China investment in Indonesia – Last January, Head of the Investment Coordinating Board Thomas Trikasih Lembong announced during 2016, Indonesia received foreign direct investment (FDI) from China of 2.7 billion US dollars (Republika, January 25, 2017). If coupled with foreign direct investment from Hong Kong, China’s autonomous region where there are many large Chinese companies controlling their overseas operations, the number of China investment in Indonesia jumped to 4.9 billion US dollars.
A few weeks ago, Bank Indonesia released Indonesia Financial Statistics. In contrast to data from the Investment Coordinating Board, Bank Indonesia noted that China’s foreign direct investment to Indonesia last year was only US $ 265 million. If Hong Kong’s FDI of US $ 1.4 billion is included, the nominal of foreign direct investment from China will be only a quarter of the data of the Investment Coordinating Board. There is no explanation for the differences in data from the two agencies.
Different data can obviously lead to confusion and suspicion of the parties. Moreover, the increasing activity of Chinese enterprises in Indonesia is increasing so that it potentially encourages misunderstandings about their roles.
However, our estimate is the difference in data between the Investment Coordinating Board and Bank Indonesia as Bank Indonesia estimates FDI inflows with foreign-based transactions recorded in Indonesia’s financial system. The head of the Investment Coordinating Board explained in January that China Investment in Indonesia’s record is related to Bamboo Curtain investment for nickel smelter and power plant projects in several regions in Indonesia.
Typically, large projects are financed gradually over a period of development. The possibility of BKPM recording the total commitment of investment value at the beginning of the project, while BI record the flow of incoming funds from related stages that can take multi years.
China Investment in Indonesia through Singapore
Second, some Chinese companies invest through Singapore. There, many multinational Chinese companies set up regional offices for Southeast Asia. Along with this, most of China’s big state-owned banks also move in the Land of the Lion. Of course they tend to provide services to its main customers, namely Chinese state-owned enterprises.
In 2015, China’s FDI to Singapore accounted for 51 percent of the total 62.8 billion US dollars received by all ASEAN countries. The amount is approximately equal to the total FDI of Singapore companies to other ASEAN countries amounting to 64.7 billion US dollars.
In the same year, Indonesia received 51 percent of all FDI disbursed by Singapore. In other words, it is also possible to say that Indonesia received indirect FDI from China through its Singapore-based companies.
However, FDI data published by the Chinese Ministry of Commerce, adding confusion. They base the nominal of foreign direct investment based on the ministry’s registered approval. Until 2014, Chinese companies must apply for permission to the government. The main reason for the company to go through the stages is to ease the foreign exchange access needed to support FDI.
In the period of 2004-2015, the ministry has granted permission to 628 Chinese companies to establish subsidiaries in Indonesia. The licenses include the establishment of 131 representative offices. During that time, BKPM recorded more than 2,500 Chinese FDI projects realized. A total of 1,100 other projects come from foreign direct investment Hong Kong.
China Likes to Cutting Compass
The ability of Chinese companies to cut official channels and access foreign exchange for FDI has recently increased. That way, reporting to the relevant authorities is not done. This contributes to the Government of China’s decision in 2014. The government declared the necessary permits for the Bamboo Curtain companies to operate in “sensitive” countries.
On the other hand, the latest data from the ministry noted the flow of foreign direct investment to Indonesia from China during 2015 of 1.5 billion US dollars. Meanwhile, Bank Indonesia’s data shows FDI from China amounted to 379 million US dollars, while the Investment Coordinating Board recorded 628 million US dollars.
The Ministry also noted the accumulation of FDI in Indonesia amounted to 8.1 billion US dollars in 2015. Meanwhile, during 2004-2015 is only 4.9 billion US dollars which arrived according to Bank Indonesia and 2.4 billion US dollars referring to the Investment Coordinating Board.
This is a confusing difference. All of this is likely due to several factors. First, Chinese companies channel FDI through Hong Kong and Singapore without notifying the relevant authorities. Second, State-Owned Enterprises of China investing in the country applying permits to ministries and investing in Indonesia in stages. Third, the ministry also calculated the revenue earned by Chinese companies in Indonesia.
Admittedly statistical data in China helped to overcome the problems that are often misunderstood in Indonesia. The rapid development of the presence of Chinese companies in Indonesia is also due to many contractors and subcontractors for project development and management supported by ministries/agencies of the Chinese Government as part of One Belt One Road (OBOR).
The roles of these companies are sometimes confusing when juxtaposed with companies that channel FDI. Noted there are 49 Chinese construction companies that must invest by establishing a subsidiary in Indonesia. Actually, their FDI nominal is small, but the project value is large.
The latest data from the China Bureau of Statistics shows that the value of projects completed by Bamboo Curtain companies in Indonesia per 2015 reached 4.8 billion US dollars. This value is greater than FDI from China in the same year.
It should be understood that the value is not an FDI nominal, but the contract value of central and local government projects as well as domestic private companies with Chinese companies. Chinese companies often win tenders because of competitive bids accompanied by the fact the project is financed with soft loans from Chinese state banks with low interest rates and long tenors.
The Cause of China Investment in Indonesia
However, it should be understood, contracts with Chinese companies are not without consequences. Take the example from the side of foreign debt. Recorded in the period 2010-2016, the number increased by six-fold. Yet Indonesia’s debt to other countries increased only 1.3 times. Chinese contractors and subcontractors also often use materials and equipment from their country. Just a note, the import of mobile phones is often blamed as the cause of Indonesia’s trade deficit.
Indonesia’s statistical data recorded import value reached 2.6 billion US dollars. That’s just a portion of all Chinese imports. Indonesia imports more materials related to construction and non electronic equipment and machinery. Details of 4.7 billion US dollars are about for building materials, steel, bathroom equipment, and others. While as much as 2.3 billion US dollars sourced from cranes, bulldozers, air conditioners, etc.
By the end of 2015, the number of Chinese workers in Indonesian construction projects is 13,775. This amount is less than half the expatriates who work legally in the country which recorded 31,030 people.
Without consistent and transparent information from official institutions related to China investment in Indonesia to the Indonesian economy and private organizations such as the China Chamber of Commerce and Industry or the China Business Council, false news relating to the nature, size and desires of companies from the State of Curtain Bamboo will continue to survive in Indonesia.