The Limits to Sino-Indonesian Relations

From March 22 to March 24, Indonesian President Susilo Bambang Yudhoyono paid a state visit to China. The visit, which saw the inking of several agreements in a wide range of areas, is only the latest boost to bilateral cooperation which has increased significantly since the two countries forged a strategic partnership in 2005 (Xinhua, March 23). l. Even as these Asian giants continue to push their ties forward, however, the Sino-Indonesian relationship still faces several significant limits in the economic, security and political realms.

Sino-Indonesian relations have a long and rich history, as Chinese premier Wen Jiabao noted in a speech in Jakarta last year (Xinhua, April 30, 2011). Monks from ancient China studied in Sumatra and Java as early as the first century CE, Chinese merchants traded with ancient kingdoms in maritime Southeast Asia, while mosques were built by Chinese Muslim navigator Zheng He in Indonesia during his legendary voyages in the 15^th century. Indonesia’s relationship with China, however, underwent several decades of turbulence since they established diplomatic relations in 1950. Initial ideological solidarity, most clearly demonstrated in the Bandung Conference of 1955, gave way to hostility as Indonesia’s second president Suharto came to power in 1965 in a counter-coup against communist elements funded and armed by Beijing and severed diplomatic ties in 1967 (China Daily, April 20, 2005). As a result, Sino-Indonesian relations were frozen during most of Suharto’s New Order regime, which saw the repression of Indonesia’s ethnic Chinese minority and deep distrust toward China’s communist government.

Though ties were normalized as early as 1990, it took years for both sides to begin the process of strengthening the relationship. China viewed Indonesia as valuable not only as a large market and a source of raw materials to fuel its economic development, but as a key littoral nation near strategic maritime chokepoints where China’s energy flows, a vital partner in ASEAN, and increasingly as a fellow developing country in global institutions. As it emerged from the tumultuous Asian financial crisis in 1998 and elite distrust of China began to subside, Jakarta began to see Beijing as an important partner in its efforts to rebuild its economy, return to its traditional regional role as primus inter pares within ASEAN and increase its maneuverability vis-à-vis other powers in the global stage [1].

The idea of a “special relationship”, first privately proposed by China in 2001, gained traction and finally culminated in a strategic Partnership in 2005 when Chinese president Hu Jintao visited his counterpart Susilo Bambang Yudhoyono (People’s Daily, April 26, 2005). Since then, both sides have been deepening and broadening cooperation in the political-security, economic, and socio-cultural realms. Total trade between Indonesia and China more than doubled between 2006 and 2011, when it hit $49.2 billion and China became Indonesia’s second biggest trading partner. There has even been some cooperation in the military realm, such as on joint missile production and military exercises [2].

Yudhoyono’s visit to China this March was an important step in further cementing Sino-Indonesian relations. It witnessed the signing of fifteen agreements between Indonesian and Chinese businesses amounting to $17.65 billion and six memorandums of understanding covering fields like maritime cooperation, counter-narcotics and statistical and archival data exchanges (Indonesian Embassy in Beijing, March 24). The joint statement emphasized promoting a healthy and sustainable economic relationship to boost the trade volume to $80 billion in 2015 and encouraging businesspeople to invest in support of Indonesia’s 2011-2015 Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI). Beyond economic issues, the joint statement addressed expanding bilateral cooperation in fields like science and technology, food and energy security and regional cooperation in forums—such as ASEAN+1, ASEAN+3 and the East Asia Summit (Xinhua, March 26). In a speech after receiving an honorary doctorate from Tsinghua University, Yudhoyono also stressed the importance of both countries working towards “developing a regional architecture to assure a conducive order for peace and welfare” in the Asia-Pacific region (ANTARA News, March 23). After his bilateral meeting with President Hu, Yudhoyono also expressed confidence that “both countries have the spirit to increase strategic cooperation in various sectors” (ANTARA News, March 24).

