Indonesia adjusts to looming China
- Source: Global Times
- [21:26 September 06 2010]
- Comments
Mari Pangestu
Editor's Note:
China underscored its commitment to expanding economic and trade cooperation with the Association of Southeast Asian Nations (ASEAN) at a recent China- ASEAN Economic Ministers' Meeting in Vietnam last month.
Indonesia, where ASEAN is headquartered, has seen its bilateral trade with China under a regional free trade pact more than doubled over the last five years, but this could rise further, many claim, if exporters make full use of the China-ASEAN Free Trade Agreement (CAFTA). How can the pact be expanded? How do Indonesian industries feel about it? Global Times (GT) reporters Wang Fang and Qiu Wei visited the Indonesian Minister of Trade, Mari Pangestu (Pangestu) in Jakarta to discuss these issues.
GT: ASEAN's exports to China registered a 50 percent year-on-year growth during the first seven months of this year, totaling $84 billion, according to China's Ministry of Commerce. How has Indonesia contributed to that increase?
Pangestu: Indonesia is lucky because it has many resources. We have oil and gas, coal, many minerals and rubber. This is where our strength is. But what we're trying to do is increasing the added value of our resource base exports. What we would like to see is not just the export of iron ore, but also have the processing and smelting be done here.
We have seen that a lot of Chinese companies are quite interested not just in mining, but in doing the downstream processing here. This is what we want to see, maybe in the next five to 10 years. We also want to also increase our manufacture exports, whether it's footwear, garment, textile, electronics, or automotives. These are some of the growing sectors.
GT: Some sectors in Indonesia, such as the textile industry, seemed to remain very skeptical about the effects of CAFTA. Why?
Pangestu: We've only implemented this agreement for five years. We've seen our bilateral trade grow from $12 billion to almost $30 billion, and more than double during the last five years. We have seen a large increase in trade in both countries. China is the number five trading partner for Indonesia now on the export side, and number one on the import side.
Many exports, like cocoa, coffee, palm oil, and even handicrafts and furniture, benefit from the CAFTA. There are a few sectors that feel it's very difficult to compete with China. It's mainly textiles, iron and steel.
This is where we are talking to the Chinese side to find ways we can cooperate in these three sectors. This is something both sides are aware of. We have talked for the last six months to see how we can, for instance, have investments coming into the textile and garment sector here from China, and then use Indonesia as a base to produce and export either back to China or to other markets.
No free trade agreement can benefit everyone. What is important is how the country must manage the sectors that will be affected. It's really a question of how to increase your competitiveness.
GT: Unlike some of its neighbor countries, Indonesia has huge domestic market potential, given the size of its population. Will reliance on domestic consumers somewhat reduce its competitiveness in exports?
Pangestu: In terms of a source of growth, the domestic market will always be larger. Based on our last census, we now have 237 million people. Fifty percent of them are younger than 29 years old. So it's a large and young population. It has its own sense of growth, and dynamic growth. We'll continue to have the domestic market as a source of growth.
But exports and investments must also be important sources of growth. In terms of source of growth, domestic market comprises about 50-60 percent of the source of growth. The government is about 9-10 percent; export is about 20 percent.
But when you exclude the imports, it may be around 5-8 percent. And investments account for another 12 percent in terms of source of growth. We have to have all of the sources of growth as important contribution to our economy.
