Southeast Asia

China’s relations with Indonesia requires more cautious moves

photo: ANTARA

Published

3 years ago

December 23, 2019

Zhou Dong-chen

Authors: Zhou Dong-chen & Muhammad Raihan Ronodipuro

At the invitation of Chinese military commission, Indonesian Minister of Defense Prabowo Subianto made a working visit to Beijing during December 17-19. It is clear that the comprehensive strategic partnership between the two countries has maintained good momentum, as Chinese military leaders expressed that the Chinese and Indonesian militaries should implement their consensus reached by the leaders of the two countries, explore deepening cooperation in various areas, promote the two sides’ comprehensive strategic partnership and benefit the two countries and the region. Echoing his Chinese counterpart’s remarks, Prabowo highlighted the necessity of enhancing regular contacts and dialogues between the two militaries in order to jointly safeguard regional peace.

Though having been partners in modernizing Indonesian weaponry system, this is the first high-level visit to China by Indonesian Defense Minister with a view to discussing the efforts to further enhance cooperation in defense of the two countries. Yet, the rapidly growing power of China has constituted one of the most strategic dimensions in East Asia and beyond. For realist view, it represents a key driver of change in the dynamics of major power relations and will have significant impacts on the Asian-Pacific since the end of the WWII. True, the rise of China, even though it is claimed the peaceful rise, has become a dominant discourse within and outside public circles as well. For Indonesia which is the largest country in Southeast Asia and had complicated relations with China until the early 1990s, the rise of China unexceptionally presents an opportunity and challenge. Since normal relations between Beijing and Jakarta were restored less than three decades, Indonesia’s response to the rise of China is still evolving. As scholar Rizal Sukma observed that while recent developments suggest a marked improvement in bilateral relations, Indonesia’s policy of re-engagement towards China should also be perceived from the complex relationship of history, the primacy of domestic politics and the imperative of regional considerations.

Given this, the study argues that Indonesia’s policy towards China continues to reflect a degree of ambiguity and suspicion as well. On the one hand, Indonesia is sure to take the benefits of having good relations with China and begins to demonstrate increasing comfort in managing the bilateral relations with the rising economic giant. On the other hand, Indonesia remains ambiguous of China’s long-term goal and intentions in the region. This mentality has surely led Indonesia to pursue a policy of re-engagement characterized by a mixture of cooperative and suspicious approaches in its response to the rise of China.

There are several reasons to endorse the argument that China’s relations with Indonesia should be moving cautiously and attentively. First of all, since China and Indonesia shared modern sacrifices imposed by imperialist powers of Europe and Japan, it did help promote the reciprocal recognition of each other in 1950; yet it unnecessarily means that their relations have proceeded steadily. In effect it is quite opposite as their relations were subject to pressures stemming from each domestic concerns, particularly for the perceptions among the public and the elite have served as the key context within which Jakarta’s policy towards Beijing has been formulated and carried out. For example, in the early 1960s, attempts by both parties to forge a radical political alignment, primarily in terms of a united front against the West, failed to withstand the pressure emanating from Indonesia’s domestic politics, which was patently manipulated by the West. As a result, the Beijing-Jakarta axis was brutally brought to an end in 1965, followed by the suspension of their normal relations for more than 20 years.

Secondly, it is true that both China and Indonesia can’t ignore each other in a long run, it is because China has rapidly increased its power and influence since the 1980s while Indonesia as the largest country in the Southeast Asia has also aspired to be a regional power. In light of the vicissitude of the world politics, the two countries began to rethink of their relations in a more realist perspective. Yet, even during the 1980s, the anti-communist leadership of Indonesia was not moved by what China had already adopted the reform and openness policy. The dynamics of Indonesian politics which required the preservation and the enforcement of anti-communist ideology as the basis of regime legitimacy, arduously carried out the predominance of domestic political interests over other necessary concerns in Indonesia’s foreign policy. Only by 1990, did the two countries finally agree to resume direct trade and soon restored diplomacy. Even though, the restoration of normal relations did not improve substantially. Suspicions and sensitivity continued to characterize Jakarta’s attitude towards Beijing. The event in 1994 once again verifies this point when a labor unrest soon flared into an anti-Chinese riot in Sumatra. China’s official concerns were not only rejected but also accused of flagrant interfering in Indonesia’s internal affairs. As for China, the episode is a reflection of its lack of understanding in Beijing on Indonesia’s sensitivity on issues involving the ethnic Chinese minority in the country.