Yet Yudhoyono’s optimism belies the significant obstacles that remain in Sino-Indonesian relations. In the economic realm, China’s size and history continue to stoke fears of a hegemon trying to turn Southeast Asia into a neo-tributary system by flooding Indonesia with cheap Chinese goods, extracting critical raw materials and using its political leverage over the ethnic Chinese minority. Trends in the economic relationship over the past few years have only reinforced these perceptions in some parts of the population, private sector and government. Indonesia went from having a trade surplus with China in 2006 of $1.1 billion to a deficit in 2011 of $3.2 billion, while just five raw materials—coal, palm oil, gas, crude petroleum and rubber—constituted around 60 percent of total Indonesian exports to China in terms of value in 2011 [2].

These fears were most clearly manifested with respect to the implementation of the ASEAN-China Free Trade Agreement (ACFTA). Despite some efforts by China to assuage Indonesian concerns, ACFTA came under fire for worker layoffs in local manufacturing and the flood of Chinese textiles, garments and other goods into the Indonesian market, and the Indonesian government was forced to renegotiate the agreement (Jakarta Globe, April 3, 2010). Indonesia’s Trade Minister Mari Pangestu, an Indonesian-Chinese and globally respected economist, eventually lost her job the following year partly over issues related to the ACFTA (Jakarta Globe, October 17, 2011).

Both sides have tried to overcome these economic concerns. When he visited Indonesia last year, Chinese Premier Wen Jiabao stressed that China did not “pursue a trade surplus” and was willing to increase imports from Indonesia “to promote sound, balanced and sustainable development of bilateral trade” (Xinhua, May 1, 2011). After viewing the data discrepancy that existed in the trade statistics of both countries during his visit in March, Yudhoyono firmly demanded that his trade minister eradicate smuggling as a major cause of the trade deficit (Jakarta Post, March 25). Indonesia also has introduced a raft of protectionist measures covering fruits and vegetables, rattan and foreign investment in sectors such as mining, which will shield domestic firms and affect Chinese businesses and investors. 

Despite these efforts, experts posit that the trade structure is unlikely to shift significantly for some time. The complimentary requirements between the two economies are structural—with Indonesia needing more raw materials and capital goods while China requiring more commodities and energy. Furthermore, the process of making Indonesia’s manufacturing industries more competitive to push more exports to China also will take a long time because it is enmeshed within deeper governance problems including inadequate infrastructure, smuggling and red tape (Jakarta Post, April 25, 2011). The deficit also may increase in the coming months as China shifts more of its exports to Asian markets in response to sagging demand in Europe and the United States due to lingering economic crises (ANTARA News, April 6).

Obstacles also remain in the security realm despite some progress. Following the signing of the strategic partnership in 2005, agreements were reached on defense technology cooperation, inaugurating a bilateral defense consultation and establishing a joint military cooperation committee to arrange joint military and training exercises. Movement has been seen more recently in a number of these areas as well. For a few years now, Indonesia has been buying Chinese anti-ship missiles (specifically the C-705 and C-802), and its navy recently unveiled the KRI Kujang-642, a locally-produced guided-missile boat equipped with C-705s (Xinhua, February 16). Both sides also began a partnership in military arms production by initiating the joint procurement of missiles in a memorandum of understanding last March, and Jakarta is particularly interested in jointly procuring C-907 missiles to arm its Sukhoi jet fighters (Jakarta Post, March 23, 2011). Additionally, in June 2011, the People’s Liberation Army (PLA) and Indonesia’s National Armed Forces (TNI) finally conducted “Sharp Knife” in Bandung, Indonesia, the first ever joint military training of their special forces (Xinhua, June 18, 2011).

Equally important, however, is what has not taken off. Beyond the anti-ship missiles, China has not made much inroads in terms of selling military hardware to Indonesia. For instance, Beijing’s repeated offer of JF-17 jet fighters, jointly produced with Pakistan, does not appear to have been met with much enthusiasm by Jakarta. Aside from the joint military exercise held last year, Indonesia seems to be approaching joint operations with caution. When Indonesian Defense Minister Purnomo Yusgiantoro met with his visiting counterpart Liang Guanglie last May, he was mute on Chinese proposals to conduct coordinated patrols with Indonesia and other ASEAN member states to escort merchant vessels from the region through the Gulf of Aden as part of joint anti-piracy efforts (Jakarta Post, May 23, 2011). Even progress with regard coordinated sea patrols—which Jakarta already has with several countries including Malaysia, Singapore, Philippines, India and Australia—was limited as they were placed within the framework of a broader joint committee for a range of defense cooperation.

