BRI Briefing Paper English PDF
BRI Briefing Paper English PDF
BRI Briefing Paper English PDF
Contents
I. Introduction
II. Belt and Road Initiative: An ambitious undertaking
III. BRI after five years: This caravan is moving on
IV. What’s in it for Indonesia
V. Chinese projects in Indonesia and the four economic corridors
VI. How the BRI can boost Indonesia’s palm oil industry
VII. Public sentiment: Indifference is not good enough
VIII. Conclusion
August 2018
Board of Commissioners:
Jusuf Wanandi, Djisman S. Sumandjuntak,
Endy M. Bayuni
PT Trisaka Wahana Tenggara
The Jakarta Post Building Board of Directors:
Jl. Palmerah Barat 142-143 Riyadi Suparno, Philips J. Vermonte,
Jakarta 10270 Deddi Tedjakumara
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I. Introduction caravan is moving on. Yes, the BRI caravan is certainly
moving on.
China’s Belt and Road Initiative (BRI) marks its fifth year in
2018, a crucial phase that will determine where Chinese Indonesia is a laggard compared to other countries in Asia
President Xi Jinping’s ambitious project is heading. The when it comes to participating in the BRI. There is good
consensus, inside and outside China, is that the project is reason for this, besides the fact that Indonesia is not
cruising along and will likely accelerate from now on. located along the main Silk Road Economic Belt, where
There is no looking back. China is concentrating most of its energy. Indonesia has
been more cautious in its approach, conscious of ensuring
The BRI, with its two main components —the Silk Road that BRI investments bring real benefits to the nation
Economic Belt and the 21st Century Maritime Silk Road — while minimizing any negative effects. This is a laudable
has enlisted some 70 countries, including Indonesia, approach as some countries are experiencing problems
comprising a combined total of 40 percent of global gross with their BRI projects, such as spiraling debt, loss of
domestic product. The livelihood of two-thirds of the sovereignty and the growing presence of Chinese
world’s population in all corners of the globe will be workers.
directly affected by the BRI. China will soon replace the
United States as the world’s biggest economy, and will But as the BRI is clearly taking off after five years,
use the BRI in exercising its global economic and political Indonesia can no longer afford to sit on the fence, or it
leadership. risks being left out completely, falling behind as the world
economy grows and prospers while China takes on
From an estimated initial price tag of US$900 billion, greater political and economic leadership.
analysts are now talking about several trillion dollars’
worth of new investments in infrastructure in the coming A too cautious approach could mean missed
years — including in roads, bridges, seaports, airports and opportunities in terms of market access for Indonesian
power plants — in China and BRI participating countries. products and benefiting from the large investment funds
While China will no doubt be the biggest funder, the BRI available under the BRI. For President Joko “Jokowi”
is also actively seeking to raise funds internationally, Widodo, the BRI provides an answer to his own massive
including in world financial markets. China is also and expensive infrastructure program. Indonesia’s
increasingly involving private sector companies from participation in the BRI is crucial to its own national
around the world. Who can resist the massive business interests.
opportunities available?
One likely major obstacle to Indonesia’s participation in
For such a huge undertaking, there are bound to be the BRI is public opinion. If Indonesia is to reap the full
problems and obstacles along the way. The BRI has its benefits, it must fully, rather than half-heartedly, embrace
doubters and skeptics, but China is addressing these the BRI. In a democratic environment like Indonesia today,
problems and responding to its critics. As some of the it is important that the government enjoys strong public
initial infrastructure projects are now on stream and support to be able to engage China in negotiating and
starting to pay dividends, they override if not silence BRI implementing BRI infrastructure projects.
critics. An old Indonesian saying, adapted from an ancient
Silk Road story, aptly describes the situation: Anjing The BRI has not become a buzzword in Indonesia in the
menggonggong, kalifah berlalu - dogs are barking, but the same way it has in other countries that have opened up
their economies to BRI projects. More often than not,
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typically it is the problems rather than the benefits, II. The Belt and Road Initiative:
whether real or potential, that have come to the public’s
attention, so much so that the BRI in many countries now
An ambitious undertaking
carries negative connotations. Neighboring Malaysia is a
good example, with Prime Minister Mahathir Mohamad President Xi unveiled his vision for the Silk Road Economic
rolling back some of the big BRI infrastructure projects as Belt in a speech in Kazakhstan in September 2013. A
soon as he won the election in July. Well-informed public month later in Indonesia, Xi added the maritime
opinion on the BRI and its implications, both negative and component to his vision in his speech titled the 21st
positive, is crucial for Indonesia’s participation. Century Maritime Silk Road. The two speeches formed the
Conversely, the government too must listen to public basis of what was initially called the One Belt One Road
opinion to nurture and build its support for the BRI. vision, hence the widely used OBOR acronym. Now,
renamed the Belt and Road Initiative, or the BRI for short,
This report seeks to explain what the BRI is and where it is Xi’s vision has since been translated into a road map with
heading now that it has completed its first five-year numerous action plans.