Thirdly, from the very beginning since 1990 when both countries resumed their relations, still Indonesia preferred dealing with China within a multilateral framework, either through ASEAN or the ASEAN Regional Forum (ARF). It is argued that ASEAN has been regarded in Jakarta as likely to be a more effective instrument for managing relations with a China regarded with apprehension and some foreboding. Similarly, the ARF has been taken by many Indonesian elites as a regime not only to engage China regionally but also to secure Beijing’s respect for international norms of inter-state relations. Prior to early 1998, Indonesia had begun to promote the economic dimension of bilateral relations with China. Since then, the contacts in overall terms have increased rapidly and remarkably. It is said that the great efforts to promote trade between the two sides since 1990 were obstructed by the financial crisis in 1997, yet, ironically it was the political implications of the 1997 financial crisis in Indonesia that opened up the opportunity for a much more cordial relationship between Indonesia and China to develop. For sure, the financial crisis which brought the Suharto regime from power served as a defining moment in bilateral relations of the two countries as the collapse of Suharto’s regime was followed in 1998. To certain extent, during the after the financial crisis, the ruling elites of the two sides did manage the issue well and did not let the long issue of Chinese diaspora in Indonesia out of control. Due to this, since 1998, the real improvement in the bilateral relations has become more evident, and the scope of bilateral cooperation has been expanding to include cooperation on areas such as security and defense. In 2005, China and Indonesia further established a strategic partnership which covered all the key areas such as security and defense technology cooperation. In addition, China’s image as a responsible and benevolent major power have also received further boost during the Tsunami disaster that struck Indonesia and other Indian Ocean countries in 2004.

Yet, as the past lessons have indicated that despite obvious improvements in bilateral relations, Indonesia and China are not immune from issues. Three issues might affect how Indonesia-China relations would evolve in the future. First, internationally Indonesia’s elite remain uncertain regarding China’s role and long-term intentions in East Asia. In this context, they are easy to follow the realism that a rising major power with an ancient pride aims to be a dominant power in the region would certainly revive Indonesia’s sensitivity. Although some of Indonesians have begun to display their willingness to trust China, but that trust takes time. A public opinion poll conducted by the Lowy Institute in 2006, for example, reveals that Indonesians trust Japan (76%) more than China (59%). For China to be fully trusted, it needs to consistently pursue a good neighbor policy towards Southeast Asia. Second, domestically, there is still the issue regarding the public perceptions of Indonesia’s ethnic Chinese. If there is a resurgence of anti-Chinese feeling in Indonesia, and if the issue of the ethnic Chinese minority once again becomes a political victim in Indonesia, then Indonesia-China bilateral relations is sure to be affected adversely. Due to this, both sides need to learn how to avoid their previous mistakes in the new era.

China and Indonesia have learned the lessons from the past. As a result, the bilateral relations have been improved over the last two ten years in terms of maturity and stability. In spite of this, the reality still requires the ability of the two countries to steer in the course cautiously and attentively.

Southeast Asia

Behind the cancellation of Tesla’s investment in Indonesia

Published

2 days ago

May 27, 2023

Yeta Purnama

Authors: Yeta Purnama and Wulan Fitriana*

In April 2022, the issue of Tesla’s interest in investing in Indonesia attracted the attention of the domestic public, following a meeting held by Elon Musk, the owner of a prominent electric car company, with the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan. The meeting discussed nickel raw materials for the electric car supply chain.

