RI Increasingly Dependent on China

China in the World noted that China's level of influence on Indonesia is quite high, ranking 16th out of 82 countries.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in RI Makin Bergantung pada China

KOMPAS/MOHAMAD FINAL DAENG

Workers are processing nickel ore into ferronickel at the smelter owned by Harita Nickel Group on Obi Island, South Halmahera Regency, North Maluku, on Saturday (8/4/2023).

At a time when a number of developed countries are reducing trade dependence with China, Indonesia is actually increasingly dependent on that country. There are benefits as well as risks for Indonesia becoming increasingly dependent on the "Bamboo Curtain Country".

The United States (US) has been slowly distancing itself from China since Donald Trump initiated a trade war with the country in 2018. Several measures related to trade and industry have been taken and are currently being pursued.

It starts with the relocation of industries to several countries in Asia and Eastern Europe. The US also implemented a low-carbon policy, with one of its goals being to reduce China's dominance over key raw materials for vehicles and electric batteries, such as lithium, cobalt, nickel, and magnesium.

The United States even created the Cip law and science. The law was created to improve the competitiveness of the United States against China by allocating billions of US dollars for semiconductor production, research, and human resources.

Japan is striving to enhance cooperation with the European Union and countries in the Middle East. The collaboration covers the research and development of mining and refining rare earth metals or rare metals, as well as improving the supply chain of natural resources.

This is done in order to reduce dependence on China for trade in natural resources, especially rare earth metals. This commodity is very important as a raw material for advanced technology, such as chips, smartphones, military equipment, electric vehicles, and wind turbines.

KOMPAS/HENDRIYO WIDI (HEN)

Potential of world rare earth metals in 2022.

Based on data from the US Geological Survey (USGS), in 2022, China will contribute 44 million tons of 115.82 million tons or 62.01 percent of the world's rare earth mining production. The next producing countries are Vietnam (22 million tonnes), Brazil (21 million tonnes), Russia (12 million tonnes) and India (6.9 million tonnes).

China's dominance raises concerns. Beijing will limit exports to damage its economic or political rivals. "Initially the threat was only implied for some time. Now, that threat has occurred," said Robert Dujarric, co-director Institute of Contemporary Asian Studies at Temple University, Tokyo.

The results of research by the China in the World research network in the form of the China Index in 2022 show that the US and Japan are not among the countries most dependent on or influenced by China. Of the 82 countries studied, China's influence on the US and Japan ranked 21st and 52nd respectively.

The top 10 countries most affected by China in order are Pakistan, Cambodia, Singapore, Thailand, Peru, South Africa, Philippines, Kyrgyzstan, Tajikistan, and Malaysia. The factors of influence or dependence varies, among others, relating to economy, technology, military, education, and foreign policy.

China's dominance raises concerns. Beijing might restrict exports to damage its economic or political rivals.

Also read: Transfer Flows from World Trading Partners are Increasingly Strengthening

KOMPAS/ADRYAN YOGA PARAMADWYA

Chinese Prime Minister Li Qiang (left) and Indonesian President Joko Widodo (right) head to the conference room in Jakarta on Wednesday (6/9/2023). ASEAN and China held a series of meetings for the 43rd ASEAN Summit.

Benefits and risks

What about Indonesia? Since implementing downstreaming in the iron and steel as well as nickel sectors, Indonesia's exports to China have been increasingly growing. The diversification of export products has also become more varied with the strengthening of metal ore-based processed products.

China in the World has noted that China's influence on Indonesia is quite high. Indonesia ranks 16th out of 82 countries. Several sectors in Indonesia that are most affected by China are foreign policy with an index of 41 percent, technology (40.38 percent), domestic policy (37.2 percent), and economy (33.6 percent).

This signifies the success of Indonesia's downstream industry, supported by Chinese investments.

Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, stated on Sunday (26/11/2023) that the proportion of Indonesia's exports to China in 2012 amounted to 11 percent of Indonesia's total export value. As of July 2023, that proportion had increased to 24 percent.

The value of Indonesia's iron and steel exports to China has been increasing since 2016 until July 2023. The same goes for the value of nickel exports and its derivative products which have started to grow from 2022 until July 2023.

"On one hand, this indicates the successful realization of Indonesia's downstreaming process, supported by Chinese investments. However, the commodities resulting from these investments are still predominantly used to fulfill China's own market demands," he said.

Also read: Industrial Relocation Floods in ASEAN and RI

If the dominance continues, said Faisal, Indonesia will be dependent on China. If there is any obstacle in the Chinese market, the domestic industry will be directly affected. Therefore, the diversification of export markets for highly valued commodities is highly necessary.

Nevertheless, Indonesia's dependence on China has also had positive results. In the last five years RI's trade balance deficit with China has decreased. Based on the One Data Portal of the Ministry of Trade, Indonesia's non-oil and gas trade balance deficit with China in 2018 was 20.84 billion US dollars.

In 2022, the deficit drastically decreased to 3.69 billion US dollars. Then, in January-September 2023, the non-oil trade deficit of Indonesia to China was 297.9 million US dollars. That deficit was much lower compared to the trade balance deficit in January-September 2022, which reached 5.09 billion US dollars.

This is closely related to the increasing value of non-oil and gas exports from Indonesia since 2018, despite the stagnant value of imports from China. Indonesia's exports to China from 2018-2020, which were in the range of 24 billion US dollars to 29 billion US dollars, have now risen to 45 billion US dollars to 63 billion US dollars from 2021 to September 2023.

Meanwhile, Indonesia's non-oil and gas imports from China in 2018-September 2023 ranged between USD 44 billion - USD 67 billion. However, it should be noted that China's demand remained weak during 2020-2022 due to its zero Covid-19 policy. On the other hand, Indonesia benefited from the increase in global commodity prices, such as crude palm oil (CPO), iron ore, and nickel.

Executive Director of Next Policy, Fithra Faisal Hastiadi, assesses that cooperation with China can indeed benefit Indonesia, both in terms of investment and trade sectors. However, Indonesia should not become too dependent on China to avoid being easily exposed to the risk of China's economic slowdown.

In the midst of the increasingly strong trend of friend-shoring or bilateral relations that prioritize countries with similar political and economic views, Indonesia is expected to be able to target opportunities for investment and trade cooperation. This includes countries aligned with the Western and Eastern blocs.

"Conditions are that Indonesia must remain independent and open, as well as build trade diplomacy based on friendship," he said.

Also read: RI's Exports Will Slow Amid Stagnation of Market Diversification