We cannot ignore China. No country can. The size of its economy is now second only to the United States, and still growing rapidly. Increasingly we need China more than they need us, but China is helping us to face the world. We have no better choice than to embrace free trade with China and make it work for Indonesia.
The objections from some quarters about the ASEAN-China Free Trade Agreement (ACFTA) are understandable in the short-term. But if we look at the longer-term, free trade will surely benefit all parties, with more trade and better welfare for our people.
The ACFTA, signed in 2004, came into full implementation in January facilitating the import and exports of 90 percent of all products with zero tariffs, and still protecting 10 percent of sensitive products. It is not true we simply opened the door. We can take measures to help suffering industries.
Nor should we be pessimistic on manufactures. Factories making white goods are being redeployed from China to Indonesia because Indonesia is considered to have potentially more balanced economic and social growth than China. Indonesia is seen as a growing regional production hub for Southeast Asia and Asia.
We are not in a position to suddenly renegotiate the full implementation of terms agreed long ago. Better to be more aggressive and push to improve our position. Look at the trends in our trade statistics.
China absorbed 9.2 percent of our total non-oil exports last year. But China’s imports from Indonesia accounted for only 1.3 percent of their total imports.
China absorbs more and more of our exports, while our traditional markets are shrinking. The share of our exports to the US, Japan and EU countries have respectively gone down from 14.8 percent, 15 percent and 16 percent in 2004 to 10.7 percent, 12.3 percent and 14 percent last year.
China became the third-biggest export market for Indonesia last year, with non-oil exports to China reaching US$8.9 billion, after Japan ($11.98 billion) and the US ($10.5 billion).
China has become our number one source of imports. Last year, our imports from China topped $13.5 billion, way above Japan ($9.8 billion), Singapore ($9.2 billion) and the US ($7 billion)
If we look at the structure of our imports from China, the bulk are capital goods and intermediate goods, growing by 51.2 percent and 26 percent per annum respectively. These are the inputs needed so that Indonesian industries can operate and grow. Our industries get more value from cheaper imports from China, to help Indonesian exports.
True, we are still suffering from a trade deficit with China. But, trade deficits are common in international trade.
We enjoyed trade surpluses in the period of 1999 through to 2007. In 2008, we started suffering from trade deficits, but the trade gap narrowed in 2009, and in the first two months of this year. We may soon regain a trade surplus position following the full implementation of ACFTA.
It is also true more and more Chinese consumer products will enter our markets. Those are mass products where no other country can compete with China. With or without ACFTA, those Chinese products would make their way to Indonesia anyway.
As in the case of our imports of capital and intermediate goods, importing Chinese consumer products gives more value to our consumers. These imported Chinese consumer products often replace more expensive imported products.
ACFTA does not only potentially threaten Indonesia’s market with an influx of cheaper Chinese products. It also offers Indonesia wider access to Chinese markets.
If we look at our non-oil export commodities, the biggest one is our palm oil that faces more difficulties reaching European markets. Our palm oil dominates the Chinese market, with our market share up to 22 percent last year, from 17.4 percent in 2004.
We also have other products that currently dominate Chinese markets. They include tin, cocoa, rubber, shoes, pulp and musical instruments.
Indonesia’s handicraft products from rattan and bamboo are gaining popularity in China, controlling almost 30 percent of China’s market — but their market value is still small, at $23 million.
More importantly, when we are already able to export more of our products to China, it means we are becoming more competitive. If we can compete with China, we can compete with the rest of the world. Free trade with China is the best available motivation to push ourselves to compete globally.