phase. The report will examine Indonesia’s cautious
approach and shed light on the four economic corridors Echoing President Xi, official Chinese statements explain
offered to the BRI. The final part analyses public sentiment that the BRI represents a modern reinvention of the
in Indonesia toward the BRI and overall Indonesia-China ancient Silk Road that emphasizes “mutual trust, equality,
relations, an essential component as Indonesia broadens inclusiveness, mutual learning and win-win cooperation.”
its participation in the BRI.
The “Belt” refers to the overland roads that link China with
West Asia, Southeast Asia, the Middle East and Central
Asia all the way to Eastern and Western Europe, including
Russia. The “Road” refers to the maritime route that links
China with island countries in the Western Pacific and
littoral states in Southeast Asia, South Asia, horn of Africa,
Middle East and Europe.
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and takes over the mantle of global economic leadership.
China may see slowing growth in 2018, but there is no
doubt that its sheer size will continue to provide the main
stimulus for global growth and development, with the BRI
central to this. This is after all the Asian Century.
Criticisms
The BRI is not without its critics. Given its sheer size, there
are bound to be problems and challenges. China is
responding and evolving the BRI by constantly fine-
tuning and revising it to deal with emerging obstacles, as
well as responding to the growing chorus of criticisms
that have emerged during its implementation.
China is fully aware of these problems and is addressing International Monetary Fund managing director Christine
some of these issues while responding to the accusations. Lagarde, who attended the summit, returned to Beijing in
Beijing understands that the success of the BRI hinges on April 2018 to give the international seal of approval for the
the widespread support of participating countries, both Belt and Road Initiative, as it is starting to deliver as it
the governments and the public. It also knows that the reaches its fifth year.
massive need for finance can only be met by greater
inclusion of international finance. China is also improving “Given that there are more than 70 BRI participating
transparency in the tender of projects, meaning greater countries, it is difficult to estimate precisely overall
business opportunities for global companies. The BRI is investment needs. But it will be in the hundreds of billions
slowly but surely becoming less China-centric. of dollars annually. Clearly there is a pressing need for
infrastructure and there are already signs of progress. In
The BRI is too big and too important to fail now. It is more other words, blooms are starting to appear.”
about getting it right, and China is making the
adjustments in response to legitimate criticism. There is Lagarde, however, cautioned China and BRI participants
no going back now that the BRI has passed the critical first against overspending and called for more prudent fiscal
five years. Despite ongoing and often baseless criticism, policies.
an old Indonesian saying, adapted from the old Silk Route
stories, aptly reflects China’s attitude toward its critics.
Anjing menggonggong, kafilah berlalu - dogs are barking,
but the caravan is moving on.
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The corporate world is seizing on the business “At face value, the BRI is an invitation to the rest of the
opportunities available as the BRI gradually becomes less world to take part in the biggest infrastructure project of
China-centric. The Economist Intelligence Unit, in a report all time. It’s a landmark movement that represents a 1
posted on HSBC’s website, notes that while the lion’s trillion euro investment in infra-structure in 90 countries
share of BRI projects have gone to Chinese construction and beyond – a project that has the potential to improve
companies, non-Chinese companies are taking part in the lives of 70 percent of the world’s population. It’s a
many projects through joint ventures, and opportunities project that creates opportunities in practically every
are growing as the BRI progresses. sector,” Siemens CEO Joe Kaeser said.
“In the long term, if the BRI achieves its intended goal of
spurring economic development and trade growth, there
may be opportunities for companies in sectors requiring
increasingly complex technologies, where some foreign
providers still have an edge.
