Saturday, October 06, 2007

Japan and China invest in Indonesia

Sources: Japan, China power Indonesian growth, Is Southeast Asia Becoming China’s Playpen?

Recent foreign investment in Indonesia has rapidly increased. These investments suggest that Indonesian President Susilo Bambang Yudhoyono’s pro-business policies are starting to benefit the economy despite the Indonesian Parliament’s nationalistic economic regulations which restrict foreign investment. Last month, Parliament outlined new restrictions on foreign investment across various business sectors. However, Yudhoyono appears to be encouraging economic growth led by Japanese and Chinese investment for political reasons, mainly to improve his candidacy, and to admonish his opponents who are predominantly economic nationalists.

Japan and China have recently decided to form business ties with Indonesia which will propel Indonesia’s economic growth in the future. President Yudhoyono signed a free-trade agreement, called the Economic Partnership Agreement, with Japanese Prime Minister Shinzo Abe last week. The agreement will reduce or eliminate tariffs on average by 90% on 9,275 different trade products. A few major joint-venture energy deals have recently formed between Japan and Indonesia. Japan’s largest supplier of liquefied natural gas is Jakarta. Japan sees the agreement as a platform to secure a more stable supply of energy resources from Indonesian producers. This agreement is significant because it is the first wide-ranging bilateral pact Indonesia has ever entered with another country. In addition, China is investing in Indonesia in some large business deals. China is heavily invested in building coal-fired plants in Indonesia and has committed $800 million for other infrastructure and energy projects, including the construction of a dam and power plant.

The Japanese and Chinese newfound interest in Indonesian energy projects signifies the global competition for new and reliable energy supplies. In addition, these investments are part of competition between the Asian nations to expand their economic influence in the region. The large investments establish the increasing optimism in Indonesia’s economic development. For example, gross domestic product grew 6.3% in the second quarter of 2007.

For Discussion:
Is the United States's policy of withholding trade relations with some parts of Southeast Asia allowing China to gain an economic foothold in the region?

1 comment:

ro said...

For interest, what do you mean by "withholding"? And when does the new EPA enter into force?

China has an enormous foothold already and its growing but that doesnt mean the rest of Asia (and maybe particularly SE Asia) are not worried about being crowded out in terms of investment, manufacturing, food and energy security.

Hence they're integrating or aggregating madly to create a bulwark of critical mass and doing deals with other economic giants such as the EU etc. plus emerging giants like India to shore up their options.

Thats my view from Australia anyway.