As the final stretch of Indonesian President Joko Widodo’s tenure approaches, there is a big question mark looming over the outlook of the nation’s ties with the world’s second-largest economy: China.
Jokowi, as the president is commonly known, has forged a close relationship between Indonesia and Beijing through collaboration on development, healthcare and infrastructure projects.
One of the most widely known projects — the Jakarta-Bandung High-Speed Railway, or WHOOSH, Southeast Asia’s first high-speed railway — was launched in October last year. The project cost US$7.3 billion, with the funds provided by a joint venture between China and Indonesia, although it is no secret that Beijing provided most of it as part of its Belt and Road Initiative (BRI).
The initiative not only symbolizes the convergence of regional connectivity, but also underscores China’s strategic role in shaping Indonesia’s infrastructure.
This was just one out of many milestones in Indonesia’s ties with China under Jokowi’s administrations.
Since Jokowi took office, China has become Indonesia’s largest trading partner by a significant margin. It accounted for 28 percent of Indonesia’s imports last year, with Singapore in second providing only 8.7 percent. China is also the largest export destination for Indonesian products with a 19.5 percent share, with the closest being the US at 11.4 percent.
China is also Indonesia’s second-top investor, which is a massive turnaround considering Beijing ranked 13th before the start of Jokowi’s time in office.
However, his most ambitious plans will not be realized while he is president — nor any time soon after he departs. In 2019, Jokowi announced a plan to move Indonesia’s capital from Jakarta to Nusantara in East Kalimantan.
Juri Ardiantoro, who is deputy IV of the Indonesian Presidential Staff Office, said that the project would have an estimated budget of about US$30 billion.
However, only 20 percent of the funds are to come from the state budget, with the rest from a public-private partnership.
Jokowi looks favorably on Chinese investment in the Nusantara project. During a visit to China in October last year, he asked Chinese Premier Li Qiang (李強) to accelerate realization of investment in the Nusantara project.
China is among the top five potential investors in Nusantara, alongside Singapore, Malaysia, Japan and South Korea, although Jakarta has yet to secure any funds from foreign investors.
There are two possible reasons behind China’s slow commitment in Nusantara:
First, the presidential election in Indonesia has significantly increased uncertainty over the project, which has led to a lack of investment interest.
Two of the three presidential candidates — Prabowo Subianto and Ganjar Pranowo — have expressed commitments to continue Jokowi’s plan, but the other, Jakarta Governor Anies Baswedan, has questioned the necessity of moving the capital and said that the Nusantara project would exacerbate inequality among provinces in Indonesia.
While dropping plans to move the capital does not mean canceling the Nusantara project, Anies’ proposal of a new city for settlement or as a second capital for nearby provinces would certainly lower interest from foreign investors.
Considering the uncertainty over the project, China is likely to wait for the election result before making any commitments over Nusantara.
A compelling argument can be made for China’s keen interest in participating. Beijing has consistently utilized infrastructure diplomacy facilitated through the BRI to deepen relations with its partners and it would not be the first time China invested in the reallocation of other nation’s capital. Just last year, China became the largest source of foreign funds for Egypt’s New Administrative Capital.
Although it might be established that Beijing is interested, is it capable of investing?
On top of a massive economic slowdown due to its “zero COVID-19” policy and the economic implications of the Russia-Ukraine war, China is also battling a crippling real-estate crisis and problems with debt at local governments. In addition, China’s youth unemployment last year reached a record, leading to the government suspending the data to avoid a domestic backlash.
The economic slowdown in China has raised questions over its ability to continue to play the role of patron in Southeast Asia. Even prior to last year, there was a decline in the number and value of BRI projects.
Criticism has dogged its BRI projects in Southeast Asia, with specific concerns about partner countries, such as Laos, struggling to afford massive debts owed to Beijing, although it has provided debt relief and engaged in debt restructuring to accommodate these countries, including Indonesia.
While Beijing is capable of investing in Nusantara, it is important to acknowledge that its domestic economic downturn has made it more selective in its foreign investments. The outcome is likely to hinge on Indonesia’s ability to demonstrate unwavering political commitment to the full realizations of the Nusantara project, and effectively communicate the economic and political benefits to Beijing.
Patrick Kurniawan is a master’s student at National Chengchi University. He is a research associate at the Center for Southeast Asian Studies and a Pacific Forum Young Leader.
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