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IV. What’s in it for Indonesia? To further hammer the point their complimentarity,
government officials are starting to put the Indonesian
Indonesia has been slow off the mark in embracing the concept ahead of China’s each time referring to the
BRI, certainly when compared to other countries in the Chinese initiative. Hence do not be surprised to see
region. China has become a major source of foreign direct government documents calling it GMF-BRI instead of
investment in recent years but no investment has simply BRI. This also helps prevent the possible confusion
officially come under the BRI. Investments instead have in Indonesia as the three-letter acronym BRI in Indonesia
been part of China’s aggressive investment campaign in belongs to the state-owned lender Bank Rakyat
recent years, with many agreements predating the BRI, Indonesia.
taking advantage of Indonesia’s open door policy to
foreign investors. Recently, some of these investments President Jokowi also sees economic opportunities in the
have come to be regarded as falling under the BRI, BRI, primarily access to large funds available from China
including the Jakarta-Bandung high-speed railway that he can use to finance his expensive infrastructure
project. Furthermore, almost all new Chinese investment programs. Indonesia badly needs investment in
projects, particularly those involving Chinese state infrastructure to help sustain economic growth, create
companies and loans from Chinese financers, have been jobs, raise incomes and improve the general welfare of
labeled under the BRI, at least by Beijing. Indonesians.
Although welcoming China’s investments in principle, Jokowi’s vision of Indonesia as a maritime nation means
Indonesia has not called them BRI projects. The term BRI, first and foremost linking the islands in the huge
or OBOR, has not caught on yet, neither in the Indonesian archipelagic nation with regular shipping services using
media nor with the public. The government has been maritime highways. Better connectivity within Indonesia
more careful in the usage of the term, and for good is essential to take advantage of greater connectivity with
reason. With the BRI being President Xi’s signature foreign the rest of the world. This includes the building and
policy, any project under the BRI could be seen as development of seaports and a shipbuilding industry on
accommodating China’s hegemonic ambitions, with all a massive scale throughout the chain of islands.
the negative associations that come with it. Domestic
political sensitivity dictates that the government moves International financial institutions like the World Bank and
with caution. Asian Development Bank can only provide so much
money for his ambitious programs. The private sector,
President Jokowi has publicly welcomed the BRI, or the both domestic and international, has also been slow in
earlier version branded OBOR. Since taking up the taking up the infrastructure projects on offer.
presidency in 2014, he has seen the BRI as consistent with
his own vision of elevating Indonesia’s position as a Chinese companies are already building infrastructure,
Global Maritime Fulcrum (GMF), referring to a maritime mostly power plants, though not under the BRI. They have
nation or power strategically straddling the Indian and also been a major player in the building of smelters.
Pacific oceans, hence the notion of Indonesia as an Indo- Morowali in Central Sulawesi has become a Chinese
Pacific power. He does not regard the 21st Century industrial enclave, processing nickel ore to supply
Maritime Silk Road as rivalling or challenging Indonesia’s Chinese manufacturers.
own ambition to become a maritime power. In his view,
the two are not only complimentary, they also reinforce Indonesia certainly could do with a lot more Chinese
one another. money.
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Indonesia, however, deals with China not without its own government agencies involved in issuing the necessary
economic and political leverage. The fourth largest nation permits and licenses. Then-transportation minister
in the world supplies much of China’s needs for food and Ignatius Jonan lost his job for allegedly delaying the
raw materials such as coal and palm oil. Indonesia decision to give the green light for the project. Jonan, a
controls the waters in and around the Malacca Strait and man cited for his integrity, was later reinstated as the
the South China Sea, through which crude oil shipments energy and mineral resources minister.
from the Middle East pass on its way to China. Indonesia
is also the main driving force within the Association of The issue of Chinese workers came up in Indonesian
Southeast Asian Nations in negotiating with China for the political discussions in 2016 and 2017, not necessarily
establishment of a code of conduct aimed at resolving because of a large influx, but more because the issue was
overlapping territorial claims in the South China Sea. highly politicized during the Jakarta gubernatorial
Indonesia and China have their own territorial dispute in election. Then-incumbent Basuki “Ahok” Tjahaja Purnama
the Natuna Sea, but this is an issue that has temporarily was leading in all the polls. His challengers exploited his
been put on the back burner. Chinese ethnicity and Christian religion to appeal to
Muslim voters. Ahok not only lost the election in April
President Jokowi and President Xi have personally hit it 2017 but was imprisoned for blasphemy. The issue of
off. The two have met more than seven times between Chinese workers was highlighted by his opponents with
2014 and 2018, in Beijing, Jakarta and on the sidelines of unsubstantiated claims of a huge influx, with the
summits around the world. China has become Indonesia’s objective of exploiting anti-Chinese and anti-China
largest trading partner and increasingly a major source of sentiment.
