Is Indonesia’s Widodo in China’s pocket?

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Indonesian President Joko Widodo (R) shows the way to China's President Xi Jinping during a bilateral meeting on the sidelines of the Asian Africa Conference in Jakarta on April 22, 2015. Photo: AFP/Pool/Adi Weda

Signs are emerging that Indonesian President Joko Widodo may come under increasing criticism for cozying up to China and its cashed-up companies when the campaign for the 2019 legislative and presidential elections begins in earnest next year.

Both conservative Muslim groups in public and prospective presidential rival Prabowo Subianto in private have criticized Widodo’s courting of the Chinese in his efforts to secure funding for his ambitious and what he hopes will be an election-winning infrastructure program.

“Prabowo fears China will swallow Indonesia and spit it out as a client state,” says one of several sources familiar with the retired general’s thinking. “He honestly believes Jokowi (Widodo) is selling Indonesia’s destiny to the Chinese.”

At a December 2 rally marking the anniversary of one of last year’s two mass demonstrations that effectively put an end to former Jakarta governor Basuki Purnama’s re-election, speakers homed in on the threat of Chinese domination of the economy.

It was a shift away from the outcry over the blasphemy charge that led to the ethnic Chinese leader’s defeat and his two-year prison sentence, but it struck the same intolerant tone that has put Indonesia’s minority groups increasingly on edge.

REFILE - CORRECTING BYLINE Members of Islamist groups wave flags during a rally at The National Monument compound as they celebrate the one-year anniversary of a protest that brought down former ethnic Chinese Jakarta governor Basuki Tjahja Purnama in Jakarta, Indonesia, December 2, 2017. REUTERS/Beawiharta

Islamist groups rally to celebrate the one-year anniversary of a protest that brought down former ethnic Chinese Jakarta governor Basuki Tjahja Purnama in Jakarta, December 2, 2017. Photo: Reuters/Beawiharta

Analysts say the change in message, with the focus on economic inequality between Muslims and non-Muslims, was necessary to identify new ways for religious conservatives and so-called religio-political entrepreneurs to mobilize popular support.

It also signals how Widodo’s rivals are preparing a game plan for 2019 – and perhaps even for next year’s regional elections – by exploiting a specific set of grievances that will resonate with voters and, in doing so, push a specific Islamic agenda.

While the December 2 event had a picnic-like atmosphere, observers were struck by the racist views expressed by such figures as former presidential candidate Amien Rais, who has assumed the leadership role previously played by self-exiled Islamic Defenders Front (FPI) firebrand Rizieq Shihab.

A recent Indonesian Survey Institute (LSI) survey has shown that racial and religious intolerance is deeply mixed and that since Purnama’s defeat Muslims have only hardened their attitudes towards non-Muslims holding higher public office.

Concerned about appearing to be in China’s pocket, senior government officials are looking to South Korean and Japanese investors to provide more balance, despite a regulatory environment that remains far from welcoming.

Japanese companies, for example, are being urged to acquire some of the 10 oil and gas blocks that are part of this year’s annual auction, delayed for months now while officials mull over a new tax regime that has still to be finalized.

FILE PHOTO: A view of state-owned oil giant Pertamina's refinery unit IV in Cilacap, Central Java, Indonesia January 13, 2016. Picture taken January 13, 2016. REUTERS/Darren Whiteside/File Photo

State-owned Pertamina’s refinery unit IV in Cilacap, Central Java, Indonesia January 13, 2016. Photo: Reuters/Darren Whiteside

But it will be a tough sell for other reasons. State-owned Pertamina continues to take over all producing fields as their contracts expire, and Japanese firm Inpex’s plans for the giant Marsela gas field remain on hold because of the government’s insistence that it’s an onshore development.

Figures for Chinese investment in Indonesia are notoriously inconsistent, but that’s due to several factors, ranging from how Chinese money is funneled through Singapore and Hong Kong to the way firms simply bypass official channels and directly access foreign exchange.

The Indonesian Investment Coordinating Board (BKPM) recorded US$2.7 billion in proposed investments in 2016, rising to US$4.9 billion if Hong Kong was included, while Bank Indonesia reported only US$1.4 billion, with Hong Kong contributing for most of that much lower figure.

Writing in East Asia Forum, researchers Pierre van der Eng (Australian National University) and Tao Keng (Peking University) noted Singapore received half of the US$62.8 billion in outward stock of Chinese FDI to Association of Southeast Asian Nations (Asean) members in 2015, similar to the US$64.7 billion the rich island state sent in FDI to the same grouping.

