Darmin Asks China to Help Reduce Indonesia"s Trade Deficit

Oleh Desy Setyowati 10 May 2016

The problem is there are 28 downstream commodities from Indonesia which are banned by the Chinese government.

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The Indonesian government would like to see an increase in actual investment from and trade cooperation with China, including reducing its trade deficit with China. To discuss these matters, the Indonesian and Chinese governments took part in "The 2nd Meeting of the High-Level Economic Dialogue RI-PRC" in Jakarta, Monday (9/5).

"We have annual meetings with the Deputy Prime Minister and State Councillor of China. This is the second (meeting)," said Coordinating Minister for Economic Affairs Darmin Nasution. At Monday’s meeting, the minister brought four key issues on the economic cooperation between the two countries to the table. These include Indonesia's trade deficit with China, low Chinese investment in Indonesia, extending the cooperation on Bilateral Currency Swap Agreement (BCSA), and financing infrastructure development in Indonesia.

Darmin explained that Indonesia has had a trade deficit with China over the last two years. Central Statistics Agency (BPS) data show that the value of Indonesia's non-oil and gas exports to China in January-March 2016 was US$ 2.84 billion, down 9.34 percent on the same period in 2015. The value of imports in the same period this year was US$ 7.13 billion, resulting in a trade deficit with China of about US$ 4.29 billion.

(Read: Chinese government promises not to "Export" Many Workers to Indonesia)

Last year, the value of Indonesia's exports to China was US$ 13.26 billion, down 19.44 percent on 2014. In contrast, the value of imports from China throughout 2015 amounted to US$ 29.22 billion, down just 4.08 percent. As a result, Indonesia's trade deficit with China in 2015 was US$ 15.96 billion.

Therefore, the government has asked China to assist in analysing and formulating measures to address the trade deficit. "Towards balanced and sustainable bilateral trade," Darmin said. On the same occasion, a member of the State Council of China Yang Jiechi promised that he would encourage Chinese companies to boost imports of Indonesian products.

(Read: WhatsApp: The Answer to Chinese Investment Setbacks)

Deputy for International Economic Cooperation of Coordinating Ministry for Economic Affairs Rizal Affandi Lukman explained that the trade deficit with China had increased steadily in the last four years. This was due to the decrease in the price of major Indonesian export products, particularly primary goods. "Coal accounts for around 26 percent of our exports to China," he said. Meanwhile, domestic demand in China has decreased due to the economic slowdown.

At the meeting, the two governments agreed to look into where Indonesian products could access the Chinese market. The problem is there are 28 downstream commodities from Indonesia which, thanks to the ASEAN-China free trade agreement, are banned by the Chinese government.

Rizal explained that the government is currently negotiating the inclusion of 30 Indonesian major export commodities in the Chinese-led Regional Comprehensive Economic Partnership (RCEP). For example, to increase rubber exports to China, the government hopes that the current 20 percent import duty on rubber in China will be scrapped. "This is what the Indonesian negotiation teams at the RCEP and at the ASEAN-China FTA, as well as bilaterally, are trying to achieve."

(Read: Increased Imports, Trade Surplus Shrank in March)

Increased investment is also important to reduce the trade deficit with China, and this includes boosting the number of Chinese tourists to Indonesia. "So that the trade deficit can be offset by an inflow of investment," he said.

Rizal said that Chinese investment interest in the last five years has grown rapidly. Unfortunately, actual investment is still low. The Investment Coordinating Board (BKPM) recorded actual investment from China in 2015 at US$ 2.16 billion, up 47 percent on the previous year.

To increase actual investment from China, the Indonesian government has established the China Desk at the BKPM office. The goal is to improve services to Chinese investors and provide information on investment policy in Indonesia. The government will also open the Indonesia Investment Promotion Center (IIPC) in Beijing.

At the meeting on Monday, Darmin also discussed extending the cooperation on the BSCA, which has been in place since 2013 and will end in October. The extension will include increasing the agreed value of the cooperation from 100 billion to 130 billion renminbi.

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