Notes on China outbound investment: Indonesia

In recent years, Indonesia has been the receptor of many Chinese investments, as well as the holder of many of China’s infrastructure investments in Asia since the original introduction of the Belt and Road concept by Chinese President Xi Jinping in 2013.

According to the Indonesian Investment Coordinating Board, between January and March of 2018, investment from China was $676.2 million, representing a 12.8% increase from the $599.57 million in the same quarter in 2017. among the most reliable investment from China to date, Chinese managed smelter projects in Sulawesi allow the government to be able to absorb a large amount of capital. In April of 2018, Indonesia and China signed five contracts under the Belt and Road Initiative valued at $23.3 billion. What’s more, in order to address Indonesia’s trade deficit with China, the country is offering to boost their exports of biodiesel products.

Infrastructure projects that are currently offered for Chinese private and state-owned investors include airports, seaports, industrial zones, power plants, toll roads and hospitality accommodations in the tourist sector. According to Indonesian National Development Planning Minister Bambang Brodjonegoro, the promotion of bilateral cooperation between Indonesia and China stands to provide solid benefits for the two countries.

What’s more, the minister stated that Chinese investors will be able to establish partnerships with Indonesia’s domestic partners who already possess operation licenses, so that their investments can be adequately carried out in the nation. This will ease the investment application and implementation process greatly. Reforms such as the Finance Ministry’s plan to extend their tax holiday program give Chinese investors incentive to invest in Indonesia. The introduction of an Online Single Submissions system (OSS) will also help Chinese investors understand the overlapping and mismatched regulations from the central and regional governments.

One concrete example of a recent and profitable investment project is Chinese enterprise Huadian’s investments into the energy sector of Indonesia. BlackGold Natural Resources’ subsidiary PT Samantaka Batubara (PT SB), an Indonesian energy enterprise, has entered a conditional term sheet with China Huadian Engineering for the joint development of two new 300MW coal-fired power plants in Riau province, Indonesia. The project is anticipated to be completed by 2020 and is expected to be profitable for both Indonesian and Chinese investors.

In sum, it is apparent that there are many business opportunities in Indonesia for Chinese investors, especially in energy, tourism and infrastructure sectors. The introduction of new regulations, bilateral cooperation and the development of an OSS system gives Chinese investors incentive to invest in Indonesia.

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