China’s-Outward-Foreign-Direct-Investment-in-Indonesia

China s Outward Foreign Direct Investment in Indonesia Abstract China s outward investments in Indonesia are becoming more important in the cooperation process between China and Indonesia Indonesia is become one of the major target country of China s outward investment and the amount investment in Indonesia increase year by year China s outward investment in Indonesia flow mostly into such as mining and manufacture This paper will analysis about the China s outward investment in Indonesia as well as comparative analysis by using data from credible organizations in Indonesia and worldwide Keywords FDI Indonesia China 文章编号 1674 3520 2015 02 00 03 摘 要 中国对印度尼西亚直接投资变得越来越重要 在是在中国和印度尼西亚之间的合作过程中 印度尼西亚 正在成为中国对外投资的主要目标国家 每年中国投资额 增加 中国对印度尼西亚直接投资主要为如采矿和制造 本文分析了中国在印度尼西亚的投资 以及通过使用印度 尼西亚数据的比较分析 关键词 外国直接投资 中国 印尼 Introduction As a developing country Indonesia needs substantial funds to implement national development The great need of funds is due to the effort to catch up with the development of the developed countries both regionally and globally region Indonesia is still not able to provide that development funding In addition to efforts to find domestic sources of financing the government has also invited foreign financing which is Foreign Direct Investment China and Indonesia are developing countries the rapid development of economic relations between the two countries China is the world s second largest economy while Indonesia is ASEAN s largest economy With the rapid growth of China s economy China s direct investment in Indonesia is increasing In 2014 Chinese investment in Indonesia is about US 800 million Chinese investment in Indonesia mainly in infrastructure mining construction and the manufacturing sector Based on the background to the development of investment relations between China and Indonesia to conduct systematic research is very necessary The Growth of Foreign Direct Investments FDI in Indonesia Indonesia has opened for FDI since 1967 and has benefited its economic growth Government of Indonesia stated that FDI inflows in 2014 about US 28 5 million The opened economic policy for both FDI and domestic investment was started in 1967 At that time the economic policy was encourage by deficit finance implemented by the New Order government to fill the gap between saving and investment The increase in capital inflows to Indonesia is still relatively limited Figure 1 explains that total FDI from 1996 to 1997 decreased significantly compared to those in 1995 Increased FDI in Indonesia mainly occurs after the third quarter in 2000 Total investment in Indonesia increased compared with outward investment In the period prior to 2000 investment in Indonesia is relatively not too big even tend to be negative This is probably caused by the political situation in Indonesia is likely not stable However total FDI decreased again significantly in the period 2001 2004 When it is compared with the total FDI in 2000 FDI after four years dropped to 69 in 2001 75 in 2002 54 in 2003 and 66 in 2004 Furthermore although in 2005 the total FDI increased by 48 7 in 2006 it dropped again around the same percentage Likewise total FDI increased respectively in 2007 and 2008 that reached 75 and 42 However it went down by 28 in 2009 compared to one in 2008 From 2010 until 2014 total FDI increased significantly Indonesian Attractiveness for FDI Indonesian has comparative advantages compared to other countries The comparative advantages include abundant natural resources political stability and security low labour wages larger market and macroeconomic stability Besides Indonesia is also located in a strategic location which is located between two great continents Asia and Australia and between two oceans the Indian and Pacific Ocean make Indonesia become a strategic point of international trade Moreover Indonesian government has also implemented some FDI incentives to invite FDI from other countries China s Direct Investment to Indonesia China s economic progress over the past few years is presumably have a significant impact on investment in Indonesia Since the late 1990s when the two countries restored diplomatic ties Chinese investments started to flow into Indonesia and have grown rapidly in Indonesia and they run the gamut from hydropower to transport financing to manufacturing The majority of Chinese FDI is performed by state owned enterprises Source Indonesia Investment Coordinating Board BKPM As can be seen in Figure 2 that the total value of Chinese investment is relatively small only about 2 of the total inward investment in Indonesia but the general trend was increasing from US 136 3 million in 2008 to US 800 million in 2014 However in 2009 the realization of the investment was decreased about 60 Impact of the global financial crisis is thought to be the main cause of decline in investment performance By regional distribution the highest value of investment took place in South Sumatera with US 318 8 million although it was only for 4 projects Next came Jakarta Capital Territory with US 132 million West Java with US 122 million Banten with US 68 million Central Sulawesi with US 46 8 million South East Sulawesi with US 41 5 million and North Sulawesi with US 33 3 million Other provinces absorbed only small value of investments The first and only Chinese FDI that came to Indonesia was in 1995 with an investment value of US 1 4 million in the chemical and pharmaceutical industry in East Java Until the year 2000 the number of investment project was less than 10 projects yearly but the number started to increase and reached its peak in 2014 with 501 projects Based the statistics data from the Indonesia Investment Coordinating Board BKPM total realized Chinese FDI from 2010 to 2014 amounted to 1243 projects with a value of US 1539 million The value of investments increased rapidly and reached its peak in 2014 amounting to US 800 million Note Exculding of Oil Gas Banking Non Bank Financial Institution Insurance Leasing Mining in Terms of Contract of Work Coal Mining in Terms of Agreement of Work Investment which licenses issued by Technical sectoral agency Porto Folio as well as Household P Total of Issued Permanent Licenses I Value of Direct Investment Realization in Thousand US Tentative data inculding Permament Licenses issued by regions received by BPKM until December 31 2014 For most of the years the majority of Chinese FDIs in Indonesia is in the manufacturing sector However in 2014 the highest investment value was in the tertiary sector or service sector The most investment in tertiary sector is the electricity gas and water supply about 40 of total FDI which is number 7 projects with a value of US 319 million Next followed by the metal machinery and electronic industry with US 99 million the real estate industry estate and business activities with US 72 million the rubber and plastic industry with US 71 million and the mining with US 63 million The absorption in the other industries was relatively small Conclusion Foreign direct investment from China to Indonesia has grown rapidly to make China the tenth largest investor in 2014 Not only have investment flows grown in size they have also become more diversified sectorally and in motives and operating modes Chinese investment is predominantly market seeking and resource seeking Even though increasing labor costs have begun to induce Chinese companies to invest in countries such as Laos and Vietnam efficiency seeking is not a prominent investment motive for Chinese investors in Indonesia Chinese companies do not invest in Indonesia for strategic assets Rather than invest market seeking companies may also be present through a representative office or an agent While investors from Japan US and other advanced economies are often attracted by low production costs and producing for exports Chinese companies are not producing for exports in Indonesia but attracted by the market provided by Indonesia s 230 million citizens Most of the projects in the manufacturing sector are highly concentrated on the island of Java while investments in extractive activities are located in the provinces home to the deposits Unlike FDI from other developing countries due to the past economic system many Chinese multinationals are big state or regional owned enterprises The emergence of private enterprises is relatively recent though some manage to become big ente