Sunday, February 10, 2008
Trade deficit with China blows out
Press and Investment - February 04, 2008
Andi Haswidi, The Jakarta Post, Jakarta

The trade deficit with China in the non-oil and gas sector skyrocketed by more than 3500 percent from US$35 million in 2006 to $1.28 billion last year, the Central Statistics Agency says.

In its latest report, the agency also shows that China emerged as Indonesia's biggest import origin for non-oil and gas products in 2007 with a total imports worth $7.95 billion, beating long-time chart topper Japan with $6.46 billion.

Compared to the country's total non-oil and gas imports, which reached $52.5 billion last year, China dominated with approximately 15.14 percent, followed by Japan with 12.3 percent and the United States with 8.98 percent.

Indonesia's total imports from China within the category remarkably jumped by 44.5 percent that year from the total of $5.5 billion made in 2006, far beyond the average increase from 2002 until 2006 that reached 29.6 percent.

"China has become a global exporter for quite some time. Even developed countries are afraid to compete head-to-head with it due to its ability to maintain efficiency in production costs."

"I think it's very natural for us to grow such a high dependency on products from China, considering our condition now," said Aviliani, an economist at the Institute for Development of Economics and Finance.

The deficit, she said, was unavoidable as Indonesia's real economy was already shifting from industry-based toward trade-based, as shown by the growing number of small businesses.

"Most of these small businesses do not produce goods, but rather sell them, which mainly come from China as they are cheap, within the range of our purchasing power," she said.

On the policy front, she highlighted the chronic weakness in coordination among government departments, particularly the Trade Ministry and Industry Ministry.

"The Trade Ministry keeps on opening up import markets and neglecting to support the certain sectors that define the strength of the country's industry. For instance, we now have enough rice, so why are we still allowing it to be imported?" she said.

Focusing on the sudden surge in imports from China and the remarkable deficit growth, Beginda Pakpahan, a lecturer in international economy and politics at the University of Indonesia, pointed the finger at the ASEAN-China free trade agreement, which was signed back in 2002.

The FTA, a zero-tariff market of 1.7 billion people, is expected to be fully implemented in 2010 for the six original ASEAN members and in 2015 for the rest. An early harvest program covering trade in goods came into force in July 2005.

"When the early harvest took effect, we were already behind our regional partners in ASEAN, in terms of trade and industry cohesiveness with China, meaning they already prepared for benefiting from it while we merely act as an export market destination from China," he said.

He warned that in the near future, China would likely to intensify its focus on the region, particularly Indonesia with its 240 million consumers, as an export destination in order to compensate for the weakening demand of U.S. consumers for its products.

"A stronger cohesiveness among ASEAN is crucial to balance China's power, something that we don't see materializing any time soon," he said.

Speaking on a more critical note, Didik J. Rachbini, chairman of the House of Representatives commission overseeing trade and investment said that the government had no strategy whatsoever in facing China's emergence as a global player.

"Chinese goods and our goods substitute for each other, meaning the two countries produce almost exactly the same kind of manufacturing products such as textiles, toys and food, very different from our trade with Japan, which is obviously complementary."

"The huge trade deficit in the non-oil and gas sector clearly reflects how Chinese products come in and move freely here without any protective strategy in place," Didik said.

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