This was then followed up directly by President Jokowi during the implementation visit to SpaceX in May 2022. During the visit, they also did not reach an agreement, although in August 2022 Luhut said the value of the nickel purchase contract from Tesla reached US$ 5 billion or the equivalent of IDR 74.5 trillion. However, until mid-2023, an official agreement on Tesla’s investment plans had not yet been announced.

Instead of setting investment in Indonesia, recently Tesla was even rumored to be opening an electric car factory in neighboring Malaysia. Even though Indonesia has been intensively lobbying with a nickel concession offer to Tesla, the offer does not seem convincing enough to involve Indonesia in fulfilling the supply chain for battery raw materials at the company. For Tesla, a sustainable company comes first Environmental, Social, and Governance (ESG) is the main reason to be considered. However, on the other hand nickel companies in Indonesia are still far away from being sustainable. This can be interpreted that one of the reasons for Tesla canceling its investment is because the company’s concern for ESG is still low.

Battery production ecosystem which is not sustainable

As a company that owns track record Pretty good ESG with shoes total 65/100 according to disclosure Refinitiv, there are at least two reasons why Tesla has not provided further information or even thwarted its intention to make Indonesia an investment destination. The first reason is regarding the poor production ecosystem. Several nickel mines in Indonesia have not even been included in the ESG rating agency which is an important aspect to attract international investors concern to climate change.

Second, half-hearted regulations in an effort to reduce emission reductions. For example, by perpetuating nickel mining companies meet energy needs by using coal-fired power plants to support smelter activities. The emission footprint in fulfilling the electric vehicle supply chain is a false solution for the government to reduce greenhouse gas emission reductions.

This is exacerbated by company non-compliance with regulations, one example is the downstream policy. It is known that illegal export of nickel ore occurred due to the export ban and required the process of refining nickel in the country. This fraud was also influenced by differences in the price of nickel ore at home and abroad. Miners tend to choose exports because the price of nickel ore in the domestic market tends to be lower than the export price.

This activity is known to have caused losses to the state due to loss of royalties and export duties from companies.

Even though the government has issued regulations as stated in the Minister of Energy and Mineral Resources Regulation Number 11 of 2020 concerning the Third Amendment to the Regulation of the Minister of Energy and Mineral Resources Number 07 of 2017 concerning Procedures for Setting Benchmark Prices for Sales of Metal Minerals and Coal. However, this has not been implemented properly in the field.

Based on the results of the 2021 evaluation, it shows that among the 73 companies, there are smelters, miners, and trader, there are as many as 65 companies that have been assessed according to the HPM, the rest are still not in accordance with the stipulated HPM and are even still under international regulations.

What needs to be done in the future

Inviting Tesla to become a net investor in the country is a fairly good effort from the government in diversifying cooperation partners, despite its dependence on investment from China which is quite problematic in the environmental and governance sectors. However, there are several things the government needs to do in the future to attract foreign investment, especially in maximizing the management of nickel resources in the country. First, it is necessary to carry out policy reforms that are truly serious in the energy transition effort.

One of them concerns the application of Risk-Based Licensing mandated by the Job Creation Law. This bill is not supported by the availability of a database on risk mapping, while environmental permits have been abolished, resulting in threats to environmental quality degradation.

Second, the government needs to retire dependence on fossil energy as early as possible, by starting a mix of energy transitions more quickly, including overcoming over supply electricity must pushed with policy. Because, currently the policies made by the government in making a road map for the transition of new energy and renewable energy in the EBET Bill are still half-hearted and there are still many fake solutions in the bill, for example such as geothermal and coal gasification which are actually efforts to extend the life of dirty energy in Indonesia. domestic.

Third, the government needs to carry out strict supervision and proper regulation. Especially regarding environmental and governance issues which are important aspects to create a more sustainable corporate ecosystem. Because of ideals net zero carbon will not be achieved effectively without involving a number of parties and stakeholders.

*Wulan Fitriana, Researcher at CELIOS.

