IO – In a recent seminar in Jakarta, politicians and diplomats from China and Indonesia waxed eloquent about the two countries’ so-called ‘comprehensive partnership’. There was plenty to celebrate: since five years ago, when the partnership was first announced, China’s direct investments have dramatically increased from US$300 million to more than US$3 billion, making it Indonesia’s third largest foreign direct investor. China has also emerged as Indonesia’s largest trading partner, both in terms of exports and imports.
A ten-fold increase in investment over the space of half a decade is impressive, and much needed. At a time when Western multinationals, especially in the mining and energy sectors, have decided to pull away from Indonesia because of investor-unfriendly regulations, capital inflows from China can make an important difference in the economy. And it could become even more important in the near future since the government has established four provinces—North Sulawesi, Bali, North Sumatra and North Kalimantan—as “economic corridors” that are being prioritized to accommodate projects falling under China’s Belt Road Initiative.
Seaports, bridges, power stations, pipelines, and a wide array of other mega-investments fall within the scope of the Belt Road Initiative master plan. Some of these projects, which will contribute heavily towards improving Indonesia’s antiquated infrastructure and intra-island connectivity, could prove crucial in the quest for transforming Indonesia into a more competitive economy and catapulting it into becoming one of the world’s top ten economies, as many economists predict could occur in the coming decades.
Such is the promise. But there are potential traps and minefields as well. We have written about the Belt Road Initiative in these pages many times before, especially when it comes to the economic risks involved and the national security implications of Chinese-financed projects in strategic sectors. Although it is far from completion, the one trillion dollar initiative has already come under intense scrutiny and criticism.
Indonesia must take heed of the experiences of other recipient countries. Pakistan, Sri Lanka, Myanmar, the Maldives and others have complained of the Belt Road initiative amounting to a giant Chinese debt trap, which of course the initiative’s architects in Beijing deny. Yet the macroeconomic numbers don’t lie: Pakistan, for example, is now scrambling for a bailout from the International Monetary Fund after taking on too much debt for its US$62 billion China-Pakistan Economic Corridor project.
Probably aware of the growing swell of critics on the Belt Road Initiative, Indonesia’s coordinating minister of maritime affairs Luhut Panjaitan, a keynote speaker at the China seminar and who is widely considered by political insiders to be an avid supporter of Chinese investment, told the press “nothing we do depends on China. If there are other companies eligible for investments for those four corridors, go ahead.” Yet his assertion begs the question: if anybody is eligible, then why did the Indonesian government even bother to establish the special corridors?
Playing favorites with China is, prima facie, not necessarily a bad thing. It is the government’s job, after all, to court foreign investors, and given China’s deep pocketbooks, Panjaitan’s eagerness is understandable.
Yet Panjaitan and others inside the cabinet should be reminded that China is no ordinary investor. Besides the economic risks of becoming overly dependent on China, the national security aspects of the relationship warrant closer inspection, especially since the two countries have penned a joint memorandum of understanding linking the Belt Road Initiative with Indonesia’s maritime development strategies. A much more critical eye toward China is certainly warranted, and it behooves the media and the public to demand more transparency when it comes to Chinese investments.
Although it has yet to happen in Indonesia, other countries such as Australia, across Europe and in the United States have already started to question seriously and investigate how China has been infiltrating and influenced their domestic politics and decision-making.
Referring to Australia’s spy agency warning politicians about taking donations from Chinese billionaires and news an Australian senator had quit parliament last December after revelations of his relationship with a wealthy donor tied to the Chinese Communist Party, former U.S. Secretary of State and presidential candidate Hillary Clinton recently said “I think Australia, along with other liberal democracies around the world, have got to take the threat of foreign interference seriously.”
Beijing’s influence peddling stretches into Europe, as well, where it uses Chinese companies and foundations for access to European elites by hiring, for example, former prime ministers of the U.K. and France to act as advisors and a former vice-chancellor of Germany as the head of the charitable wing of a large Chinese conglomerate. In the United States, Beijing relies upon American billionaires with sizeable business interests in China—such as former U.S. Treasury Secretary and Goldman Sachs chief executive Henry Paulson, Michael Bloomberg and Blackstone co-founder Stephen Schwarzman—to use their close connections with the White House to shape U.S. policy on issues such as trade policy.
Indonesians should therefore be asking who is pushing for a China agenda and for what reasons. As Hillary Clinton succinctly put it, we all have an interest in making sure that decisions that are made by our governments are not the result of some kind of influence peddling by a foreign power.