Commentary: Will the ‘China factor’ become an election issue in Indonesia?

SINGAPORE: A recent accident at PT Indonesia Tsingshan Stainless Steel smelter in the Indonesia Morowali Industrial Park, South Sulawesi, which killed 21 Indonesian and Chinese workers and injured many workers, has put President Joko Widodo’s downstreaming policy under the spotlight.

This is not the first such incident. In fact, there have been reports of poor health and safety standards in several smelter sites constructed and operated by Chinese companies in Indonesia, and several accidents.

Yet, the Indonesian authorities seem to ignore safe practices for the sake of getting more Chinese investment. Thus, the government seems to be prioritising achieving economic targets at the expense of workers’ safety.

With a month to go before the Feb 14 presidential and general elections, this factor might have some potential to be an election issue.

In one recent interview, Jusuf Kalla, a former vice president who supports candidate Anies Baswedan in the upcoming election, said that 90 per cent of Indonesia’s nickel industry was controlled by China.

Most if not all the nickel products from Indonesia’s smelters were exported to China for China’s domestic needs, thus leaving little benefit for Indonesia. Kalla further criticised the government’s policy for creating dependency on technology from China, particularly in the nickel industry.

Indeed, China’s growing economic influence has drawn mixed perceptions in Indonesia. As the country is approaching the elections, the topic of China’s domination in the economy can become a provocative issue.

In the 2019 election, opponents of Jokowi (as the Indonesian president is known) used the same issue to stir negative perceptions concerning Jokowi’s economic policy platform, which they said laid a “red carpet” to China. Will the same pattern happen in the upcoming elections?

INDONESIA NEEDS CHINESE INVESTMENT

The authors argue that this election may be different. First, the Indonesian government and the next Indonesian administration need more Chinese investment to support its downstreaming policy, which all three presidential candidates rhetorically support, albeit in differing degrees.

The present government openly invited foreign countries to invest in the nickel processing industry given that Indonesia needs capital and technology in this field.

The United States, European Union, Japan and China responded but China, which offered more competitive prices and superior technology, ultimately won out. This decision has proven to be critical for Indonesia to accelerate its downstreaming policy in the nickel industry.

Second, whoever wins the presidential election will need to maintain good relations with China. In varying degrees, the three presidential candidates perceive China as a trusted development partner.

For instance, Anies Baswedan, when he was Jakarta governor, met then Chinese Ambassador Xiao Qian, to discuss sister city potentials. Ganjar Pranowo, as former Central Java governor, had a good relationship with Chinese officials and his province has had substantial investment from China in recent years.

Defence minister and frontrunner candidate Prabowo Subianto is not averse to China’s growing investment role in Indonesian industry. He met multiple times with his former ministerial counterpart General Wei Fenghe to foster the possibility of industrial cooperation between the Indonesian military and its Chinese counterpart.

Campaign-wise, no presidential candidate has snubbed China’s growing role in the Indonesian economy. However, both Anies and Ganjar recently noted that they preferred to diversify Indonesia’s economic partnerships with other countries, to reduce its dependency on China.

INDONESIA’S INDUSTRIAL AMBITIONS

On its part, Jokowi’s government maintains a positive view about future bilateral relations with Beijing.

In December 2023, Erick Thohir, as ad interim Coordinating Minister of Maritime Affairs and Investment (during minister Luhut Panjaitan’s spate of ill health), stated at the fourth Indonesia-China Business Partnership meeting in East Nusa Tenggara that the government appreciated the role of Chinese investors who had become industrial pioneers, laying the foundation of the downstream industry and helping to develop remote regions in Indonesia.

Thohir pointed out that under the bilateral strategic partnership that started in 2013, several important achievements, including the Jakarta-Bandung High-Speed Rail and work on Indonesia’s green energy transition, had been made. He added that Indonesia-China cooperation would be lasting, as it was built based on mutual trust and mutual benefit.

During the Jokowi administration, there is no doubt that China’s investment and economic role in Indonesia has grown, which matches Indonesia’s ambitions for a push in its industrialisation through infrastructure and downstreaming industry.

Nevertheless, China’s domination in the nickel industry in Indonesia is a cause for concern. One repercussion in the climate of decoupling has been on access to Western markets. In fact, Indonesia’s nickel products have no access to the US market, partly due to this “China factor”.

It is important to note that Indonesia has been trying to invite larger investments from Western countries but the latter are currently distracted by domestic concerns, the Ukraine war, and the Gaza crisis. Their appetite for open international trade and investment has been weakening.

Conversely and opportunistically, China has won partners and expanded its economic influence, particularly in Africa and Southeast Asia. According to official data, as of the third quarter of 2023, China and Hong Kong were the second and third largest investors in Indonesia after Singapore, with total investment reaching US$3.5 billion.

While the China factor will not likely be a controversial election issue in 2024, Indonesia still needs to carefully manage existing public apprehension concerning China’s growing economic role, especially when Indonesian lives are at stake.

The new administration taking over from Widodo will need to continue diversifying Indonesia’s economic cooperation, including with Australia, Canada, and New Zealand, the Middle East and Africa.

Leo Suryadinata is Visiting Senior Fellow, ISEAS - Yusof Ishak Institute and Adjunct Professor at S Rajaratnam School of International Studies at NTU. Siwage Dharma Negara is Senior Fellow and Co-coordinator of the Indonesia Studies Programme, and the Coordinator of the APEC Study Centre, ISEAS - Yusof Ishak Institute. This commentary first appeared on ISEAS - Yusof Ishak Institute’s blog, Fulcrum.