Editorial Note: The following news reports are summaries from original sources. They may also include corrections of Arabic names and political terminology. Comments are in parentheses.

 

China's Eased COVID-19 Policy Means Opportunities for Indonesia

December 13, 2022

Jakarta Post, December 13, 2022

 

Workers man a container crane on January 13, 2022 at Yangshan Deep Water Port in Shanghai, China

 

China’s eased COVID-19 policy means opportunities for Indonesia

Fadhil Haidar Sulaeman (The Jakarta Post) Jakarta      

Mon, December 12, 2022

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.

Each time the government rolls out a plan to import rice, the public reacts with resistance. Understandably, for many Indonesians, rice is considered more than just a staple food, but also a sort of political commodity.

Importing rice is deemed as taboo by some, although such a decision does not necessarily reflect the country's failure to achieve self-sufficiency. At times, rice import is necessary to avert calamities such as a food crisis, speculator’s intervention, a severe price hike or inflation and thinning Government Rice Reserves (CBP).

Regarding the issue, President Joko “Jokowi” Widodo highlighted during a recent cabinet meeting the urgent need to secure national rice stock for 2023 amid the risk of an imminent food crisis. 

“We have to be aware of the food crisis risk since it may trigger social and political unrest. Therefore, anything regarding domestic rice reserves must be calculated carefully and precisely. Do not make a mistake,” Jokowi stated.

The bad news is that to date the State Logistics Agency (Bulog) only has 503,000 tonnes of rice in store, well below the level of 1.1 million to 1.5 million tonnes required to maintain sufficiency. It is estimated that Bulog has to distribute 200,000 tonnes this month, further depleting Bulog’s reserves.

The agency has set a target of securing 1.2 million tonnes by the year-end. The problem is to fill the gap with domestic production, which is in good condition, amidst challenges of surging grain prices.

The price of unhusked rice at local mills has now ranges from Rp 6,000 (39 US cents) to Rp 6,300 per kilogram and this impacts downstream rice prices, which are currently in the range of Rp 11,000 to Rp 12,000 per kg, far above the highest retail price (HET) for medium rice of Rp 9,450 to Rp10,250 per kg.

Consequently, the government has no choice but to give Bulog the green light to import 500,000 tonnes of rice. It will be Indonesia’s first import since Bulog entered the international rice market for a significant volume in 2018.

Let’s not debate over whether the decision is correct. Indonesia is indeed racing against time to secure its staple food for national security’s sake. Timing is crucial to hinder imported goods arriving at the time of Indonesia’s main harvest in early 2023.

The government's policy of revoking cheap rice and replacing it with Non-Cash Food Assistance (BPNT) as well as its foot-dragging revision of the government purchase price (HPP) policy have been the underlying issues of Bulog’s inability to maintain its rice procurement from the domestic market and stabilize prices.

At the end of the day, to make sure this rice import furor does not recur when the country is entering the critical political year in 2023, it would be appropriate for the government to consider that the procurement of rice for the BPNT program comes only from Bulog’s reserves.

If Bulog is given a chance to once again be the sole supplier of rice for the BPNT, it will be easier for the agency to stabilize rice prices and avoid import amid a local production surplus. In addition, it will ensure the efficient use of the state budget.

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