Indonesia could be Beijing’s best belt and road friend
- Indonesia needs Chinese investment to close its gaping infrastructure gap so that development can be distributed equally across the archipelago
- But China also needs Indonesia to reach its economic goals overseas, say Muhammad Zulfikar Rakhmat and Dikanaya Tarahita
This comes as no surprise, given the increasing convergence of interests between both economies.
Jokowi has prioritised the development of eastern Indonesia, which currently has poor infrastructure. But the country’s US$353 billion budget for the 2019-2020 financial year is far from enough to bridge the infrastructure gap so that development is distributed equally across the archipelago of 17,000 islands.
But China’s interest in Indonesia goes beyond Jokowi’s infrastructure policy intersecting with its belt and road objectives.
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Analysts have pointed to the changing nature of investment flows, with KPMG Australia’s head of Asian and international markets, Doug Ferguson, saying: “Chinese investment is definitely now flowing globally to Central Asia and Eastern Europe in accordance with the belt and road initiative.”
In diverting funds from the West, China has expended more effort to gain market share in other countries, especially those in regions that the belt and road plan covers.
So while Indonesia may need Chinese investments to improve its economy, China needs Indonesia to reach its economic goals overseas.
And Indonesia is a good place to do business. Research by global consulting firm PwC, published in February last year, predicts it will become the fourth-largest economy in the world by 2050, behind China, India and the US.
The country’s middle class is growing and is expected to eventually make up 22 per cent of the population – from 45 million in 2010 to 60 million this year and an estimated 85 million by 2020.
Consumers are more affluent and the large pool of millennials – more than half of the country’s population of 265 million is estimated to be under the age of 40 – makes Indonesia an attractive target market for Chinese companies selling consumer goods and services.
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Consumption is surging too, with consumer spending in the first quarter of 2019 reaching an all-time high of 1.44 quadrillion rupiah (US$98 billion). Looking forward, the number is projected to trend towards US$116 billion by 2020.
China has already recognised this – it supplied Indonesia with US$45.24 billion worth of goods last year, making up more than one-quarter of the country’s total imports.
Looking at these factors, it is not surprising that China sees Indonesia as an attractive country in which to implement its belt and road plans. Even in the midst of domestic opposition to “foreign domination”, it is likely to continue trying to realise its interests in the country. It knows all too well that the its planned belt and road maritime route from China to Europe is not possible without Jakarta.
Muhammad Zulfikar Rakhmat is a lecturer at the Islamic University of Indonesia and research associate at the Institute for Development of Economics and Finance in Jakarta
Dikanaya Tarahita is a human resource researcher and independent journalist based in Yogyakarta, Indonesia