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Indonesia - China Trade Relations: The deepening of economic integration amid uncertainty?

Authors: Alexander C. Chandra and Lucky A. Lontoh


Published by: Institute of International Social Development
Publication Date: September 8, 2011
Stable URL : http://www.iisd.org/publications/indonesia-china-trade-relations-deepeningeconomic-integration-amid-uncertainty

The core research question that guided the study can be stated as follows: Is the
deepening of economy integration amid uncertainty? The authors put into discussion the fact
that the full implementation of the Association of Southeast Asian Nations( ASEAN) China
Free Trade Agreement( ACFTA) in early 2010 caused much anxiety in Indonesia, as it is a
known fact that it has a long tradition of protectionism. More specifically, the purpose of the
study was to determine which were the implications of the implementation of this trade
agreement.
The implementation of the Association of Southeast Asian Nations( ASEAN) China
Free Trade Agreement(ACFTA) in the 2010 caused a lot of anxiety in Indonesia. The private
sector of the country insisted that that Indonesia should whether pull out of the agreement or
renegociate its terms with Beijing, but it turned out to be a difficult demand to meet.
Skepticism about the benefits of ACFTA implementation remained strong among pressure groups
in Indonesia,as even prior to the implementation of this free trade agreement, the Indonesian
market had been flooded by cheap, often illegal, imports from China. In this respect, some
observers blamed the Indonesian government for failing to inform the public properly about the
implications of the implementation of ACFTA .
The ASEAN consists of states in different stages of development and with different
economic structures, and so, the implications of the free trade agreement with China will be
different for different members. The reduced trade barriers will give ASEAN exporters more
favorable access to the Chinese market than that enjoyed by exporters from countries with no
such agreement with China. Export expansion opportunities look promising particularly for
countries producing goods in high demand in China: raw materials, and some agricultural and
intermediate goods.
The problem has been approached very effectively from the author perspective. As an
example, Indonesia, other ASEAN member countries and China could identify ways in which the
ACFTA could assist domestic economic reforms in all of the participating countries. After all, the
basic premise on which most of ASEAN`s free trade deals were based.
In the first section of the article, the authors emphasized the patterns of trade between
Indonesia and China, having a strong relationship between the theoretical and research
perspectives. The paper therefore argues that, despite the attention given to the competitive effect
of Chinese products, Indonesia should not lose sight of the long term strategic objectives of this
trade agreement. The arguments are based on the analysis of accurate and relevant to the research
question data, showing that since the full implementation of ACFTA in January 2010, trade
between China and Indonesia has been on the rise (Jakarta Post, 2011).
In the research study, the basic components of the analysis are linked with data of utmost
importance such us Indonesias major export destinations, total trade between Indonesia and
China, major sources of Indonesian imports, China`s trade relations with ASEAN countries and
also Indonesia`s export/import data.

As the second part of the article is concerned, the author argues that despite the perceived
problems of the implementation of ACFTA, it is considered the major pillar of the new era of
ASEAN- China economic relations. China`s ability to go for the ASEAN bloc through this
agreement also signified Beijing`s intention to use economic statecraft as a way to improve its
position peacefully among the major global powers (Wang, 2005). Advocates of free trade,
including those in policy making circles, argued that the long term benefits of the ACFTA for the
national economy would outweigh the costs, and would contribute to economic growth and
welfare. (Zain, 2011)
Another point to be mentioned is that the authors structure their arguments in a way
which allows the reader to deconstruct the flow of arguments to see whether or where it breaks
down logically, for instance in establishing cause effect relations .
In terms of Public Sentiments vs Actual Impacts of ACFTA implementation in Indonesia,
the conclusions are validly based upon data and analysis. The general sentiment for the ACFTA
was conveyed by a survey of the Indonesian`s publics perceptions of this trade agreement
carried out by the Indonesian Survey Institute ( Lembaga Survei Indonesia) in May 2010. With
up to 1000 repondents, a series of interviews was conducted, revealing interesting, yet not very
surprising results witch stated that among those that were aware of the agreement, almost fifty
percent expressend reservations about it.
As a personal point of view, I believe there are more issues to address with regard to
improving the macroeconomic indicators for Indonesia. For instance, Indonesias investments
process is considered lengthy as compared with that of the neighbouring countries. According to
the International Finance Corporation (IFC), Indonesia ranks 121 countries among 183 countries
in terms of the ease of doing business. As a matter of fact, the related production cost is high in
Indonesia and this pushes up the selling prices to much above China`s.
As a conclusion, the article relate to the specific question in an interpretive way, having a
developmental framework. Some points that could be summarized as some implications and also
follow-up actions ,of the ACFTA for Indonesia are the following : Indonesia`s exporters have
better acces to China large economy, which creates better opportunities for local business to
export more goods. On the other hand, Indonesia will also be an open market for China`s
products.To alleviate the negative impact of the ACFTA on Indonesia`s induatrial sector, some
qualitative factors also need to be addressed, including the ease of doing business and the time
required to register a business in Indonesia. Against both parameters, Indonesia is far behind
China and neighboring countries such as Singapore, Malaysia and Thailand.