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Will China’s Belt And Road Initiative Deliver Positive Outcomes for Indonesia?

  • China's Belt and Road Initiative is seen as important for Indonesia's national development.
  • Infrastructure projects are a key focus of the initiative in Indonesia.
  • Despite recognition of its importance, there is skepticism among the public about whether the initiative will deliver positive outcomes.

“It is not merely talk, but it is about actually building something. From airports to railways, these are industries we can see and touch. This is exactly the sort of courage and real action the world needs right now.” So said Indonesian President Joko “Jokowi” Widodo about China’s Belt and Road Initiative (BRI) at the inaugural Belt and Road Forum for International Cooperation (BRF) in 2017 (BRF, May 14, 2017; Jakarta Globe, May 16, 2017). This year marks the tenth anniversary of this ambitious, globe-spanning infrastructure development project. Today, 151 countries and 32 international organizations have joined the initiative, which Foreign Minister Qin Gang recently described as a “global enterprise to build a belt of prosperity and a road to happiness” (Ministry of Foreign Affairs of the People’s Republic of China [PRC], January 20).

A decade ago, Chinese President Xi Jinping launched the BRI with a series of speeches in Kazakhstan and Indonesia calling for a “Silk Road Economic Belt” and a “Maritime Silk Road,” respectively (Consulate General of the PRC in Toronto, September 7, 2013; China Daily, October 4, 2013). The following year, China announced the creation of a $40 billion Silk Road fund at the Asia-Pacific Economic Cooperation (APEC) summit in Beijing and a $20 billion Maritime Silk Road fund in Indonesia (China Daily, November 9, 2014).

From the BRI’s inception, it has been clear that Southeast Asia and its largest economy— Indonesia—are intended to serve as a centerpiece of the megaproject (Global Times, November 16, 2022). Roughly two-thirds of all people of ethnic Chinese ancestry outside of China are in Southeast Asia. [1] The 142-kilometer (88 mile) Jakarta-Bandung high-speed railway (HSR) is one of the BRI’s flagship projects (China Brief, December 22, 2022). Indonesia also hosts nearly half of the eight overseas industrial parks that China has established across the Association of Southeast Asian Nations (ASEAN) member states: the China-Indonesia Economic and Trade Cooperation Zone, the China-Indonesia Morowali Industrial Park, and the China-Indonesia JuLong Agricultural Industry Cooperation Zone (China Development Institute, June 26, 2019).

While Beijing has pulled back its overseas BRI lending—and Xi has exhibited some notable reticence toward hosting a third Belt and Road Forum—Indonesia challenges the broader narrative that the BRI is somehow fading away (Green Finance & Development Center, July 24, 2022). In the world’s fourth-most populous country, Chinese investment has continued apace, and both governments continue to champion the BRI’s ability to deliver “mutual benefit” and “win-win results.” Still, understanding Indonesia’s experience with the BRI requires closer examination of the history behind China-Indonesia infrastructure cooperation, major projects beyond the oft-discussed Jakarta-Bandung HSR and their impacts on the Indonesian public, and the extent of economic engagement between Jakarta and Beijing.

If You Build It, They Will Come

In Indonesia, Beijing has practiced the kind of “infrastructure diplomacy” at the heart of the BRI since 2008. Previously, Chinese foreign policy officials had focused on pursuing mutual connectivity projects within the frameworks of the Shanghai Cooperation Organization in Central Asia and the ASEAN Plus Three (10 ASEAN member states, plus China, Japan, and South Korea) in Southeast Asia. In 2010, then-Premier Wen Jiabao visited Indonesia and announced that China would provide $1 billion in concessionary loans and $8 billion in development financing (China Daily, May 1, 2011). The following year, Indonesian President Susilo Bambang Yudhonoyo and Premier Wen signed a joint communique in which Jakarta “welcomed the participation of Chinese enterprises in infrastructure development” and strengthened “cooperation on the development of Indonesian economic corridors” (Ministry of Foreign Affairs of the Republic of Indonesia).

In November 2014, Jokowi unveiled the Global Maritime Fulcrum (GMF), a strategy to leverage Indonesia’s strategic location in the Indo-Pacific and status as the world’s largest archipelagic state in order to prioritize maritime connectivity and infrastructure development. Both Xi’s BRI and Jokowi’s GMF emphasize infrastructure development. In March 2015, the two leaders agreed to prioritize the development of the Jakarta-Bandung HSR (China Daily, March 30, 2019). In 2017, Indonesia became one of 27 countries at the first Belt and Road Forum to endorse Beijing’s “Guiding Principles on Financing the Development of the Belt and Road,” which called for prioritizing “infrastructure connectivity” and development of “natural resources,” among other things (PRC Ministry of FinanceXinhuanet, May 15, 2017).

