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Relations with China

If there is anything we can say about the Sino-Indonesian relationship, it is probably the fact that politics have always come second to sociocultural and economic ties. Indeed, from an anthropological point of view, Indonesians could well trace their ancestral origins to the people who once populated the southern part of China, and - like the Japanese and Koreans - have strong influences of Chinese culture that for centuries has been the region's de-facto hegemon.

Chinese economy
Sino-Indonesia ties: Economy comes first

Chinese merchants, meanwhile, had also been arriving in the archipelago as early as the fourth century, trading ceramics, cloth and wood with locals. These merchants - along with workers from China - eventually became the next wave of Chinese settlers here, and literally a part of Indonesia, as their descendants were born and raised here, but with many maintaining close ties with their country of origin.

So despite Indonesia having had its ups and downs in walking the diplomatic tight rope between the politically divided China (the People's Republic of China) and Taiwan (the Republic of China), socioeconomic relations with both have managed to survive and even flourish to this day. Indonesia first signed a bilateral trade agreement with China in 1953, after officially establishing diplomatic ties on April 13, 1950. Initial two-way trade value was only US$7.4 million in 1954, but steadily grew to $129 million over the next five years.

Due to its "One China Policy", Indonesia has no official diplomatic relations with Taiwan, yet trade and investment between the two were nevertheless established by as early 1952 through efforts by the region's ethnic Chinese network. It was through this network as well that economic ties between Indonesia and China were rescued when Jakarta severed its diplomatic relations with Beijing in 1965, following an alleged failed coup d'etat blamed on the Chinese-affiliated Indonesian Communist Party (PKI).

Direct trade between the two countries then ceased, but continued indirectly by proxy through Hongkong and Singapore, averaging some $200 million a year. Fortunately, direct trade between China and Indonesia was later restored in a 1985 agreement, which preceded a full normalization of all diplomatic ties in 1990. Since then, bilateral trade between China and Indonesia has flourished, with the balance always in Indonesia's favor.

In 2004, the trade value stood at $13 billion, up 31 percent from 2003's $10.2 billion, and almost matching Indonesia's $13.5 billion export-import flow with the United States. For this year, the Indonesian Chamber of Commerce (Kadin) expects trade with China to reach $15 billion, and up to $20 billion in 2006. In terms of the commodities being traded, data shows that China's exports to Indonesia include electrical machinery and equipment, electronic goods and home appliances, textiles and motorcycles. China's principal import commodities, meanwhile, are mostly resource-intensive goods like crude oil, natural gas, palm oil, paper, pulp and timber.

This two-way trade will likely increase drastically following the signing of a 25-year contract that China awarded in 2002 to Indonesia for the supply of $8.5 billion worth of liquefied natural gas (LNG) from Tangguh in Papua province to China's Fujian province. Investment from China to Indonesia is similarly on the rise. Data from the Indonesia's Investment Coordinating Board (BKPM) shows that total Chinese investment in Indonesia for the five year period ending 2004 reached $6.5 billion, with investments in the energy sector alone reaching $1.2 billion.

On the other hand, data from the Chinese government shows that Indonesian investments in China have reached at least $2 billion as of 2003. Indeed, during his visit to Indonesia for the Asian-African Summit in April, Chinese president Hu Jintao said that the increased prosperity of China has allowed its enterprises to become investors, eyeing ASEAN countries - including Indonesia - as potential investment destinations.

At that same summit, Coordinating Minister for the Economy Aburizal Bakrie said that a group of Chinese businessmen had committed to invest $10 billion in Indonesia in the near future, in projects such as toll roads, electricity, palm plantations and those in the energy sector. Current investors from China include the country's two largest oil companies, PetroChina and Chinese National Overseas Oil Company (CNOOC).

Many of China's well-known electronic appliance manufacturers, such as Cang Hung, Kang Cia and TCL, are also investing and marketing their products here in Indonesia. Likewise, motorcycle manufacturer Jia Ling have also set up an assembly and spare parts plant. Bank of China, meanwhile, resumed its operations in Indonesia in 2003 to help facilitate the fast growing trade and investment between the two countries.

Last revised on January 19, 2010
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