Southeast Asia

ASEAN needs to walk a tightrope

Published

3 days ago

May 25, 2023

Tridivesh Singh Maini

Photo by ASEAN2022 Phnom Penh Media Center/Khem Sovannara & Yim Sovathana - AKP

The Quad leaders’ statement clearly reiterated the importance of the Association of South East Asian Nations (ASEAN) in the context of the Indo-Pacific. Said the statement:

“Today we reaffirm our consistent and unwavering support for ASEAN centrality and unity. We are committed to ensuring the Quad’s work is aligned with ASEAN’s principles and priorities and continues to support implementation of the ASEAN Outlook on the Indo-Pacific (AOIP)”

The statement also referred to Indonesia’s chairmanship of ASEAN in 2023.

This statement is important for several reasons. First, there have been differences between ASEAN and the US with several ASEAN leaders expressing concern over the consistent deterioration in ties between China and the US. Countries like Singapore have repeatedly reiterated, that they would not like to make choices between Beijing and Washington, since they share robust economic ties with both countries.

At the Boao Forum, often referred to as China’s Davos, held in March 2023, the Singapore PM again underscored the global ramifications of strained ties between China and the US. The Malaysian PM, Anwar Ibrahim perceived to be pro-US, expressed concern over US’ ‘decoupling’ from China.

Second, ASEAN countries which also share close economic links with the US have recently begun to speak about ‘De-dollarisation’ which refers to reducing dependence upon the US dollar for trade. The Malaysian PM, Anwar Ibrahim also spoke about Asian Monetary Fund (this idea was initially mooted by the Malaysian PM in the late 1990’s when he was Malaysia’s Finance Minister). Like many other regions, ASEAN is wary of US’ increasingly insular economic policies in recent years. While seven Asean countries — Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – are part of the US led IPEF (Indo Pacific Economic Framework) they have complained about IPEF not having a trade component.

Third, Indonesia has taken a different stance from the west on the Russia-Ukraine war. Like India, which is the current chair of G20, Indonesia too has pointed to the need for addressing disruptions caused to the global supply chains by the Russia-Ukraine war. Yet, it is an important stakeholder in the Indo-Pacific and is also important in the context of the goal of reducing economic dependence upon China and altering global supply chains. Apart from Vietnam and India, Indonesia has been one of the favoured countries for companies seeking to re-locate from China.

In spite of all the above differences, several ASEAN states have begun to show greater interest in the Free and Open Indo-Pacific. ASEAN came up with its first Indo-Pacific vision in 2018, but it has clearly stated that it’s approach vis-à-vis the Indo-Pacific is different from that of the US and not targeted at China. In recent months however, some ASEAN countries have begun to express their discomfort with regard to China’s increasingly aggressive behaviour on the South China Sea issue. Philippines, a US ally, which had in recent years been trying to strike a balance between US-China, has once again strengthened security ties with US. In February 2023, Philippines provided the US military access to four more military bases in the ASEAN nation. The US defence department while commenting on Philippines decision to grant access to four more military bases said that this:

“will make our alliance stronger and more resilient, and will accelerate modernization of our combined military capabilities,”

In conclusion, the ASEAN grouping is very important in the current geopolitical context and while it needs to walk a tightrope between China and the US it is an important player in the context of the Indo-Pacific for several reasons. As mentioned earlier, ASEAN countries are especially important in the changing economic architecture, where many western countries are seeking to reduce their dependence upon China and many US firms are expanding their operations in ASEAN countries – especially Vietnam. Apart from this, several ASEAN nations do not want to adopt a confrontationalist stance with Beijing due to their economic interests as well as geographical proximity but are not comfortable with China’s assertive behaviour and thus need to find common cause with the Quad.

Southeast Asia

Green Finance for a Greener ASEAN: ASEAN’s way to Sustainable Development

Published

5 days ago

May 23, 2023

Thant Thura Zan

Climate change is one of the most serious environmental risks to any living species on the planet. ASEAN countries are experiencing the effects of global climate change. Climate-related disasters within the regions include an increase in the frequency of drought, changes in rapid rainfall and record-breaking rainfall violations, an increase in strong wind speed and intensity, an increase in the frequency of floods and cyclones, extremely high temperature rise, and sea level rise. As a result, many countries, including ASEAN, are attempting to combat climate change by using just and sustainable policy tools such as green financing and issuing green bonds.

