China’s struggling economy offers opportunities, and risks, for Indonesia
Rosan Roeslani says the end of the commodity boom should spur Jakarta to implement reforms and boost infrastructure to lure manufacturing away from China and increase tourism revenue
China has transformed into a global superpower. What happens in China now impacts Indonesia, often in multiple ways. Consequently, the growing problems of China’s economy are a concern for Jakarta. But, we should also look beyond the downside risks and identify the opportunities which Indonesia can and should seize.
China’s economy has been struggling in recent months. The latest data shows that, despite increasingly aggressive stimulus measures, the economy continues to slow. In particular, growth in fixed asset investment, once a major driver, has plunged. Exports have been weak and prices are falling, raising concerns about persistent deflation of the sort Japan has endured for two decades.
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In addition, the International Monetary Fund has raised an alarm over China’s ballooning debt, which has risen to a worrying 273 per cent of GDP, from 148 per cent of GDP at the end of 2007. Some analysts fear that such a huge expansion of debt in such a short period can only lead to a crisis.
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However, the Chinese authorities still have considerable fiscal and monetary firepower which they are using proactively to keep the economy on a stable track. They also have tremendous control over the financial sector, corporate sector and capital flows. That means less risk of an outright crisis as some observers have noisily asserted. Still, China probably cannot avoid a prolonged period of stresses for the next year or two.
While there has been much focus on the near-term risks in China, we also need to understand the long-term impact of China. Even as they address the current threats, China’s leaders have also made bold policy changes to rebalance the economy towards a more sustainable domestic-demand-led model. China is moving up the value chain, vacating labour-intensive activities swiftly, well aware that its labour force is already beginning to decline as a consequence of its ageing population. Moreover, China has been building its own supply chains that rely less on Southeast Asian factories churning out intermediate components, as in the past.