A businessman warned on Saturday that more cheap Chinese-made products would flood the domestic market, and the local industrial sector would continue losing its domestic market share unless its problems were resolved quickly.
Sharif C. Sutardjo, the head of the China committee of the Indonesian Chamber of Commerce and Industry (Kadin), told The Jakarta Post that many local businessmen now preferred importing cheap Chinese-made products to manufacturing them themselves here given the various problems being faced byindustry.
"Importing products from China is far cheaper than manufacturing them in Indonesia. Therefore, many local businessmen prefer to become importers rather than manufacturers," he said.
Sharif explained that Chinese producers, backed up by the country's financial institutions, were quite aggressive in penetrating the Indonesian market.
"Unlike Indonesia, banks in China support their exporters and give them incentives to export," he said on the sidelines of a Business Forum at the Jakarta International China Expo 2003.
He said that in China, interest rates were between five percent and six percent, as compared to two-digit rates in Indonesia, while law enforcement in China was much better than in Indonesia.
The entry of China into the World Trade Organization was also expected to make China's small and medium enterprises more efficient, he explained.
He said that last year China exported hundreds of industrial products, such as footwear, motorcycles and trains, to Indonesia, while Indonesia only exported about ten commodities, mostly primary products such as oil, rubber, pulp and paper, and crude palm oil, to the world's most populous nation.
In order to compete with products from China, Indonesian manufacturing industry would first have to deal with domestic problems like labor unrest, unfavorable fiscal policies, smuggling and financial constraints, he said.
Foreign direct investment from China to Indonesia was still small but there were some firms that had started to show an interest in local energy and mineral resources companies, he said.
"Investors from China are interested in oil, gas and coal," he cited.
The investors were not interested in investing outside the oil and gas sector, because they realize that Indonesian products would not be competitive against Chinese products.
An official from the Investment Coordinating Board (BKPM) had earlier said there were some investors who were interested in investing in Indonesia, mostly in the agribusiness sector, but were postponing their plans until after the general election next year.
Last year, the Chinese-Indonesian trade balance stood at about US$7 billion with a surplus of about US$1 billion in favor of Indonesia, said Sharif.
Chinese-made products popular in Indonesia included electronic goods, household appliances, textiles, footwear and motorcycles.
China and the Association of Southeast Asian Nations (ASEAN) signed an historic agreement in November last year to create the world's biggest free trade area (FTA), which is expected to be in place in 2010, embracing 1.7 billion people and trade worth US$1.2 trillion.
Experts earlier questioned the benefits of the free trade area for Indonesia, considering that many Indonesian products had become increasingly less competitive over the past year.
They said that free trade could boomerang on domestic industry as cheaper products, mainly from China, would flood Indonesia.