China's BRI plays crucial role with Indonesia's economic growth
Thomas W. Pauken II
The Second Belt and Road Forum for International Cooperation opens in Beijing, China, April 25, 2019. /VCG

The Second Belt and Road Forum for International Cooperation opens in Beijing, China, April 25, 2019. /VCG

Editor's note: Thomas W. Pauken II is the author of "U.S. vs China: From Trade War to Reciprocal Deal," and a consultant on Asia-Pacific affairs and geopolitical commentator. The article reflects the author's opinions and not necessarily the views of CGTN.

Despite international turmoil and gloomy global business conditions, China and the Southeast Asian region appear poised to overcome the economic downturn as pragmatic cooperation will prevail for them. Many Chinese manufacturing companies have opened up new factories and warehouse in the Association of Southeast Asian Nations (ASEAN) member states, while Indonesia has emerged as a major beneficiary.

Indonesia stands tall as the world's 16th largest economy in GDP size and the biggest market in Southeast Asia. Experts are forecasting that the country could surge to become the seventh largest economy by 2030. Accordingly, China's Belt & Road Initiative (BRI) is playing a vital role in Indonesia's rapid development.

On Monday, China's Silk Road Fund (SRF) signed a framework agreement to invest a total of 20 billion yuan ($2.99bn) with the Indonesia Investment Authority (INA), a sovereign wealth fund. The groundbreaking deal can direct cash flows into all sectors of the domestic economy that are open to inbound foreign direct investments.

The SRF announcement could be a true game changer for future investment trends worldwide as well. Customarily, sovereign wealth funds focus on buying into foreign exchange reserves or handling the financial management of oil & gas windfall profits. But INA seeks to direct money flows directly into the Indonesian economy by partnering up on deals with foreign investors.

"We believe that investment in Indonesia and the region has high potential, especially when conducting it together with INA," Wang Yanzhi, president of the SRF, is quoted in media reports as saying.

The SRF serves as one of the numerous finance mechanism channels for the BRI, which is boosting business connectivity between China and the many other nations in Asia, the Middle East, Africa, Europe and elsewhere. The INA directs investments to projects that are largely considered to be PPP (public-private-partnerships).  

Accordingly, we can anticipate the SRF will fund projects in Indonesia that are connected to infrastructure building or to improve the living conditions for the local communities.

Resolving rapid development challenges

The Indonesian economy is moving fast-forward but challenges have ensued. The country is embarking on accelerating its nationwide industrialization, urbanization and modernization drives but that has led to severe traffic jams on highways, inefficient energy usage and frequent disruptions in logistics services. The BRI can alleviate the pressures by working more closely with Jakarta to build new roads and to revitalize the cities and rural communities.

The SRF can play a key role by directing its $3 billion to go to the right projects or to fix financing gaps in current infrastructure projects. It should also be noted that the SRF was set up in 2014 - one year after Chinese President Xi Jinping announced the launch of the BRI. It's backed by China's foreign exchange reserves, China Investment Corp., Export-Import Bank of China and China Development Bank.

Additionally in 2019, Beijing pledged an estimated $91 billion from BRI funds to be delivered to Jakarta for joint projects on new infrastructure projects. The SRF is injecting new momentum for the strengthening of bilateral relations between the two nations. The two countries have enjoyed 72 years of diplomatic ties.

The Jakarta-Bandung High-Speed Railway will likely be in operation by mid-2023. /CGTN

The Jakarta-Bandung High-Speed Railway will likely be in operation by mid-2023. /CGTN

Building on more connectivity

China is helping Indonesia via the BRI by supporting major infrastructures that focus on upgrading transportation links in the country. The two nations have cooperated on constructing the new Jakarta-Bandung High-Speed Railway, which connects the capital city with Bandung, the nation's third most populous city. The total price tag for the project is estimated at around $8 billion.

For the moment, Indonesian urban residents are enduring some of the world's worst traffic jams. The new high-speed rail lines run about 150-km in length and can reduce travel times, from about four to five hours by car to 40 minutes by train. The project is scheduled for completion by mid-2023.

Meanwhile, China and Indonesia have recently signed a contract to build the Jenelata Dam, valued at $290 million. The volume of the water at the reservoir amounts to over 285 million cubic meters and would be used for irrigation purposes to improve the livelihoods of farmers in the surrounding areas.

Accordingly, the BRI is not only jump-starting projects in Indonesia's major cities, but also restoring economic progress for rural communities as well. China's poverty eradication campaigns spread across the Southeast Asian region with tremendous success stories.

Capturing friendship with prosperity

Therefore, China and Indonesia have already cemented more prosperous business ties as the two great countries complement each other, economics-wise. Indonesia can succeed further by tapping into China's huge market, while Chinese companies can gain a deeper foothold in Southeast Asia. That's why China's Silk Road $3 billion investment into INA can score substantial dividends for both nations.

As the global food and energy shortages become more widespread, Jakarta stands poised to jump ahead as the nation holds an abundance of energy sources and good conditions to increase agricultural production levels. But the country is struggling since the roads, bridges and dams networks are not adequately meeting the needs of all Indonesians.

China's BRI and SRF can transform Indonesia into an economic powerhouse but it will take years, perhaps decades, to complete the necessary infrastructure projects that will make this Southeast Asian country so much more developed and prosperous. The two countries have joined hands to journey on a brighter future and they can both ride out the impending economic storms that await many other nations in the near future.

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