April 29, 2011 12:15 pm

China signs deals amid Indonesian unease

China has agreed to fund billions of dollars’ worth of Indonesian infrastructure projects, at a time of growing unease over China’s role in south-east Asia’s largest economy.

Around $4bn in loans announced on Friday, during a visit by Chinese Premier Wen Jiabao, will help ease Indonesia’s infrastructure funding crisis, but the amount is far less than might have been expected amid official talk of boosting Sino-Indonesian relations.

Mr Wen met Susilo Bambang Yudhoyono, Indonesia’s president, amid heightened disquiet around the trade relationship with China. Indonesian business and political leaders complained their larger Asian neighbour had an unfair advantage on issues such as commodity price negotiations – an imbalance said to have worsened under a free trade deal with the 10-nation Asean region.

“Our state is in the hands of the Chinese and the Koreans. We allow the foreigners to rape and pillage us,” said the head of a local private equity firm.

Airlangga Hartarto, member of parliament for the Golkar party and chairman of the commission on trade, industry and investment, said that Indonesia was losing out from the relationship.

“We send bauxite to China and they make aluminium and cars based on that aluminium, they undercut Indonesian manufacturing. The value added is not in Indonesia“, he said. “We only get trade and not investment from China. It’s not fair for Indonesia.”

Indonesia, a member of the G20 and south-east Asia’s largest economy, is benefiting from a commodities boom – driven largely by demand from China – but wants to diversify its economy beyond natural resource extraction to value-added industries.

Indonesian iron ore and bauxite are made into quality steel and aluminium in China, rubber is turned into tyres in South Korea and oil and gas are processed across the border in Malaysia and Singapore and reimported as fuel products. Instead Indonesia wants to foster industries that create jobs, such as manufacturing.

The country’s Investment Coordination Board chairman Gita Wirjawan, who is trying to attract foreign companies to Indonesia, said the “asymmetry” of Chinese-Indonesian trade relations is a big concern. After the Asean-China FTA went into force in 2010, Indonesia’s trade balance with China almost doubled to a $4.7bn deficit last year.

Senior officials said in private conversations they hoped the president would fight for better terms for Indonesian businesses during talks with Mr Wen.

At Friday’s meetings in Jakarta, Mr Wen and Mr Yudhoyono signed bilateral deals to enhance trade and support banking and finance. One agreement will allow more Indonesian imports of tropical fruit and another will enable Indonesia’s largest bank, Mandiri, to open in China.

China will also finance a spate of building projects, ranging from bridges and power plants to toll road projects. Indonesia is trying to build $150bn of infrastructure by 2014, but can only foot a third of the bill with its limited state budget. The two countries also agreed to set up billions of dollars in export credit to enhance trade.

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