According to reporting from Silicon Valley’s PingWest, initial investments from China to Indonesia were led by the Chinese government, but now more and more private investors are looking for opportunities in the largest Southeast Asian nation.
In 2022, Indonesia secured USD 8.2-billion in investment from mainland China, nearly double the USD 4.37-billion it received in 2021. In Q1/ 2023 mainland China injected USD 1.2-billion into Indonesia, second only to Singapore’s USD 4.3-billion.
PingWest say that it’s worth noting that some of Singapore’s investments in Indonesia actually come from Indonesians, according to the country’s Investment Minister Bahlil Lahadalia.
So, why is this emerging market attracting increasing interest from Chinese investors?
Chinese investment in Indonesia has been largely focused on the nickel sector because the country has abundant reserves of nickel, a key material for making electric vehicle batteries, say PingWest.
The country’s nickel ore reserves are huge, estimated at about 21-million tons, or 20-percent of the world’s reserves, according to the US Geological Survey (USGS) in 2023.
PingWest report that Chinese companies were the first and most important foreign companies to actively invest in the downstream of Indonesia’s nickel industry. Along with the abundant investment came advanced smelting technology, which has greatly enhanced Indonesia’s position in the global industry chain and helped Indonesia become the world’s largest producer of refined nickel and the second-largest producer of stainless steel (Nickel is a key element in stainless steel production as well).
According to information from the Ministry of Energy and Mineral Resources, Chinese-linked companies currently dominate the nickel smelter industry in Indonesia. Key players in this sector include PT Sulawesi Mining Investment, PT Virtue Dragon Industry, PT Huadi Nickel Alloy, and PT Harita Nickel.
Despite weak market fundamentals and lower costs expected to further drive down nickel prices this year, Chinese companies are still investing in the sector.
In May, China’s Zhejiang Huayou Cobalt Co. said it would partner with EVE Energy, an EV battery maker, to establish a USD 2.08-billion nickel and cobalt plant on Halmahera, an island in the Moluccas chain, report PingWest.
Around a similar time, GEM Co. Ltd., a Guangzhou-based battery and material recycler, announced a USD 500-million joint investment to build a nickel project in Indonesia, with the target of producing 20,000-tons of nickel intermediate products for the new energy sector annually.
Compared to other players that also have their eyes on Indonesia’s metal resources, Chinese companies benefit from a robust supply chain and proximity to the island nation, say PingWest. Harry Fisher, a project manager at Benchmark Mineral Intelligence, told Foreign Policy: “When Chinese companies are developing assets in Indonesia, there’s a very steady stream of parts and labour and material going from China to Indonesia to enable them to build new assets quickly, on schedule, and on budget.”
PingWest say that under the Belt and Road Initiative (BRI), a global strategy to enhance trade and connectivity through infrastructure development, China has become a major investor in Indonesia’s infrastructure in recent years. On the other hand, the Indonesian government sees the investment as a way to boost economic growth and improve connectivity.
Some of the major Chinese-funded infrastructure projects in Indonesia include:
The Jakarta-Bandung high-speed rail link – the first high-speed railway in Southeast Asia, is scheduled to open in 2023; the Probolinggo-Banyuwangi highway, a toll road connecting the city of Probolinggo to Banyuwangi in east Java; the Tanjung Priok port expansion project, a USD 3.6-billion project to expand the capacity of Indonesia’s largest port.
China’s influence on Indonesia’s digital infrastructure is also growing rapidly and could have a major impact on the Southeast Asian nation’s digital economy in the coming years. Yes, this is part of the “Digital Silk Road”, China’s initiative to promote the development of digital infrastructure in countries along the “Belt and Road,” say PingWest, who have also noticed that Huawei and ZTE have successfully become the country’s cybersecurity providers and telecom equipment suppliers; Alibaba Cloud, Tencent Cloud, and other technology giants have built data centers in Indonesia to help improve the country’s Internet connection and cloud computing capabilities.
At the G20 summit in Bali in 2022, China signed an agreement with Indonesia, pledging to assist the latter in developing its digital economy, including better Internet connectivity for hundreds of remote islands.
With a per capita GDP of approximately USD 4,798, Indonesian consumers have relatively low spending power. As a result, Chinese smartphones, known for their affordability, have gained immense popularity in the country, currently commanding nearly 70-percent of the local smartphone market. Oppo, Vivo, Xiaomi, and Realme are all major players in Indonesia, say PingWest.
Oppo, in particular, warrants special attention, as its influence extends far beyond smartphone technology, incubating a thriving network of startups in Indonesia’s consumer sector.
Jakarta-based J&T Express, for example, was founded by Jet Li, the former chief executive of Oppo Indonesia. Starting with distribution work for Oppo in Indonesia, J&T Express quickly grew into a logistics giant with operations throughout Southeast Asia, Latin America, the Middle East, and North Africa. The company recently filed for an initial public offering in Hong Kong, considering raising USD 500-million to USD 1-billion through a share offering, according to reporting from PingWest.
Moreover, the founding teams of other well-received brands, including coffee chain TOMORO COFFEE, and high-profile cosmetics brand Y.O.U, all have their roots intertwined with the so-called “OPPO Mafia.”
The success of “OPPO Mafia” has shed light on the promising potential of the Indonesian consumer market, attracting an influx of investors and entrepreneurs.
PingWest are reporting that Qu Tian, the founder of Indonesia-focused ATM Capital, has seen a surge in the number of Chinese companies visiting the country recently. “It’s becoming quite overwhelming for us to receive investors from China,” the founder said. Founded in 2017, ATM Capital has made investments in J&T Express, Y.O.U., and TOMORO COFFEE.
Several Chinese news outlets cited data from the Indonesian Immigration Bureau as saying that from February 14 to May this year, about 5,000 “investors” flew to Indonesia from major cities in China.
On the flip side, say PingWest, sluggish domestic demand is prompting Chinese companies and investors to explore overseas markets for growth opportunities. The once-reliable North American and European markets are now struggling to cope with weakening demand due to inflation. Even Vietnam, which has the US as its top export destination, has experienced a slowdown, with GDP moderating to 3.3-percent year-over-year in Q1/ 2023 after a rapid 8.0-percent year-over-year growth in 2022.
However, Indonesia, ASEAN’s largest economy, offered a glimmer of hope, with its GDP growing by 5.03-percent year over year in the first quarter.
PingWest suggest that Indonesia presents Chinese investors with a robust market, rich in natural resources, and a growing purchasing power. Plus, it’s geographically close and aligns with China’s Belt and Road Initiative.
Qu suggested that Indonesia could be used as an outpost to expand into the Southeast Asian market or even the global market. With a population of 300-million, the country has better economies of scale compared to others, even Singapore, which has the highest GDP per capita in the region, the investor explained.
“Whoever conquers Indonesia conquers Southeast Asia, and whoever conquers Southeast Asia conquers the world,” Qu summarized.
However, for Chinese investors, raising bets on Indonesia poses challenges due to its vast cultural diversity, spanning over 17,000-islands and encompassing more than 300-ethnic groups. Additionally, Indonesia’s government does not provide an easy path to navigate the business environment, as evidenced by its ranking of 73 among 190 economies in the Ease of Doing Business index.