foreign direct investment. Now, with the BRI, there is the
prospect of getting more concessionary financing for The reality is that while the largest number of work
Indonesia’s infrastructure projects. permits have been issued to workers from China, they
mostly accompany Chinese investment projects. These,
Indonesia is not unaware of the problems that other however, were mostly legitimate workers whose permits
countries have experienced with BRI projects. Two were approved of by the government. Their number is in
problems that have emerged are the question of financial the tens of thousands, not the hundreds of thousands and
arrangements and the influx of Chinese workers that certainly not millions as claimed by some.
accompany BRI projects. Some countries that have
indiscriminately taken up Chinese loans under the BRI are The discovery of some Chinese workers working illegally
now falling into debt traps. Countries like Sri Lanka, the was quickly played up by politicians, with numbers
Maldives and some in Africa who cannot repay their inflated. The government admitted some Chinese
massive BRI debts have allowed China to take control over workers have been working illegally, taking advantage of
some of the projects, leading to the loss of some the visa-free policy granted to visitors from China.
sovereignty. The large presence of Chinese workers has Chinese companies have also admitted that they have
created tensions with local workers, an issue that could exceeded the number of Chinese workers employed to
inevitably be politicized. work in projects agreed with the Investment
Coordinating Board, reasoning they were unable to find
The long negotiations over the Jakarta-Bandung high- suitably skilled Indonesian workers and faced deadlines
speed railway have exemplified the cautious approach to complete their projects, or else pay heavy penalties.
Indonesia has taken with regard to project financing.
Tough negotiations have taken place within various
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Indonesia has taken steps to deal with these violations by Rather than allowing China to pick its projects in
strengthening the supervision and monitoring of foreign Indonesia, the government has designated four
workers. President Jokowi raised the issue with Premier Li economic corridors for the BRI, some with specific
Keqiang when the latter visited Jakarta in May. At a joint projects:
press conference, Premier Li appealed to Chinese • North Sumatra Corridor: Projects include the Kuala
companies operating in Indonesia to prioritize hiring local Namu Aerocity and North Sumatra industrial zone
workers. • North Kalimantan: Hydropower plant project and
Tanah Kuning International Industrial Park and Port
Coordinating Maritime Affairs Minister Luhut B.
• North Sulawesi: Lember International Airport,
Pandjaitan, who heads the Global Maritime Task Force,
Likupang tourism area and Bitung Industrial Park
has laid down four main conditions for BRI projects:
• Bali: Toll road and a technology park.
• The use of environmental technology: The best
technology available and not secondhand.
While these projects are being offered to China under the
• The use of local workers. If they are not available
BRI, they are not exclusive and other contractors are
locally, contractors must provide the necessary
encouraged to bid for the projects.
training.
• Have an impact on the local economy where the
project is located. This means they must also build
upstream and downstream facilities.
• Transfer of technology, including the upskilling of
Indonesian workers.
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V. Chinese projects in Indonesia and being developed into a tourism hub. The other two
stations are in Karawang and Tegalluar.
the four economic corridors
In May 2017, when Jokowi attended the BRI Summit in
The following are samples of ongoing Chinese projects – Beijing, the KCIC and CDC signed a loan commitment
the Jakarta-Bandung high-speed railway project and the amounting to 75 percent of the $6 billion total project
emerging nickel and steel manufacturing center in cost. The loan will mature within 40 years, including a 10-
Morowali – as well as the four economic corridors offered year grace period. When completed, the railway service
to the BRI. will cut travel time between Jakarta, the capital with a
population of more than 12 million and Bandung, the
a. Jakarta-Bandung high-speed railway project capital of West Java with 3 million people, from three
hours to 40 minutes, developing the two cities into a
Basic facts megapolitan area.
Length: 150 km (93 miles)
Travel time: 40 minutes with an average speed of 250 The project is expected to generate 40,000 jobs a year
km per hour, as against 3 to 5 hours at present.
during construction, as well as create a multiplier
Owner/Investor: PT Kereta Cepat Indonesia China
(KCIC), a joint-venture between four state-owned economic effect on associated industries such as
Indonesian companies and the China Railway smelting, manufacturing, infrastructure, power
Corporation (CRC) generation, electronics, services and logistics.
