Navigating the Dragon: Indonesia's Economic Dependency on China
This dependency is not merely economic; it extends into political and technological realms, where China’s influence is palpable. According to a recent study, Indonesia ranks 16th out of 82 countries in terms of Chinese influence
Indonesia's economic landscape is increasingly defined by its relationship with China, a dynamic that has become a double-edged sword. As the largest economy in Southeast Asia, Indonesia has seen its ties with China deepen significantly, particularly under President Joko Widodo’s administration. However, this growing dependency raises critical questions about the sustainability of Indonesia's economic future and its geopolitical autonomy. Will it be the same under Prabowo Subianto?
The Growth of Economic Ties
China has emerged as Indonesia's top trading partner, with bilateral trade surpassing $130 billion annually. This figure has nearly doubled since Widodo took office in 2014, reflecting a robust exchange of goods and investments. Chinese investments have poured into various sectors, notably mining and infrastructure, supporting Indonesia's ambitions for industrialisation and economic growth. The downstreaming policy, which aims to process raw materials domestically rather than exporting them unprocessed, has been bolstered by Chinese capital and technology. For instance, the production of nickel and iron ore has surged, with China being a significant consumer of these commodities.
Despite these benefits, the data reveals a troubling imbalance. In 2022, nearly 24% of Indonesia’s total exports were directed to China, while the country accounted for only a small fraction of Chinese exports. This dependency is not merely economic; it extends into political and technological realms, where China’s influence is palpable. According to a recent study, Indonesia ranks 16th out of 82 countries in terms of Chinese influence, indicating a substantial sway over its foreign policy and domestic affairs.
Risks of Overreliance
The reliance on China poses significant risks. As the global landscape shifts, particularly with the rise of geopolitical tensions, Indonesia's economic stability could be jeopardized. China's assertiveness in the South China Sea and its use of economic leverage as a political tool raise alarms. If Beijing were to restrict exports or impose sanctions, Indonesia could find itself vulnerable, with its industries heavily reliant on Chinese markets.
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Moreover, the quality of Chinese investments has come under scrutiny. Reports of labor abuses and environmental concerns at Chinese-owned facilities have sparked public outcry and could lead to a backlash against both the Chinese government and Indonesian officials who facilitate these investments. The recent accidents at Chinese-built industrial sites highlight the potential dangers of deepening ties without adequate oversight.
The Call for Diversification
To mitigate these risks, experts advocate for a diversification of Indonesia's economic partnerships. While Chinese investments have been crucial for infrastructure development, the country must seek to engage with other global players, including the United States, Japan, and Australia. By expanding its trade relationships, Indonesia can reduce its vulnerability to economic fluctuations in China.
Additionally, leveraging regional agreements such as the ASEAN Free Trade Area (AFTA) and the Regional Comprehensive Economic Partnership (RCEP) could provide alternative markets for Indonesian exports. Strengthening ties with ASEAN neighbors not only enhances economic resilience but also fosters regional stability.
The end note
As Indonesia stands at a crossroads, it must carefully navigate its relationship with China. While the economic benefits are undeniable, the risks associated with dependency are equally significant. A balanced approach that seeks to diversify trade partnerships while maintaining productive relations with China will be essential for Indonesia's long-term economic security and sovereignty. The upcoming presidential elections in February 2024 will likely influence how Indonesia recalibrates its foreign policy, making it imperative for the next administration to prioritize a strategy that safeguards national interests amidst an evolving global landscape.