Several factors, such as where the Indonesian military wants to source its equipment and Indonesian suspicion of Chinese motives, could explain Jakarta’s ambivalence with respect to security ties with China. Indonesian military equipment acquisitions to close out 2011 suggest Jakarta believes there are many better places where it can get most of its defense equipment. These deals included six Sukhoi Su-30MKK jet fighters from Russia worth $470 million; three submarines from South Korea worth almost $1.1 billion; nine NC-295 medium transport aircraft from Spain worth $325 billion; and eight Embraer EMB-314 Super Tucano counter-insurgency aircraft from Brazil as well as the planned transfer of 24 F-16C/D jets from the United States (Jakarta Post, March 22). The desire for higher quality and potentially more expensive military equipment from dispersed sources probably will continue if Indonesia’s defense budget continues to rise year-on-year by more than 20 percent until 2014 in order to reach its 2015 target to elevate defense spending to 1.5 percent of GDP (Xinhua, March 22).

The lukewarm reception also could be a product of distrust with respect to China’s military intentions in Southeast Asia, particularly but not exclusively in the South China Sea. China’s claims in the South China Sea include gas-rich marine territory that overlaps with Indonesia’s exclusive economic zone extending from the Natuna Islands. Jakarta’s detention of 75 Chinese nationals and their fishing boats off the Natuna Islands in 2009 and Beijing’s prickly response provided a useful reminder of how this continues to be an irritant in bilateral relations (Jakarta Globe, July 2, 2009). Although Indonesia has long seen itself as an arbiter and has sponsored workshops devoted to resolving the issue since the 1990s, Jakarta submitted a letter to a United Nations commission in 2010 challenging China’s expansive position on sovereignty in the South China Sea.

There are also limits to Sino-Indonesian relations in terms of foreign policy more generally. While China would like to be closer to Indonesia , Jakarta’s current foreign policy—best encapsulated by the “dynamic equilibrium” concept attributed to foreign minister Marty Natalegawa—strives for a region not dominated by one country or two rival powers. Instead, Indonesia would prefer a situation where a range of actors can engage intensely across issues in an inclusive way and the rise of one is not seen as the loss of the other (Jakarta Post, July 1, 2011). That means that while Indonesia on the one hand may oppose any Cold War-style attempt to contain China; on the other, it also would welcome quieter forms of engagement by other powers (including the United States) that promote regional stability. Beijing however may see such engagement as attempts to undermine its rise. This delicate balance or hedging is designed to ensure that Jakarta maintains both just the right amount of closeness and distance between the various regional actors, including China.  

President Hu’s reminder to Yudhoyono that Indonesia and China were “close neighbors separated by only a strip of water” suggests little has changed since Chinese Premier Wen Jiabao called on both sides to “join hands to strengthen our good-neighborly relationship, deepen comprehensive cooperation [and] create a bright future” last April (Xinhua, March 23; April 30, 2011). Lingering distrust and Indonesia’s foreign policy outlook probably will ensure that a certain distance continues to remain in Sino-Indonesian relations even as cooperation selectively deepens.

Notes:

1.     Bronson Percival, The Dragon Looks South: China and Southeast Asia in the New Century, Westport, CT: Praeger Security International, 2007, pp. 62–64.

2.     Greta Nabbs-Keller, “Growing Convergence, Greater Consequence: The Strategic Implications of Closer Indonesia-China Relations,” Security Challenges, Vol. 7, No. 3, Spring 2011, pp. 23–41.

3.     There is in fact a discrepancy in the trade statistics between both sides. Data from the Chinese side illustrate that China’s exports to Indonesia were actually lower than its imports, such that both countries claimed a deficit. This data discrepancy is attributed to various sources, including smuggling and transiting by exporters. For additional information on trade between the two countries, see, Anne Booth. “China’s Economic Relations with Indonesia: Threats and Opportunities”. Journal of Current Southeast Asian Affairs, Vol. 30, No. 2, 2011, pp. 141-160.