Cost: US$6 billion, with 75 percent financed by China
Development Bank (CDC) loans The railway will spur the economy along its route, which
Start-up operations: 2021 with 50 years of operational runs through eight regencies and cities and 30 districts,
concessions
boosting real estate, especially in the transit-oriented
development areas in Halim and Walini. The KCIC and CRC
The Jakarta-Bandung high-speed railway was scheduled have created a grand design to develop almost 1,300
to begin construction in the second half of 2018, more hectares of surrounding land that would transform Walini
than two years after President Jokowi led the into a new city. The KCIC will also generate revenue from
groundbreaking ceremony for the $6 billion project. advertising on its buildings, railway cars, corridors and
stations, as well as rental fees from passenger lounges and
The project is being developed by the KCIC, a joint retail shops in stations and other facilities.
venture between a consortium of four Indonesian state-
owned companies - construction company PT Wijaya The high-profile project has been plagued by problems
Karya, railway operator PT Kereta Api Indonesia, toll-road since its inception, including questionable benefits, lack
builder and operator PT Jasa Marga and plantation of proper environmental impact studies and lack of
company PT Perkebunan Nusantara VIII - and the CRC. consistency with regional spatial plans. Encouragingly,
though, all the regulations and regional bylaws necessary
Four stations will be built along its route. A station near to secure the legal certainty of the project have been
Halim Perdanakusuma International Airport in East properly enacted.
Jakarta will connect the high-speed railway to the light
rapid transit network under construction in Jakarta. A
station will be built in Walini near Bandung, which is
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b. Morowali: An emerging nickel and steel more than 1 billion tons in South and Southeast Sulawesi
manufacturing center and Maluku.
The second factor was President Jokowi’s relentless The IMIP operates three coal-fired power plants with a
campaign to improve the ease of doing business in capacity of 1,130 MW and annual coal demand of 6 million
Indonesia by expediting the licensing process. Within tons. It is also developing two other coal-fired facilities
months of assuming the presidency, he ordered the worth $650 million with a capacity of 700MW.
Investment Coordinating Board to administer most
investment permits within three hours. Other facilities in place include four secondary base
stations, 10 sets of satellite TV receiving systems, a 30,000
The third factor was the availability of an estimated 370 ton quay berth, eight 5,000 ton quay berths, a 100,000 ton
million tons of nickel reserves in Morowali, in addition to bulk cargo wharf and housing facilities
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As of last year, according to the Energy and Mineral Tsingshan controls the majority stake in all four firms
Resources Ministry, Indonesia's measured nickel through its various subsidiaries and affiliates, including
resources stood at 1.43 billion tons, while its proven nickel Shanghai Decent, Guangdong J-Eray Technology Group
reserves amounted to 238.64 million tons. and Ruipu Technology Group.
Morowali, covering an area of 5,472 square km, contains When the Morowali industrial park is fully developed by
at least 370.59 million tons of measured nickel reserves, 2020, the IMIP’s four smelters will process between 14
enough for decade’s worth of mining. million and 19 million tons of nickel ore per year. The four
smelters are all owned and operated by its four affiliates:
Given its plan to boost the use of electric vehicles, China's the SMI, GCNS, ITSS and PT Tsingshan Steel Indonesia.
love of nickel is projected to remain robust in the years to
come, making it crucial for it to make long-term The giant developer sources all of its nickel from Sulawesi
investments in Indonesia, which is home to 40 percent of and its surrounding areas while importing all of its
the world's high-grade lateritic nickel ore. Nickel is also manganese, chrome and silicone needs from South
used widely in mobile phones, food preparation Africa.
equipment, buildings, steel products and power
generation. Miner PT Bintang Delapan Mineral, a subsidiary of the
Bintangdelapan Group, has established a polytechnic in
China used to import more than 60 million tons of nickel Morowali to train engineers and construction workers
ore and concentrates a year. As the IMIP can only produce needed by manufacturing and construction companies in
4 to 5 million tons of nickel ore per year from its own mine the industrial park.
in Morowali, it has to buy more than 10 million tons of
nickel ore per year from other mines in Central and South The IMIP is upgrading its seaport to increase its docking
Sulawesi. By October 2017, the IMIP had completed the capacity to 250,000 deadweight tons (DWT) from 30,000
development of three of the four nickel smelter projects DWT and is planning to build an airport with a 1,800 meter
capable of producing 1.2 million tons of nickel pig iron per runway. The Industry Ministry and IMIP predict that with
year from the expected capacity of 2 million tons. the further development of downstream nickel and steel
manufacturing, Morowali will become one of the world’s
PT Sulawesi Mining Investment (SMI), PT Guang Ching biggest integrated nickel-content stainless steel
Nickel and Stainless Steel Industry (GCNS) and PT production complexes.
