Interview: Indonesia, China cooperate to build strong region

Indonesia, where ASEAN is headquartered, has seen its bilateral trade with China under a regional free trade pact more than double over the last five years. Many claim this could increase further if exporters make full use of the China-ASEAN Free Trade Agreement (CAFTA).


People's Daily Online reporters Qiu Wei and Wang Fang visited the Indonesian Minister of Trade, Mari Pangestu in Jakarta
How can the pact be expanded? How do business leaders in Indonesian industries feel about it? People's Daily Online reporters Qiu Wei and Wang Fang visited Indonesian Minister of Trade Mari Pangestu in Jakarta to discuss these issues.

Reporters: How do you view the trade relationship between China and Indonesia?

Pangestu: We've only implemented this agreement for five years. We've seen our bilateral trade grow from 12 billion U.S. dollars to almost 30 billion U.S. dollars, 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.

Reporters: Indonesia's export sector mainly concentrates on crude oil, rubber, industrial chemicals, which are usually viewed as resource-intensive and lower technology products. Could you introduce the efforts of converting the export mode?

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 to 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.

Reporters: 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 to 60 percent of the source of growth. The government is about 9 to 10 percent; export is about 20 percent.

But when you exclude the imports, it may be around 5 to 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 contributions to our economy.

Reporters: Regional players seemed to be very active in forging trade pacts. Most recently, the Chinese mainland and Taiwan signed the Economic Cooperation Framework Agreement (ECFA), which will cut tariff on hundreds of products and services traded across Taiwan Straits. How do you understand concerns that similar FTAs in the region could have an impact on the benefit of CAFTA?

Pangestu: Integrating your economy with the world market is something that you have to face. You cannot close your country to the world market. You cannot really slow it down. Indonesia is a country where you can enter from so many different entry points.

You can't really prevent globalization. For a country like Indonesia, it has always been about how to manage globalization and opening-up. We are actually a fairly open economy just because of our geography.

In the past, we tried to limit imports and foreign exchange, but what we'd get is smuggling. Because of geography, our policy has always been relatively open. It's more about how do we manage the competition and certain sectors that are facing competition. How do we aid them and how do we increase competitiveness?

At the moment our biggest challenge is actually infrastructure. I think China has invested a lot in infrastructure in the last 10 years. We experienced a financial crisis in 1997 and 1998, and then we had a period of very dramatic transformation in our country. After almost 10 years since the crisis we begin to focus on building infrastructure again.

From 1999 to about 2006 there was no new infrastructure being built. Now we are just turning to the very important issue of infrastructure. China has been able to address this issue in an accelerated way in the last 10 years. We have a lot of catch-up to do. We recognize this is going to be the biggest major issue for us.

Reporters: Some reports by local media in Jakarta suggested that Indonesia is in a process of "renegotiating" some of the terms of CAFTA. Is this true?

Pangestu: We didn't renegotiate the agreement. The agreement is implemented on schedule. But both sides recognized that there are issues that we want to be able to address.

But meanwhile, we already have a number of different types of cooperation that we hope will address some of the issues.

There is a Memorandum of Understanding (MOU) between China and Indonesian banks to help finance export and investment, specifically in textile, garments and footwear sectors. We are working now on a MOU between our textile and garments associations and on having more business-to-business links.

Reporters: How do Indonesians see China's economic growth?

Pangestu: It is always about opportunity and how to manage the size and competition from China. We always have these two parallel issues. In the global crisis, we all know and it is always being talked about in many international meetings that the source of growth is coming from Asia.

And it has also been proposed that the U.S. will be invited next year for the East Asia Summit. This is already a large part of the world economy. If we can grow together and be complimentary, this is going to be a very dynamic region. But of course, on the other side of it, because of China's size, and the competition that we face with China, this causes concerns.

The best way to deal with it is to find a win-win solution. There will be sectors and regions that would have more of challenge to compete. How do you help the smaller companies to be part of this growth? This is going to be a big challenge.

What China has tried to do is to provide capacity building, provide funds for infrastructure. Infrastructure and connectivity is a very important part of how our region can develop together.

By People's Daily Online reporters Qiu Wei and Wang Fang