As long as it is efficient and competitive, the Indonesian economy is not influenced by China

China's economic slowdown will slow down the wheels of the Indonesian economy, if there are no policy breakthroughs.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Asal Efisien dan Kompetitif, Ekonomi RI Tak Terpengaruh China

AFP

An aerial photo taken on August 10, 2023 shows cranes and shipping containers at Yingkou Port, Liaoning Province in northeast China.

JAKARTA, KOMPAS - The Chinese economy has yet to show any signs of recovery in the near future. Nevertheless, business players are optimistic that China's contraction will not directly paralyze Indonesia's economy as long as the business and investment climate can become more efficient and competitive for investors.

In the World Bank's latest report entitled "Global Economic Prospects 2024" published this January, China's economy throughout 2024 is projected to only grow 4.5 percent, lower than the previous estimate of 5 .2 percent.

According to the report, the country with the world's second largest economy is indeed in a critical period and is struggling with structural slowdowns marked by weakened purchasing power, difficulties for citizens to obtain employment, and plummeting investor confidence.

From the perspective of domestic business, China's economic slowdown in the past one to two years has also slowed down the wheels of Indonesia's economy.

Chinese President Xi Jinping also acknowledged that China's economy has yet to show signs of recovery in the near future. In his New Year's speech from 2023 to 2024, he revealed that the country's economy is currently going through its toughest period during his presidency since 2013.

From the perspective of domestic business, China's economic slowdown in the past one to two years has also slowed down Indonesia's economic growth. This is because in the trade sector, China is the largest supplier of raw materials and auxiliary materials for Indonesia, and China is also the main destination country for Indonesia's exports.

The Central Statistics Agency (BPS) noted that China is the main trading partner both in terms of imports with a trade value reaching 62.18 billion US dollars (Rp 972 trillion) and exports reaching 64.94 billion US dollars (Rp 1.015 trillion) throughout 2023.

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The proportion of Indonesia's exports to the 13 main destination countries from 2012 to July 2023 and Indonesia's export dependence on China has increased rapidly since the iron and steel and nickel industry's independence.

The Public Policy Permanent Committee of the Indonesian Chamber of Commerce and Industry (Kadin) represented by Chandra Wahjudi stated that despite China's economic slowdown potentially decreasing Indonesia's export volume to the "Land of Bamboo Curtains," the trade balance surplus can still be maintained this year if industrial downstreaming policies are properly implemented.

"The trade balance will remain in surplus depending on the implementation of industrial downstreaming policies that provide higher added value," he said on Wednesday (17/1/2024).

In addition to providing incentives to boost the domestication of industries, Chandra believes that there are two other things that need to be done by the government to improve export performance, one of which is to simplify export regulations and permits for each export product.

Also read: Increased Export Requirements

"In addition, the government is also expected to help open access to new markets in several other countries for our flagship products, at a time when the Chinese economy is depressed," said Chandra.

In terms of investment, China is among the top five foreign direct investment (FDI) sources in Indonesia. Based on data from the Ministry of Investment, the value of FDI in Indonesia from the beginning of the year until the third quarter of 2023 reached Rp 196.2 trillion.

During that period, Singapore recorded as the country with the largest foreign investment (PMA) source, reaching 12.1 billion US dollars. Meanwhile, China ranked second as the country with the largest PMA in Indonesia, amounting to 5.6 billion US dollars.

The Chairman of the Indonesian Employers Association (Apindo) Shinta Widjaja Kamdani said that in order to maintain the flow of foreign investment this year, Indonesia needs to improve its business and investment climate to become more efficient and competitive.

Thus, investment offers in Indonesia can be more appealing compared to rival countries in the Southeast Asian region. "A competitive business and investment climate will naturally attract capital flow from other countries to Indonesia," he said.

Shinta believes that the economic contraction in China will not immediately lead to the downfall of Indonesia's economy. The government's proactive economic policies in dealing with external pressures and potential disruptions are important for Indonesia to achieve self-sustaining growth.

Also read: World Bank predicts sluggish global investment in 2024, bad signal for Indonesia

Senior Researcher from the Paramadina Public Policy Institute, Muhammad Ikhsan, believes that China still needs time to recover its economy. China is shifting its economy from an investment-based economy to a consumption-based economy.

"It may take time, but I believe in the long run China remains attractive due to its large market, abundant human resources, and the vitality of its giant companies," he said.

For now, Ikhsan sees that Indonesia needs to take anticipatory steps. One of the steps that Indonesia needs to take is to maintain balance in its economic relations with China and other countries, including the United States.