What exactly is Green Finance?

Green finance, according to the G20 green finance research group in 2016, is “the financing of investments that provide environmental benefits in the context of environmentally sustainable development.” Green finance comprises all activities undertaken by commercial and public entities in designing, marketing, implementing, and supporting projects with long-term consequences using financial instruments.

Pollution, prevention, recycling, wastewater treatment, and waste systems initiatives are mentioned under population, waste, and water. Green finance policy includes private equity funds, loan agreements, and environmental protection via financial services such as stocks and insurance.

Green finance policy also refers to policies and organizational strategies aimed at attracting private investment in environmentally friendly businesses such as energy conservation and sustainable energy. Financial markets are increasingly using sustainable development goals to evaluate green and sustainable finance.

ASEAN Green Bonds

ASEAN countries account for six of the world’s major green bond markets, with a combined value of $2.5 trillion in 2016 (ADBI). In 2018, ASEAN issued a record number of green bonds. It is also another contribution to market development aimed at making the economy greener and more resilient by lowering regional carbon emissions. It is also one of the best methods to mitigate the effects of climate change and create a long-term vision of sustainable development goals.

Governments, banks, and corporation issue Green Bonds to raise funds for climate change solutions. Bond issuers whose income are sourced from climate-aligned assets and green business, according to the assessment of the ASEAN green finance State of the Market report. This issuer is also known as a Fully aligned climate issuer. Bond issuers with a climate score of 75% to 95% are likewise deemed strongly aligned.

According to the diversification of the ASEAN green bond market, non-financial firms are the largest group of green bond issuers, accounting for 30% of total issuance in the area from the issued date. Nonetheless, the issuance of non-financial organizations ranged from four issuers of the six ASEAN countries with a green bond market: Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Green loans are also the most robust financial market, accounting for US$1.1 billion, or 22.5% of ASEAN’s total.

Opportunities for Green Investment in ASEAN Countries

According to the report made by UN and DBS, the cost of implementing the Sustainable Development Goals for all middle-income countries from 2016 to 2020 is estimated at US$22 trillion. Using 2016 GDP to allocate to ASEAN nations in this area suggests more than $5 trillion in regional investment prospects. If investment expenditures are considered long-term, the costs of achieving SDGs might approach $5 trillion over the same time span.

The green investment prospects for ASEAN countries were analyzed in primary sectors such as renewable energy, energy efficiency, infrastructure, agriculture, and land use. The expected investment opportunity for developing solar, hydropower, and wind power projects based on renewable energy sectors is over US$ 400 billion. The expected investment prospects for developing ASEAN infrastructure projects linked to racial, telecommunication, climate mitigation, waste management, smart cities, and energy distribution are the biggest, with US$ 1,800 billion.

Using the expected assessment yields investment potential for ASEAN countries ranging from $2,650 billion to $3,000 billion between 2016 and 2030. There is empirical evidence that environmental and sustainable development policies are becoming increasingly rapid. On the other hand, technological prices are reducing quicker than expected.

The core framework for utilization of Green Finance

Although green finance resources are limited for optimal use in the construction of green infrastructure, the requirement for economic impact is to boost green finance investment. Furthermore, investment from both the public and commercial sectors will be required to close the green infrastructure deficit. Markets and public policy must generate opportunities for the government and private finance sectors.

The fundamental way to promote private sector participation in sustainable financing is to restructure investment tax credits and integrate both regulation and the private market into an efficient private-public partnership.

Because corporations worsen social exclusion and environmental degradation, green financial markets must be effectively controlled to support green projects. A stronger emphasis on developing environmentally and socially responsible productivity in resource-based businesses can contribute to higher living standards and a more robust economy in society.

These were large and complex questions facing ASEAN countries when implementing the green initiatives. At a minimum, they had to decide what, if any, fine-tuning adjustments needed to be made in their green finance strategies. The question is, where to next?