesia has been beefing up its military presence on the islands in recent years. In August 2015, Indonesia upgraded its main naval base in West Kalimantan, which overlooks the Natuna Islands. In September, Defence Minister Ryamizard Ryacudu also announced plans to deploy unmanned aerial vehicles as well as an additional 2000 military personnel to patrol and protect the islands.
There have been serious efforts by both China and the ASEAN member-states to mitigate tensions in the South China Sea. Most recently, China hosted the first ever China–ASEAN Defence Ministers’ Meeting. Among its outcomes, it was revealed that China might hold maritime drills with some ASEAN countries, which would promote a degree of cooperation and mutual understanding. Yet, as it remains unlikely that China’s land reclamation efforts on Mischief Reef will stop anytime soon, China’s encroachment on waters adjacent to Indonesia will continue to be a thorn in the relationship.
Historical animosity, trade imbalance and geostrategic concerns limit the progress of Sino–Indonesian relations. Despite claims that the Jokowi government is leaning towards China, the relationship between Indonesia and China will likely continue to remain as it was under SBY. There is definitely potential for some degree of progress but this is dependent on whether China’s planned investments can be realised. This will require genuine reforms to make it easier for Chinese investors to do business.
In the long term, Indonesia will also need to vamp up its legal infrastructure to guarantee the rights of workers and to protect its environment. Otherwise, China’s increasing business presence in the country, as well as its actions in the South China Sea, may jeopardise ongoing efforts to improve Sino–Indonesian relations.
Gatra Priyandita is a researcher at Jinan University, Guangzhou City.
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