Friend or Foe? The Case for Reducing Indonesian Dependence on China
Written by: Trystanto
One would observe that Indonesia-China relations are at an all-time high. Economic relations and trade with China are incredibly intense like never before. High-level visits have been conducted by both sides to show the closeness of Indonesia-China relations.
There has been some cheerful rhetoric about Indonesia-China relations. In a recent phone call with President Joko Widodo, President Xi Jinping said Indonesia and China are “good friends and good brothers” (Ministry of Foreign Affairs of the People’s Republic of China, 2021). However, nothing can be further from the truth: there has never been ‘good friends’ or ‘good brothers’ in international relations, only ‘good’ interests. China cooperates with Indonesia not because Indonesia is China’s ‘good friends and good brothers’ but because China has a significant interest in Indonesia and vice versa.
In this article, I argue that Indonesian dependence on China has reached risky levels, and China holds a lot of leverage on Indonesia than vice versa. I would also attempt to explain how much dependent Indonesia is on China. Finally, I would also explain how China has a tendency to use its trade relations as an economic weapon and how Indonesia is likely to be one of its targets.
How Dependent is Indonesia on China?
The short answer: a lot. Just a caveat, I only use data from 2019 as I argue that 2020 is an abnormal year disrupting trade relations worldwide, and the data from 2021 is not out yet.
According to the Observatory for Economic Complexity (OEC), China is the destination for about 15.4% of Indonesia’s exports and the origin of 27.2% of Indonesia’s imports. On the other hand, Indonesia is the destination for only 1.75% of Chinese exports and is the source of 1.82% of Chinese imports. That number alone indicates that Indonesia is dependent on China for its international trade and not the other way around. However, a closer look would reveal something intricate. Indonesia is very reliant on the export of raw materials to China. Half of Indonesia’s exports to China are raw materials, such as iron ore, animal oil, and coal briquette. There are a lot of alternatives for China for these items. In return, 50% of Indonesia’s imports from China are electronic products and steel, which are widely used in the Indonesian industry, and there are not many cheap alternative sources for these products. In short, China has many alternatives for its imports from Indonesia, and the vice versa is necessarily not true.
How about nickel ore? Indonesia is the world’s largest nickel producer, and does Chinese electric car companies indeed depend on Indonesia for its nickel? Well, that is somewhat true to some extent. China imports 45.2% of its nickel ore from Indonesia. It is huge. However, Indonesia exports 95.6% of its nickel to China. And so, who is the more dependent here? Indonesia is, therefore, very reliant on the Chinese market for its nickel.
The amount of dependence is even more true today. In terms of vaccines, Indonesia is also very dependent on China. According to the Indonesian Ministry of Health, 38% of Indonesian vaccine orders are Chinese vaccines from Sinovac. The rest are made up of Oxford-AstraZeneca, Pfizer-BioNTech, and Novavax vaccines. But that does not tell us the complete picture today. When this article was written on 3 May 2021, out of the approximately 74 million COVID-19 vaccine doses already in Indonesia, only around 5 million dosages are Oxford-AstraZeneca vaccines. The rest are Chinese Sinovac and Sinopharm vaccines. Needless to say, Indonesia is very dependent on China for its vaccination. Therefore, with the European and Indian embargo on vaccine exports, Indonesia’s economic recovery is ‘at the mercy’ of Chinese supply of vaccines.
Trade as an Economic Weapon?
Perhaps it does not surprise us anymore that China has a reputation for using its trade relations and economic dependency as a unilateral weapon. I can think of 4 such instances. In 2010, after Norway awarded the Nobel Peace Prize to Liu Xiaobo, a Chinese dissent, China immediately stopped salmon imports from Norway and withheld talks for six years (Sverdrup-Thygeson, 2015). In 2012, after Japan bought an island in the Senkaku archipelago, an area that is disputed between China and Japan, several Chinese tour groups to Japan were canceled, dealing a deadly blow to Japan’s tourism industry (Voigt, 2012). In 2017, after South Korea agreed to install an American missile defense system, China boycotted South Korean products and stopped sending tourists to the country, and it cripples South Korea’s tourism industry (Kim, 2020). Most recently, in 2020, after China called for an investigation into the origins of the COVID-19 pandemic, China levied heavy tariffs on Australian wine and other Australian produce (Wong, 2021). In short, China has a history for using economic relations as an economic armament.
Not that Indonesia has no such disputes with China that could ‘hurt the feelings of the Chinese people.’ One stands out in particular: The South China Sea dispute. Even though Indonesia does not claim any islands on the South China Sea, a significant part of China’s illegal nine-dash line claim overlaps with Indonesia’s Exclusive Economic Zone (EEZ) around the Natuna Islands. In early 2020, there were some conflicts in the same area between Indonesia and China, as Chinese fishing boats entered Indonesian EEZ illegally (Sebayang, 2020). In response, Indonesia mobilized navy ships and fighter jets to the area.
Luckily, on that occasion, China does not use its economic stick against Indonesia. However, it can do so. Now, Indonesia has restarted its ‘war’ against illegal fishing by sinking foreign fishing vessels caught in Indonesian waters (Librianty, 2021). So far, none are Chinese. However, if a Chinese fishing boat was blown up, or if tensions rise in the future, there is a genuine possibility that China may use its trade relations with Indonesia as a weapon. Furthermore, it could also impose tariffs and embargos on Indonesian products if Indonesia does not acquiesce to Chinese demands.
Economic interdependence also does not stop China from exercising its claim. Just recently, even though the Philippines’ President Rodrigo Duterte has become very friendly with China in recent years, China allegedly sent its ‘maritime militia’ to Philippine-claimed EEZ that overlaps with its nine-dash line (The Straits Times, 2021). Duterte himself, however, does not respond or comment harshly on China regarding that matter (Indiablooms, 2021). Duterte has his hand tied, as he is stuck in the dilemma of responding swiftly against China and of being retaliated economically by China. This dilemma is possible because Duterte said himself in 2016, he wants China to “develop his country” (Heydarian, 2021).
President Joko Widodo could end up like Duterte. Given a high level of economic dependency on China and with the existence of a territorial dispute with China, it is not unreasonable to think that China could use Indonesia’s dependence on China as an economic weapon. In addition, given that Indonesian imports from China are more vital to Indonesia than Chinese imports from Indonesia, economic weaponization can bring extremely severe impacts to Indonesia, especially during the pandemic, where Indonesia depends a lot on Chinese-made vaccines.
This is not to say that Indonesia should not cooperate with China at all. On the contrary, Indonesia must cooperate with China on certain aspects, such as, infrastructure building. However, not all sectors should be covered with its close cooperation with China. Indonesia should, therefore, diversify its international trade, diversify its investment origin, and strengthen up its domestic industry. Doing so would be in Jokowi’s best interests, as Indonesia could spread its influence around the globe, have a diverse investment partner it could rely on if one turned on it, and become more self-sufficient.
Most importantly, Indonesia would be less tied with China, and Jokowi would be free to do what it takes to face off against China in its territorial disputes with Indonesia. As John Mearsheimer said in his book The Tragedy of Great Power Politics, there can never be economic prosperity without national security. Therefore, national security and Indonesia’s territorial integrity must be at the forefront of Jokowi’s foreign, economic, and defense policies. The success of Indonesia lies in the hands of the Indonesian people, not in cooperation with another country.
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