One year later, the two governments inked a memorandum of understanding (MoU) that affirmed a “strategic alignment” between China’s BRI and Indonesia’s GMF (Coordinating Ministry for Maritime & Investment Affairs, May 14, 2019). The Jakarta-Bandung HSR represented the “first stage” of this “strategic alignment,” and the Regional Comprehensive Economic Corridor exemplified the “second stage” (The Jakarta Post, August 23, 2019). Then, at the 2019 G20 Summit in Japan, Jokowi asked Xi for a special low-interest BRI fund to facilitate Chinese investment in Indonesia, to which the Chinese leader agreed (Antara News, July 2, 2019).

All That Glitters Is Not Gold

Today, robust BRI cooperation between Beijing and Jakarta persists. Last year, Indonesia was the third-largest recipient country of Chinese investments with about $560 million, trailing only Saudi Arabia ($5.5 billion) and the Democratic Republic of the Congo ($600 million) (Green Finance & Development Center, July 2022). Indonesia boasts the world’s third-most BRI infrastructure projects, behind Cambodia and Pakistan (AidData, September 2021). However, the Indonesian government’s enthusiasm for Chinese investment and BRI projects is not always matched by the public. While much has already been written about the flagship Jakarta-Bandung HSR, less attention has been devoted to Indonesia’s 70 other ongoing BRI projects. This piece will focus on two: the Regional Comprehensive Economic Corridor and the industrial parks of the “Two Countries, Twin Parks” scheme.

In 2018, both governments signed an MoU to develop the Regional Comprehensive Economic Corridor (Antara News, May 7, 2018). At the second Belt and Road Forum in April 2019, Indonesia proposed 28 projects worth $91.1 billion for the wide-ranging project (Badan Koordinasi Penanaman Modal, accessed February 6). Currently, the plan comprises four locations on Indonesia’s periphery—North Sumatra, North Kalimantan, North Sulawesi, and Bali, which aligns with Jokowi’s oft-touted objective to develop the archipelago’s outer provinces. In these regions, China has opened industrial parks, metallurgical and power plants, and tourism facilities.

One such project is the Morowali Industrial Park in Central Sulawesi, which has fueled Indonesia’s rise to become the world’s second-largest stainless steel producer, churning out 3 million tons of stainless steel each year (Embassy of the PRC in Indonesia, March 27, 2019). The park is a joint venture between China’s Tsingshan Group and Indonesia’s Bintang Delapan Group that sprawls over a 3,200-hectare site designed to develop integrated nickel-content stainless steel production. Since construction started in 2013, the area now boasts 11 smelters and $18 billion in overall investments from different companies.

But all that glitters is not gold. Nine of Indonesia’s BRI projects, worth a total of $5.2 billion, involve scandals, controversies, or alleged violations—the world’s second-most, behind only Pakistan (AidData, September 2021). Morowali provides an illuminating example: The Chinese-built industrial complex has fueled misinformation about mass influxes of Chinese workers, triggering tensions with local Indonesians and degrading the PRC’s reputation. In February 2020, two screenshots of Indonesian media reports falsely claiming that Morowali employed 40,000 foreign Chinese workers were shared nearly 2,000 times on Twitter and Facebook (Twitter, February 6, 2020). In reality, Morowali’s 43,000 employees at the time included 38,000 Indonesian citizens and 5,000 workers from China (Straits Times, January 31, 2020). As of today, the industrial park employs 70,000 Indonesian workers (People’s Daily, November 17, 2022). Nevertheless, perceptions, even when they diverge from reality, matter.

In January, escalating racial tensions between employees at a nickel smelter in Morowali turned deadly, causing the deaths of one Chinese and one Indonesian worker, and many more injuries (Embassy of the PRC in the Republic of Indonesia, January 17). Previously, hundreds of local Indonesian workers had staged rallies and strikes, as well as burning heavy machinery and vehicles, to protest the rumored attack by Chinese workers on a colleague. Afterward, Indonesia’s national police chief said that the smelter—which employs over 1,000 skilled Chinese laborers—would increase the number of Indonesian workers from 11,000 to 30,000 (Jakarta Globe, January 16). The tragedy underscores the fragile and tense person-to-person relations between Indonesia and China, which are a stark contrast to close state-to-state ties.

Furthermore, the success of Indonesian stainless steel products—fueled by Beijing’s investments in such industrial parks—has ironically transformed the Southeast Asian nation into a primary rival for domestic-made products in China. In July 2018, the Chinese government launched an anti-dumping investigation into imported stainless steel worth $1.3 billion, which included Indonesian products (Ministry of Industry Indonesia, November 5, 2018). In response, Indonesia extended anti-dumping import duties of up to 20 percent for different flat-rolled iron and steel products from seven countries, including China (GNV Consulting, September 16, 2019).