Indonesia Tsingshan Stainless Steel (ITSS) are also
building three stainless steel slab factories with a The Industry Ministry estimates when all the nickel and
combined capacity of 3 million tons, all of which will be steel smelting projects are completed by 2020, Indonesia
used to manufacture 2.5 million tons of hot rolled coil and will be able to manufacture at least 4 million tons of
500,000 tons of cold rolled coil per year. downstream nickel products, including nickel pig iron,
ferronickel and stainless steel.
PT Dexin Steel Indonesia, a joint venture between the
IMIP, Shanghai Decent and Singapore’s Delong Steel is The Office of the Coordinating Maritime Affairs Minister
building a carbon steel factory worth $960 million, with has formed an inter-ministerial team to expedite the
an annual capacity of 3.5 million tons. The project is development of the Morowali industrial complex by
scheduled to be completed sometime in 2019. upgrading its administrative status to an Special
Economic Zone (SEZ).
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c. Sei Mangkei Special Economic Zone generate thousands of megawatts of low-cost power, key
in North Sumatra to smelting operations.
d. North Kalimantan’s alumina and steel Bitung is one of Indonesia’s biggest fishing ports but is
industrial centers also surrounded by over 415,000 ha of plantations of
coconut, other vegetable and essential oils as well as
The government has promoted the development of spices such as clove.
mineral resources in North Kalimantan to Chinese
investors under the BRI. Like all SEZs across the country, Bitung has been designed
to provide streamlined procedures for business licensing
The major project in North Kalimantan is the and more flexible labor regulations, tax breaks, customs
development of an alumina and steel alloy smelter, as the duty exemptions and good infrastructure.
province has rich bauxite and nickel resources, while the
Kayan River has the potential to general thousands of According to the Bitung SEZ masterplan drawn up by the
megawatts of electricity. North Sulawesi administration, the first phase of
development covering 150 ha will consist of basic
Inalum, which operates an aluminum smelter at Kuala infrastructure such as roads, water and land development
Tanjung near the Sei Mangkei SEZ in North Sumatra, is for residential and commercial properties. Phases two and
preparing to construct a 500,000 ton capacity alumina three covering 100 ha will develop land for industrial plots
smelter at Tanah Kuningin, Bukungan. This smelter will and supporting facilities such as vocational training
feed the Inalum plant in North Sumatra, which currently centers. Phases four and five covering 150 ha will focus on
imports alumina materials from Australia. the completion of residential, commercial and industrial
development as well as for all supporting facilities.
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A 40 km toll road linking Bitung and Manado is under 688,500 in 2015, due partly to the opening of new direct
construction. The Bitung International Seaport will be flights from various cities in China and streamlined visa
expanded to increase its container yard capacity to 50 ha procedures. Indonesia’s national flag carrier Garuda flies
and the length of its jetty to 500 m. The expansion of to Bali from Xi’an, Beijing, Shanghai and Guangzhou.
Manado’s Sam Ratulangi International Airport and Budget airline Lion Group has opened flights from China’s
Bitung-Manado railway link are part of the SEZ’s southwestern city of Chengdu to Bali.
development plans.
The Tourism Ministry predicts that the number of Chinese
Progress has been painfully slow because of a lack of tourists traveling to Bali may rise to 3.5 million in 2018,
financing. Memorandums of understanding signed by the including those who will come through Jakarta or other
North Sulawesi administration with the China Indonesian cities.
Communication and Construction Company (CCCC) in
2015 and another with the Korea Land and Housing President Jokowi has set a target of 20 million tourist
Corporation in 2013 are not making progress because of arrivals for 2019. Although the number appears overly
legal and administrative bottlenecks, notably those ambitious, with only 14 million arrivals in 2017, he is
related to land acquisition. counting on Chinese tourists to make up for most of the
increase. Despite Indonesia developing and promoting
The North Sulawesi provincial and Bitung administrations new tourist destinations, Bali remains the chief attraction
have yet to complete the establishment of two agencies: for tourists, including those from China.
the development authority that will implement the one-
stop licensing mechanism and the management Branding tourist infrastructure development projects in
company that will manage the operations of Bitung SEZ. Bali under the BRI will attract more Chinese investors to
If Bitung SEZ fails to make significant development develop tourist-related facilities designed to cater to the
progress next year, its SEZ status may be revoked, as interests of visitors from China.
stipulated in the 2009 SEZ Law.
