The importance of One Belt One Road for Indonesia

President Jokowi will certainly prioritize Indonesia’s national interests in relation to China’s One Belt One Road (OBOR) initiatives as many Chinese-Indonesian joint projects have experienced delays caused by cumbersome bureaucracy and red tape.

President Joko “Jokowi” Widodo was among 29 heads of state and government attending the Belt and Road Forum in Beijing, China, which was held on May 14 and 15.

The One Belt One Road (OBOR) is widely seen as China’s strategy to boost its global leadership in promoting an open world economy through enhancing connectivity.

The OBOR initiative covers 65 countries on three continents, representing 60 percent of the world population and about onethird of global gross domestic product (GDP).

During the forum, Jokowi and Chinese President Xi Jinping had a bilateral meeting and signed three documents. The first was related to an action plan for the implementation of a comprehensive strategic partnership for 2017 to 2022.

The second was related to a Rp 150 billion (US$11.25 million) grant for financing a site study on infrastructure development. The third one was related to the financing agreement of the Jakarta-Bandung high-speed railway project.

How important is OBOR from Indonesia’s perspective? One may argue that China’s OBOR has both geo-economic and geostrategic objectives.

However, Indonesia mainly sees OBOR as an economic opportunity. Clearly, Jokowi sees this forum as an opportunity to seek the needed investment for infrastructure development in the country.

In a press briefing before departing for Beijing, Jokowi said “It is an opportunity to know the direction of OBOR and where Indonesia should enter this global cooperation.”

China has become Indonesia’s key economic partner in recent years. The progress of bilateral economic relations has been driven partly by China’s rapid economic growth since the start of the new millennium.

China’s rapid economic growth has boosted demand for Indonesia’s export products, especially commodities such as coal, rubber, cocoa and palm oil.

Similarly, Indonesia has been opening its economy to China since the normalization of bilateral ties in 1999.

In particular, after the signing of an agreement for a strategic partnership in 2005 (during the Susilo Bambang Yudhoyono period), Indonesia’s trade with China surged and overtook that with Japan, Singapore and the United States.

Since 2013, China has become Indonesia’s largest trading partner, but the trade balance is in favor of China, with a $15.6 billion trade surplus last year.

Moreover, last year China moved up to be the third largest investor in Indonesia after Singapore and Japan. For development financing, one can also see a similar trend in which China has increasingly become a major source of funding for Indonesia’s development projects.

According to Bank Indonesia data, since 2015 China has emerged as the third largest bilateral creditor for Indonesia, after Singapore and Japan.

Whether Indonesia agrees or not to be part of China’s OBOR, it is expected that there will be more joint projects between China and Indonesia. Indonesia, which is short of funds for developing its infrastructure, needs China’s capital.

Yet not all “OBOR projects” would overlap with Indonesia’s national interest. One of the cases is the Jakarta-Bandung highspeed railway project, which has been seen as a lighthouse project lacking clear socio-economic and environmental viability. Indonesia might have to accept these kind of projects in order to get access to more capital or investment from China.

There are at least two important factors that may possibly hamper the smooth progress of OBOR projects in Indonesia.

The first factor is related to the dynamic of state-to-state relations. The dynamic of state-tostate relations is difficult to predict, especially with the rising temperature of domestic politics. After Jokowi became president, his closeness to China has been used by his political opponents to attack the government.

In 2015, there was a rumor in social media reporting the influx of Chinese migrant workers into many Indonesia-China joint projects. This rumor has been widespread with the start of several projects shared by Indonesia and China.

Infrastructure projects related to power plants and the Jakarta-Bandung HSR projects in particular have been highlighted by the media as China’s entrance to send not only their technology, but also the workforce.

Concern about hiring Chinese workers at the expense of Indonesian workers flourished as there are still about 7 million Indonesian jobless.

The issue of Chinese migrant workers re-emerged at the end of 2016, coinciding with Jokowi’s vow to attract 10 million Chinese tourists by 2019.

There was another rumor in social media that there are 10 million to 20 million Chinese migrant workers in Indonesia. Later, the Manpower Ministry refuted that figure, explaining that the number of Chinese workers in Indonesia was only around 21,000 and mostly worked in Chinese construction projects.

Suspicion of political motivation behind the rumors has lead Jokowi to instruct his ministers and the national police to clarify the issue and take firm action against the rumor mongers.

Since then, it has become more difficult for Chinese-Indonesian joint companies to employ mainland Chinese workers. The difficulty in hiring mainland Chinese workers may affect the implementation of some OBOR projects.

The second factor is related to the progress of Indonesia’s reform agenda to deal with red tape and bureaucracy. Indonesia’s government has passed 14 economic policy packages, aiming to harmonize regulations, simplify bureaucratic processes and tighten law enforcement.

However, the impact of these reform packages thus far has been mixed. In particular, the progress of deregulation and debureaucratization has been slow. This will be key for attracting investors in general and specifically Chinese investment.

Many Chinese-Indonesian joint projects have experienced delays caused by cumbersome bureaucracy and red tape. Without clear progress in this area, it will be difficult to expect significant investment from China’s OBOR initiative.

To sum up, President Jokowi will certainly prioritize Indonesia’s national interests in relation to China’s OBOR initiatives. Given Indonesia’s historic hostility toward China, there will be continued political pressure from the opposition to keep a distance from China’s OBOR.

If OBOR projects proved to be only beneficial to China and a few elites and capitalists in Indonesia, there is no guarantee that there would be no strong opposition against the projects. Going forward, Indonesia will continue balancing Chinese investment in the country with other traditional investors, such as Singapore, Japan and the US. The latter to some extent are complementary and are not substitutions for Chinese investment.

Siwage Dharma Negara is a Fellow at the Singapore ISEAS Yusof Ishak Institute. This article appeared on The Jakarta Post on 29 May 2017.