China’s eased COVID-19 policy means opportunities for Indonesia
12/12/2022 (Jakarta Post) - Indonesian officials, business executives and economists have expressed confidence that China’s eased coronavirus restrictions will increase bilateral trade and investment.
After protests erupted in several major Chinese cities against Beijing’s strict zero-COVID policy, the State Council started easing mobility restrictions put in place when the pandemic started in early 2020.
Statistics Indonesia (BPS) data show that China remains Indonesia’s largest partner for both exports and imports, which respectively amounted to US$53.31 billion and $55.90 billion in the first 10 months of this year.
China ranks second in foreign direct investment (FDI) to Indonesia just below Singapore, with $5.18 billion realized this year as of September, according to Investment Ministry data.
“New measures will be worked out to ease cross-border travel and predeparture requirements in line with those [policy] adjustments,” Chinese Foreign Ministry spokeswoman Mao Ning told reporters on Dec. 7.
Iskandar Simorangkir, macroeconomic and financial coordination deputy minister at the Office of the Coordinating Economic Minister, told The Jakarta Post on Monday that the lower mobility restrictions would result in higher-than-expected Chinese economic growth.
Chinese demand for Indonesian export commodities like coal, processed nickel, iron and crude palm oil (CPO) would also increase more than previously expected, he added.
The relaxed rules were also expected to prompt more Chinese investment into Indonesia’s processing industries for minerals such as nickel, bauxite and cobalt.
“For 2023, Indonesia’s economic growth will remain at 5.3 percent as stated in the state budget,” Iskandar told the Post, noting that “the European Union and the United States will face slowdowns”.
The Trade Ministry’s Policy Agency head, Kasan Muhri, told the Post on Monday that China’s zero-COVID policy in helped Indonesia take a bigger role in global supply chains. Now that mobility restrictions had been eased, this may facilitate some Chinese businesses to relocate to Indonesia.
Moreover, higher spending among Chinese consumers would lead to demand growth for Indonesian products.
“There will be diversification of export products to higher-value and technology-intensive goods,” Kasan added.
Finance Minister expert staffer Yustinus Prastowo agreed that the eased restrictions in China would “positively affect” Indonesia, as the Chinese economy would perform better than previously expected.
Chinese supply and demand would also be much more stable without the on-and-off lockdowns, Yustinus told reporters, adding: “We have a very good trade relationship with China.”
Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for investment Shinta Widjaja Kamdani said on Monday that China’s eased COVID measures would “positively impact” FDI flows to Indonesia.
Shinta, who also chaired the Business 20 forum during Indonesia’s Group of Twenty (G20) presidency this year, said although China was facing economic problems in the housing and financial markets, looser travel requirements in China would increase confidence among investors in visiting Indonesia to explore business opportunities.
This scenario would be feasible only if Beijing sustained its COVID policy relaxation for the long term, which in turn required that the fatality rate remained low, she added.
“Specific increases in investments cannot be determined yet, as numerous factors are at play, including our own domestic economy in 2023,” Shinta told the Post.
Indonesia Coal Mining Association (APBI) executive director Hendra Sinadia told the Post on Monday that China’s eased COVID curbs should result in higher demand for Indonesian coal due to greater economic activity.
Hendra said China’s zero-COVID policy had led to “suboptimal” Indonesian coal exports to that country this year, and that this could change in 2023 if Chinese industries recovered.
“There is a chance of more coal demand from China, which means more imports,” he said.
Indonesian Palm Oil Producers Association (GAPKI) secretary-general Eddy Martono also told the Post on Monday that eased Chinese restrictions would “surely effect” CPO export growth for Indonesia in 2023.
While it might not lead to a substantial increase in earnings, Eddy added, CPO consumption in China would rise as people spent more money.
Coal analyst Ahmad Zuhdi Dwi Kusuma from state-owned Bank Mandiri, speaking to the Post on Monday, said given that the largest electricity consumers in emerging markets were industries, China’s relaxed COVID curbs would increase local power demand due to greater industrial activity, which would in turn increase coal imports.
Although China was committed to increasing domestic coal production, its coal imports would increase in the short term, as “production is much more rigid than consumption”, Ahmad said.
He also said he expected Indonesia’s coal exports to increase significantly in the first and second quarter of 2023, as around 75 percent of China’s coal imports came from Indonesia.
Bank Mandiri’s CPO analyst Abe Abrar Aulia noted that China was the largest export market for Indonesian CPO, and shipments would increase next year as Chinese economic activity rebounded.
He said industrial activity and tourism would increase demand for Indonesian CPO for use in catering, food processing and oleochemicals manufacturing for further processing into products such as cosmetics.
“Higher mobility will increase consumption of fuel, including CPO biodiesels,” Abe added.
Macroeconomic analyst Askar Muhammad at the Institute for Demographic and Poverty Studies (IDEAS) told the Post on Monday that higher-than-expected economic growth in China, coupled with eased travel restrictions, could bring more Chinese visitors to Indonesia.
BPS data show that only 17,166 visitors from China came to Indonesia in October 2022, or just 10 percent of the arrivals recorded in October 2019.