Tourism Minister Arief Yahya has announced a plan to set
f. Bali tourism will be further developed up a task force involving the Chinese Embassy in Jakarta,
under the BRI Chinese Consulate General in Denpasar and the Bali
Tourism Office to design working programs to improve
The Indonesian government has proposed to China that the experience for Chinese tourists. The Chinese Embassy
infrastructure development for Bali’s tourism be included will assist the Bali Tourism Office in setting up Mandarin-
in the BRI. The accelerated development of Bali’s tourist speaking facilities, including a Mandarin-speaking hotline
infrastructure has been considered economically viable to provide information to Chinese tourists.
for the interests of both countries as Chinese tourist
arrivals to Indonesia’s most popular holiday island have
increased astronomically over the past few years. The
Tourism Ministry says China is now the second largest
origin of tourists to Indonesia after Singapore.
Sei Mangkei SEZ has also been designated to be Compared to other oil crops, palm oil has lower
developed into the center for palm oil-based processing production costs and produces more oil from less land.
industries. North Sumatra is one of the country’s largest Studies have shown that palm oil produces 4,000 to 5,000
palm oil producing provinces, besides Riau. As China is kilograms of vegetable oil per ha, which is superior to
one of the world’s largest importers of palm oil, besides rapeseed at 1,000 kg, groundnut at 890 kg, sunflower at
India and the European Union, Sei Mangkei SEZ can 800 kg, soybean at 375 kg, coconut at 395 kg, cotton seed
develop into a strategic logistics base and the biggest at 173 kg and sesame seed at 159 kg.
supplier of palm oil products.
Returns on the deployment of land, capital and labor are
Sei Mangkei SEZ fits well with the broad goal of China’s substantial. Oil palm plantations employ a large number
BRI. Along with the expansion of the Chinese market, the of unskilled workers and, unlike many food crops, provide
demand for palm oil in China is expected to increase work throughout the year. Oil palm is an attractive crop
steadily. The Oil World journal estimates that palm oil for smallholders. After initial investments and two to
trade in China will reach 8 million tons in 2020 and likely three unprofitable years before the first harvest,
exceed 10 million tons in 2025. The steady and robust smallholders can get good returns.
growth of this commodity has been generated by the vast
array of palm oil derivative products used in the food, Indonesia is the world’s largest palm oil producer with
textile, chemical and biofuel industries. more than 12 million ha of oil palm estates producing
over 35 million tons of palm oil a year, generating $25
Palm oil has many industrial uses in China, the main billion in export revenue and directly employing tens of
applications being in the food industry for the production millions of workers.
of cooking oil. Palm oil has been used increasingly for
production of non-food products, oleochemical The development of a cluster of palm oil-based industries
derivatives such as aliphatic acids, esters, and aliphatic at Sei Mangkei SEZ can generate localization economies
alcohols and glycerin for the production of soap, arising from specialization and integration of
detergents, epoxy palm oil, polyols, polyurethane and manufacturing operations. Industrial clusters can reduce
acrylate products. With international concerns over the costs of transportation and significantly improve
global warming, production of biofuels using palm oil, supply chain management. This in turn decreases the
which is more environmentally friendly than other costs of distribution and other logistical arrangements.
vegetable oils, is gaining traction in China.
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Such a grouping of manufacturing operations also VII. Public sentiment: Indifference is
enables assemblers and big retail chains to gain
maximum cost savings by rationalizing when and where
not good enough
they want to procure products and how they organize
production. The BRI, or its earlier name One Belt One Road, has not yet
caught the public’s attention to date, understandably
Several companies have been developing manufacturing because, as far as the Indonesian government is
plants at Sei Mangkei SEZ, including: concerned, there are no Chinese investment projects
PT Unilever Oleochemical Indonesia (UOI) and the officially being developed under the BRI. In so far as public
Shimizu Corporation. sentiment is reflected in the media, both conventional
and social media, opinion toward the BRI/OBOR is neutral,
The palm oil industrial cluster at Sei Mangkei SEZ will be if not positive, according to public sentiment analysis
connected to a similar cluster of industries being conducted by Tenggara Strategics. But the lack of news
developed at the industrial park near Dumai Seaport on items, and hence a shallow public understanding of it,
the adjacent eastern coast of Riu. North Sumatra and Riau means the BRI is vulnerable to public criticism. The
account for over 65 percent of Indonesia’s palm oil positive sentiment enjoyed by the BRI today can easily be
output, with the remaining 35 percent coming from other swayed into negative overnight, particularly through
parts of Sumatra and West Kalimantan. Sei Mangkei SEZ social media posts, which often drives the national
will soon have a direct link with the trans-Sumatra toll agenda.
road.
