The direction of China's economic policy has become the attention of the world, including Indonesia. It is important to anticipate the "spillover" effect from China's economic recovery.
By
AGNES THEDOORA
·5 minutes read
JAKARTA, KOMPAS — After experiencing intense pressure due to the pandemic and the strict zero Covid-19 policy, China has set a cautious economic target this year. At the opening of the plenary session of the National People's Congress, on Sunday (5/3/2023), China announced a moderate economic growth target of around 5 percent amidst many structural challenges that need to be answered.
The figure is below China's economic growth target of 5.5 percent in 2022, but still shows improvement. As a result of strict Covid-19 restrictions, China's economy grew only 3 percent last year, one of the lowest in the history of the country's modern civilization.
Delivering his report at the Great Hall of the People, Tiananmen Square, Beijing, Sunday, Chinese Premier Li Keqiang said China's economy was on a steady recovery path after being hit by the pandemic and the impact of the Covid-19 zero policy in the past three years.
Late last year, China lifted the Covid-19 strict restrictions, making the country the last major economy to decide to make peace with Covid-19.
Even though China is now relatively free from the grip of the pandemic, China is not hasty in setting economic targets in the midst of global uncertainty. The target for China's economic growth is under the estimates of many economists who initially predicted that China would set a target of above 5 percent, or even 6 percent.
“This year, it is much more important to prioritize economic stability. We are still pursuing growth, but stability must be maintained,” said Li, who will end his tenure after a decade in office.
China is relying on domestic demand as the engine for economic growth this year amid weakening global demand. Li said boosting domestic consumption and investment was China's top priority this year, while exports and imports were targeted to grow more moderately.
To drive the domestic economy, China will also pay more attention to private sector growth. The Chinese government is said to be supporting the expansion of the private sector and micro, small and medium enterprises (MSMEs), while still pushing for public sector reform or state-owned enterprises (SOEs).
We are still pursuing growth, but stability must be maintained.
"China will create an environment where all kinds of businesses under any ownership can compete and grow with equal opportunities," Li said, to applause from thousands of members of the National People's Congress (NPC) who filled the hall.
The Chinese government's policy of being more pro-state-owned than the private sector has long been in the spotlight. In 2016, four years after President Xi Jinping took office, the growth trend of the private sector slowed down, while investment by public companies increased.
Last year, the gap between the private and public sectors grew sharper, thereby reducing the interest of foreign investors to invest despite other factors such as geopolitical tensions between China and the United States, as well as uncertainty over the fate of China's economy amid the Covid-19 restrictions at that time.
Calculating the impact
The direction of China's economic policy has indeed been in the world's spotlight lately, and Indonesia is no exception. According to an analysis of the International Monetary Fund, if China's economy increases by 1 percentage point, growth in other countries will rise by 0.3 percentage points.
Researcher at the Institute for Economic and Social Research at the University of Indonesia, Teuku Riefky, assessed that if China's economic growth, as Indonesia's main trading partner, reached the target this year, it would bring a positive impact on Indonesia, especially in trade.
From the export side, there will be an increase in demand for Indonesian commodities, which can boost economic growth.
On the other hand, increased production in China will drive down the price of raw and auxiliary materials for the Indonesian industry, making import costs cheaper and easing the burden on domestic industry players.
Even if China fails to achieve its target of attracting private and foreign investors, Indonesia can still benefit. "We can benefit, if investors relocate their factories from China, although of course this really depends on other factors such as the trend of global monetary tightening and geopolitical tensions which still make investors wait and see," said Teuku Riefky.
Even so, there are potential impacts that need to be anticipated from China's economic recovery. For example, the flow of imports of finished goods will flow rapidly back to Indonesia and they could compete with local industries such as textiles and footwear producers in the domestic market.
There are still question marks about China's economic resilience and its impact on the economy. According to Haryo Aswicahyono, a senior researcher at the Department of Economics at the Center for Strategic and International Studies (CSIS), China's economic recovery may not necessarily have a significant impact on the world, including Indonesia.
We need diversification, the risk is quite big if we rely too much on China as a market.
Structurally, the country is still facing many serious problems that could threaten its economic growth rate. Quoting an IMF report last month, China needs major economic reforms to address various mid- to long-term issues, from post-pandemic government debt, the property sector crisis, the threat of depopulation and declining productivity, as well as an unfriendly business climate for the private sector.
According to Haryo, Indonesia needs to start reducing its economic dependence on China. "We need diversification, the risk is quite big if we rely too much on China as a market," said Haryo.
This article was translated by Hendarsyah Tarmizi.