Wednesday, June 06, 2018

A Catch-22 From China That Could Derail Indonesia's Widodo

To win votes, the Indonesian leader needs Chinese cash to build railways and ports. To build those railways and ports he needs to accept the Chinese workers who are losing him votes

BY JEFFREY HUTTON

​Saturday, 
12 M
​ay ​
2018

On his FIRST visit to Indonesia this month as president of China Railway Corp, Lu Dongfu could have been forgiven if he felt bemused at the delays bedevilling the US$6 billion (HK$47 billion) Jakarta-Bandung high-speed rail project that his company was helping build.

Disputes with landowners have meant work has only just started on several sites along the 150km route – three years after Lu's firm beat out Japanese rivals for the train line. By comparison, Lu said in January that the CRC would bring another 3,500km of high-speed rail into operation in China this year alone.

"He said he understands," said one Chinese reporter 
​ ​
accompanying Lu on a visit to a construction site near Jakarta's Halim Airport, where the excavation on tunnel No. 1 is now under way. The reporter did not want to be identified because he was discussing an off-the-record conversation. "He said it's never easy pushing infrastructure projects in democratic countries."

Such comments hint at a growing sensitivity on behalf of Chinese officials towards local laws. If so, that is good news for President Joko Widodo, who has staked his hopes of a second term partly on securing badly needed infrastructure investment from China.
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As China has stepped up investment in Indonesia – and more Chinese have taken up jobs here – resentment has driven some locals to protest. That has left Widodo to balance his country's appetite for trains, ports and power plants with protecting local workers as he eyes re-election next April.

"Widodo's relationship with China is shaping up as an election issue," said Keith Loveard, senior analyst with Jakarta-based business risk firm, Concord Consulting. "The relationship with China could turn toxic for him."

So China appears to be cutting Widodo some slack. Without giving details, Li promised to rein in the number of Chinese workers building steel plants, infrastructure and even serving as tour guides in Bali. This week on the popular resort island of Bali, Indonesian tour guides swarmed the immigration office protesting against a surge in the number of Chinese nationals working in the same profession.

Meanwhile, local media reporting on the Morowali special economic zones in Central Sulawesi alleged thousands of illegal workers from China had arrived to help build a nickel smelter and mill capable of churning out 3 million tonnes of steel a year.
While the government has vowed to investigate the reports, the operation – owned by Bintangdelapan Group and China's Dingxin Group – has denied the existence of illegal workers.

With its parks and Dutch colonial architecture, Bandung is a popular weekend getaway.

But the train journey currently takes three and half hours and with heavy peak-hour traffic, car journeys can take twice as long.

Banks on board
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When Li's project is complete, it is hoped high-speed trains will catapult up from sweltering Jakarta through 760 metres of mountainous terrain and tea plantations to the balmy hilltop city.
And although some Chinese designs propose a train that can top 350km/h, the four stops along the relatively short track mean it is unlikely to ever reach those speeds.

But the project is going full-steam ahead. Before Li's visit, which wrapped up on Tuesday, the China Development Bank disbursed US$170 million in loans to kick-start work on the technically challenging project – which was a campaign pledge of Widodo's successful 2014 leadership bid.

And by disbursing the funds, China has done Widodo a favour with voters who may be frustrated with the project's glacial progress, said Rene Pattiradjawane, a researcher at the Centre for Chinese Studies in Jakarta.

"China is trying to ensure that Jokowi's pledge is on track, so to speak," Pattiradjawane said, referring to Widodo's widely used nickname.

"The money is there and work is starting."

Rising resentment

But Widodo's reliance on Chinese investment risks backfiring amid the worker influx and the rising resentment it has caused.

China is Indonesia's third biggest investor behind Singapore and Japan. But according to government data, the number of Chinese nationals working in Indonesia has ballooned fivefold over the past decade to more than 24,000. That is nearly twice the number of workers from Japan, which comes a distant second and is the second largest investor.

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Anti-China bias has a long history in Indonesia. Last year Jakarta's former governor, Basuki Purnama, a Christian of Chinese descent, was drummed out of office in an election that turned on religion and race. During his 2014 election bid, Widodo was the victim of smear campaigns alleging his grandfather was Chinese. And this month marks 20 years since rumours of Chinese merchants hoarding rice sparked deadly riots, killing an estimated 1,000.

"The Chinese are acknowledging the number of foreign workers is a huge number," Pattiradjawane said. "This is a statement they are going to do something."

Even so, Widodo cannot afford to drive too hard a bargain with the imported Chinese workers.

While work has started on the train, much of the president's infrastructure wish list remains unfulfilled with the country still chasing more than US$150 billion worth of investment earmarked for his current term. Meanwhile, his administration has pledged US$15 billion for this year alone.

Widodo has promised to spur economic growth to about 7 per cent from about 5 per cent now, in part by investing in infrastructure. But slow trains and tangled ports drive up costs. Indonesian manufacturers spend a quarter of their sales on logistics, according to the World Bank. In Thailand it's 15 per cent.

Promises for growth

Scott Younger, director of Jakarta based consultancy Nusantara Infrastructure, said that to reach Widodo's growth target, Indonesia needed to secure annual investment of about US$90 billion.

"Indonesia needs everything: ports, roads, rail, everything if it hopes to have faster rates of growth."

In April, Luhut Pandjaitan, the country's coordinating minister for maritime affairs, visited Beijing and scraped together about half the US$20 billion of investment he was seeking.

Nevertheless, Widodo has plenty of margin for error. Opinion polls put him in front of his most likely challenger, Prabowo Subianto, whom he beat in 2014 by double digits; inflation is under control; and the jobs that Chinese are said to be taking are largely in remote areas.

Even so, Widodo ignores the issue at his peril. "Any country would be upset," said Concord's Loveard. ■


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