What has gone largely unnoticed, they pointed out, is that a significant chunk of the US$4.8 billion recorded in China’s 2016 Statistical Yearbook as the total value of projects completed in Indonesia in 2015 was not FDI at all.

Instead, it represented the value of central and local government projects awarded to as many as 49 Chinese construction firms in Indonesia, whose competitive bids were bolstered by concessional loans offered by China’s state banks.

Indonesia's President Joko Widodo (L) and Chinese President Xi Jinping shake hands at the end of signing ceremony at the Great Hall of People in Beijing on May 14, 2017. Photo: AFP/ Kenzaburo Fukuhara

Indonesia’s President Joko Widodo (L) and Chinese President Xi Jinping at a signing ceremony at the Great Hall of People in Beijing on May 14, 2017. Photo: AFP/ Kenzaburo Fukuhara

The sense of confusion surrounding the role and activities of Chinese companies and their multitude of subsidiaries has also extended to their past practice of quietly importing thousands of laborers to work on infrastructure projects in Indonesia.

That applied in particular to the nine coal-fired power stations Chinese developers built under Indonesia’s 10,000-megawat crash power program in the mid-2000s.

But while the labor flows appear to have slowed since they became a belated public issue, government agencies still can’t seem to agree on how many Chinese workers are actually in Indonesia. The Manpower Ministry put the number at 21,200 in late 2016; the Immigration Department, on the other hand, said the number was 31,000.

The real figure is believed to be considerably higher than both, given the reluctance of Indonesians to work for Chinese firms and anecdotal evidence suggesting many Chinese sub-contractors employ illegal Chinese workers.

China’s biggest investments so far have been the first phase of Tsingshan’s US$6 billion nickel/carbon steel complex in Central Sulawesi, a second US$1 billion nickel smelter in Southeast Sulawesi, and Shandong Weiqiao’s two million-ton alumina refinery in West Kalimantan.

Meanwhile, as much as US$3 billion in Chinese money is rumored to have underwritten the Indonesian state bank loans that financed local Amman Mineral’s purchase of US Newmont Mining Corporation’s Batu Hijau copper and gold mine earlier this year.

Indonesian President Joko Widodo (second left) and China Railway Corp manager Sheng Guangzu (center) examine  a high-speed-train model during a groundbreaking ceremony for the Jakarta-Bandung railway line in Walini, West Java province, on January 21, 2016. Photo: Reuters / Garry Lotulung

Indonesian President Joko Widodo and China Railway Corp manager Sheng Guangzu (center) examine a high-speed train model for the Jakarta-Bandung railway line in Walini, West Java province, on January 21, 2016. Photo: Reuters / Garry Lotulung

The China-Indonesia relationship hasn’t been all smooth sailing. During a meeting with Widodo at the 29-nation summit of the Belt and Road Forum for International Co-operation (BRF) last May, Chinese President Xi Jinping reportedly expressed impatience over the slow progress of the showcase 160-kilometer Jakarta-Bandung high-speed rail project.

Awarded to China Railway International two years ago, the 68 trillion rupiah (US$5.1 billion) venture has run into predictable land acquisition issues, in this case 500 hectares of prime real estate lying between Java’s western industrial suburbs of Karawang and Purwakarta.

“There are several Chinese ventures that are based on misunderstandings of the Indonesian business environment and over-optimistic expectations that the ways of getting things done in China will also work in Indonesia” – Pierre van der Eng, Australian National University

“There are several Chinese ventures that are based on misunderstandings of the Indonesian business environment and over-optimistic expectations that the ways of getting things done in China will also work in Indonesia,” says van der Eng, an associate professor in international business at ANU.

Indonesia has been part of BRF from the start, but in looking to finance a long list of seaports, railways and toll roads it has so far failed to reap the same Chinese rewards as Malaysia and Pakistan, which have received US$32 billion and US$62 billion respectively.

Apart from the still-born Jakarta-Bandung rail project, Indonesia wants the Chinese to fund the Jakarta East-West mass rail transit (MRT) venture and focus on other projects in North Sumatra, North Kalimantan and North Sulawesi.

But Beijing is reportedly unhappy with the difficulties of doing business in a country where economic nationalism, constantly shifting regulations and rising anti-Chinese sentiment conflict with Widodo’s search for foreign investment.

During an investment forum held some months ago in Manado, the capital of Christian majority North Sulawesi province, senior Chinese diplomat Zhao Baige called on Jakarta to give Chinese firms more support by offering tax incentives and helping with public relations.

“We need to understand the policy and law related to labor, tax and especially land,” she said, apparently referring to the Jakarta-Bandung rail venture. “Chinese companies really want details. If there is no land, there’s no business.”

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