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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.

Taiwan investing big in Indonesia

Putting all political differences aside, Taiwan - like China - is one of Indonesia's important economic partners. According to data from the Taiwan Economic and Trade Office (TETO) in Jakarta, two-way trade between Indonesia and Taiwan performed impressively last year, amounting to nearly US$6 billion in value, representing strong growth of almost 35 percent from 2003. More good news for Indonesia is that last year's trade balance was also in favor of Indonesia.

Taiwan's exports to Indonesia include boiler machinery, mechanical appliances, electrical machinery and equipment, and man-made fibers, while Indonesia mainly exports oil, gas and paper products to Taiwan. In terms of investment, data from the Indonesian Investment Coordinating Board (BKPM) shows that investments from Taiwan to Indonesia as of 2004 had reached a total of 1,002 investment projects worth US$13 billion. Meanwhile, although Indonesian investments in Taiwan are still small, Indonesia has invested a total of $600 million in the island territory.

For this year, Taiwan is already planning to increase its investments in Indonesia, with a $47.5 million mining project currently being set up in East Kalimantan. A $22 million steel machinery joint venture project between Taiwanese and Japanese investors is also under preparation. "All of this has certainly provided a strong foundation for further economic relations between Indonesia and Taiwan," TETO official David Y.L. Lin told The Jakarta Post in a recent interview. "And my observation is that trade and investments between Indonesia and Taiwan will continue to grow."

Lin is hoping the Indonesian government will encourage the establishment of more joint venture investments between Taiwan and Indonesian enterprises, and that the government would consider establishing a mutually beneficial free trade agreement (FTA) with Taiwan. TETO deputy representative for economic affairs Chang Chun-fu said there were big opportunities to improve trade between Indonesia and Taiwan because the economies complemented one another.

"Indonesia is rich in natural resources and abundant with human resources, while Taiwan has and can provide the technical and managerial expertise needed to create added value to those resources," he said. Indonesia, Chang said, can also benefit from Taiwanese investors, due to the fact that most of them are small- and medium-sized enterprises (SME) running export-oriented businesses.

"Because of this, Taiwanese investments can actually help Indonesia increase its exports volumes and revenues for its foreign currency reserves," he said. "Indonesian SMEs can also learn much how to improve themselves through cooperation with investing Taiwanese SMEs." In terms of reducing unemployment in the country, Taiwanese investments are estimated to have led to the employment of between 600,000 and 700,000 Indonesian workers. Taiwan has also been an important destination for Indonesian migrant workers, with 100,000 workers estimated to be in the island nation.

Historically, Taiwanese firms had since the 1970s invested mainly in the textile businesses in Bandung, furniture manufacturing in Surabaya and Cakung, as well as in the sport shoes manufacturing business, Chang said. A significant number of them, however, later left the country, following the May 1998 riots. "Recently, however, Taiwanese investors have returned to do business in the agricultural processing industry, steel industry, and export-import services," he said.

One of Taiwan's largest motorcycle manufacturers, Kymco, recently set up an assembly plant in Indonesia, bringing in some 15 other investors to provide its spare parts. Companies from Taiwan's internationally famous information technology (IT) industry have also set up shop in Indonesia though they have yet to invest in any production ventures. Chang however said that the Indonesian government still has a lot of homework to do in improving the country's investment climate. Among factors of particular concern to Taiwanese investors, Chang said, was the corruption and inefficient nature of the country's ports, where illegal fees have created a high-cost economy.

As Taiwanese investors were mostly export-oriented, expensive port facilities would significantly affect their businesses. "In the past, the profit margins that the companies enjoyed might have been enough to tolerate such high costs, but nowadays, with the profit margins getting smaller by the day, such costs will make the companies uncompetitive, and this means they will likely move to another country," he said.

"The Indonesian government has said it will address the problem, but it is its actual implementation that we are waiting for."

Last revised on January 19, 2010
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