The issue of Chinese workers accompanying Chinese
investment projects has sparked controversy and has
As an SEZ, Sei Mangkei offers streamlined licensing
quickly been seized upon by politicians seeking support.
procedures with a single submission of applications for all
While these have not had a direct impact on the BRI in
permits, flexible labor regulations, superior logistical
Indonesia, undoubtedly it has had an impact on public
efficiency, efficient tax administration and customs and
perceptions on all Chinese projects and quite possibly
immigration service. To enhance the SEZ’s
future projects, including those under the BRI banner,
competitiveness, industrial enterprises at Sei Mangkei
once the projects on offer pick up pace.
SEZ also enjoy various kinds of fiscal incentives. Yet most
important is its proximity to the Kuala Tanjung The Jakarta-Bandung high-speed railway project, funded
International Seaport, which connects factories at Sei by China and being built by a joint venture between
Mangkei SEZ to global value chains. Chinese and Indonesian companies, is technically not
under the BRI, but it drew huge public controversy in 2016
and 2017, particularly on how the project was negotiated
before construction began. The controversy was in regard
to the government’s own indecision about the project,
and less so on the role of China or Chinese investment, or
even Chinese workers.
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VIII. Conclusion The government has also designated four economic
corridors for the BRI and each corridor has its own
The BRI offers tremendous opportunities for Indonesia to specialty. North Sumatra is designated for palm oil
develop its economy, particularly in building projects, North Kalimantan for steel aluminum and steel
infrastructure and linking the domestic economy to the industries, North Sulawesi as Indonesia’s industrial
global economic system that is increasingly falling under gateway to the Pacific and Bali as a tourism hub. China is
China’s leadership. China is on the verge of replacing the responding to Indonesia’s offer, and the North
United States as the largest economy in the world and will Kalimantan corridor appears to have taken the lead with
likely use its economic and political clout to determine several BRI projects approved. The Jakarta-Bandung high-
the direction of the world economy. This is even more so speed railway under construction and the Morowali
now as the United States is moving in the opposite industrial park in Central Sulawesi provide Indonesia with
direction by pulling out of many multilateral experience on how to deal with China, ensuring there are
organizations. Five years in the making, the BRI looks like benefits for both sides.
taking hold and is China’s priority in foreign economic
The recent controversy over the presence of Chinese
policy.
workers in Indonesia, although politicized with the
Indonesia has been holding back from the BRI. Although numbers wildly exaggerated, serves as a powerful lesson
China is its main trading partner and the largest source of on how Indonesia wants to proceed with BRI projects. The
investment, many Chinese investment projects have not Indonesian public and media has yet to catch on to BRI
come under the BRI banner, at least not as far as Indonesia fever, but this is all the more reason why public opinion
is concerned. Beijing regards virtually all its investment can easily be manipulated. Indonesia’s move to bring in
projects in BRI participating countries as BRI projects. more Chinese projects under the BRI could easily be
Indonesia’s cautious approach to the BRI has served it well sabotaged and undermine all the benefits that Indonesia
if we look at the problems that are emerging in countries stands to gain.
that have indiscriminately seized on BRI projects. These
Indonesia’s participation needs the support of a critical
problems include spiraling debts to China and the
public, something that is grossly missing at the moment.
growing presence of Chinese workers.
The public first need to understand what the BRI is, why it
But with the BRI gaining traction around the world, the is dimportant and how Indonesia can benefit. It also
problems are being addressed and have not in any way needs to know the potential downsides, as they will be
slowed progress, and Indonesia is changing its approach the ones who will raise the alarm of any problems
to the BRI. The government has set four main conditions encountered on the ground, serving as a vital source of
for approving BRI projects: The use of environmentally information for the government.
friendly technology, prioritizing the use of Indonesian
The government can work through the media in
workers, having a high multiplier impact on the local
Indonesia, both conventional and social media, to raise
economy and transfer of technology, including upskilling
public awareness about the BRI and help shape public
Indonesian workers. These are not unreasonable
opinion so that it is more supportive, yet still critical, of
conditions given the scale of BRI projects and their
Indonesia’s participation in the BRI.
potential impact on the economy.
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` This report was prepared by the staff of Tenggara Strategics. No part of the
report can be used or reproduced in any form without written approval from
Tenggara Strategics.
August 2018
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