The new “Two Countries, Twin Parks” scheme remains a work in progress. In January 2021, both countries affirmed their commitments in an MoU, pledging to develop interconnected business sectors in industrial parks. Indonesia’s ambassador to Beijing has described it as “one of the national priority projects” under the BRI and GMF (Ministry of Foreign Affairs of the Republic of Indonesia, September 20, 2022). Beijing selected the Yuanhong Investment Zone in Fujian, while Jakarta chose three estates: Bintan Industrial Estate, Aviarna Industrial Estate and Batang Industrial Estate (PRC Ministry of Commerce , March 25, 2021). The ongoing project boasts some 36 investment projects in the Fujian area with a value of 19.8 billion RMB ($2.8 billion), including ports, logistic systems, food inspection service centers, a joint China-Indonesia R&D center for seafood, and a joint Sino-Indonesian bank (Antara News, November 22, 2022). Only time will tell what the future holds for this project.

Surging Trade and Investment

In addition to large-scale infrastructure projects, the BRI has also transformed Indonesia’s economic engagement with China. Today, Beijing has been Indonesia’s largest trading partner for ten consecutive years (Global Times, November 15, 2022).

It was not always like this. In 2013, Chinese FDI in the Southeast Asian nation totaled just $300 million, and Beijing was Indonesia’s ninth-largest foreign investor, trailing Japan, Singapore, South Korea, Malaysia, the United Kingdom, the U.S., and even Taiwan (Centre for Strategic and International Studies [Jakarta], January 1, 2019). Since Xi launched the BRI in 2013, however, annual flows of Chinese investment into Indonesia have soared. In 2016, China leapt into third place with $2.7 billion in FDI. By the fourth quarter of 2019, China overtook Singapore to become the nation with the largest foreign investment in Indonesia (Indonesia Investment Coordinating Board, accessed February 6). In the first half of 2022, Chinese investment in Indonesia totaled $3.6 billion (Bisnis, July 27, 2022).

That said, this surge of loans and foreign direct investment into Indonesia does not come without potential consequences. Indonesia’s debt to Chinese creditors continues to climb, reaching $22.01 billion in March 2022 (South China Morning Post, June 12, 2022). Still, to describe Indonesia as locked in a Chinese “debt trap” is an overstatement. Indonesia’s sovereign debt exposure to China between 2000-2017 amounted to zero percent of GDP, while its “hidden debt exposure”—an estimate that aims to compensate for the chronic underreporting of Chinese loans—is around two percent of GDP (AidData, September 2021).

All We Know Is That We Know Nothing

Ten years after Xi launched the Maritime Silk Road in Indonesia, Jakarta’s commitment to Beijing’s Belt and Road Initiative is steadfast. “The Indonesia-China cooperation is not only beneficial to Indonesians and Chinese, but also to all the peoples of East Asia,” said Jusuf Wanandi, a Sino-Indonesian politician who co-founded the Jakarta-based Centre for Strategic and International Studies think tank (Mission of the People’s Republic of China to the EU, August 11, 2022).

Moreover, Beijing looks well-positioned to assist Jakarta in the latter’s mission to achieve its grand centenary objectives. Under Vision 2045, Indonesia aims to become a “sovereign, fair, and prosperous country” on the 100th anniversary of its independence (Indonesia Development Forum, May 14, 2019). By then, the Southeast Asian nation seeks to become one of the world’s top five economies with a total GDP of $7 trillion, an annual GDP per capita of $320 million rupiah ($22,807), and to have reduced the poverty rate to just 0.2 percent (Global Times, October 27, 2019). The question is not whether China will assist Indonesia with attaining this vision, but the extent to which Beijing will be involved. “Without [infrastructure], don’t ever dream of Indonesia progressing to be a country with the world’s fourth or fifth economy,” Jokowi has said (Benar News, May 9, 2019).

Right now, Jakarta clearly recognizes the role of Chinese-led infrastructure projects in its national development. Yet the government’s optimism toward the BRI underestimates the divide between elite and public attitudes in Indonesia on the initiative. Such tight-knit cooperation between both governments must deliver results that convince skeptical Indonesian citizens to overlook the BRI’s manifold setbacks and embrace its benefits. A decade into its launch, whether China’s ambitious Belt and Road Initiative will engender the positive outcomes that it has promised in Indonesia, particularly to the local public—and upon which Jakarta has pinned many of its development hopes—remains to be seen.

By the Jamestown Foundation 

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