General

Since this year, due to the global COVID-19 pandemic, Sino US trade friction and other factors, the transfer of the global industrial chain supply chain has been discussed by all walks of life. In addition to Vietnam, Indonesia is also one of the important countries in Southeast Asia that undertake industrial transfer.

Indonesia has witnessed rapid development in undertaking industrial chain transfer.

According to customs data, in July 2022, the total value of imports and exports between China and Indonesia will reach 84.26 billion yuan, including 44.81 billion yuan of exports to Indonesia and 39.45 billion yuan of imports from Indonesia.

According to customs data, from January to July 2022, the total value of imports and exports between China and Indonesia reached 531.89 billion yuan, an increase of 28.7% over the same period last year. Among them, China exported RMB 264.80 billion to Indonesia, a year-on-year increase of 26.0%, and China imported RMB 267.09 billion from Indonesia, a year-on-year increase of 31.4%.

Indonesian Investment Minister Bahlil pointed out that in the first half of 2022, Indonesia has accumulated 310.4 trillion IDR (about 20.7 billion US dollars) of foreign investment. The top five sources of foreign investment (countries or regions) were Singapore's US $6.7 billion, Mainland China's US $3.6 billion, Hong Kong's US $2.9 billion, Japan's US $1.7 billion and the US $1.4 billion, respectively.

Multiple advantages help to undertake industrial chain transfer

Undoubtedly, the soaring data of Indonesia's exports and foreign direct investment has a lot to do with its undertaking of industrial chain transfer. Similar to other countries in Southeast Asia, Indonesia's industrial chains mainly include footwear, clothing and accessories, furniture and parts, electrical machinery, and telecommunications equipment.

Indonesia is still dominated by low-end industries in the value chain, mainly due to its low costs such as human and material resources and land prices. In addition, some Indonesian policies are also conducive to attracting foreign investment, boosting the development of domestic processing industry and creating employment. For example, according to Indonesian Investment Minister Bahrir, the soaring foreign direct investment data in Indonesia is mainly related to the restrictions on the export of raw materials. Since January 1, 2020, Indonesia has implemented a comprehensive ban on nickel ore exports. A senior Indonesian official recently said that Indonesia will issue nickel export tax regulations in the third quarter, and plans to levy export taxes on nickel pig iron and nickel iron. This policy allows raw materials to be processed locally and promotes foreign capital's investment in domestic industrial facilities.

Both competition and cooperation

Indonesia's order transfer to China mainly focuses on terminal assembly, production and other advantageous links. Due to technology, infrastructure and other reasons, a large number of factories need China's raw materials, spare parts exports, as well as China's machinery, technical services and other supporting industries to complete production. Because of the countless links on the industrial chain, Indonesia is not only one of the competitors of China's industrial chain, but also a partner of China.

According to customs data, the trade volume between China and Indonesia will reach 124.34 billion US dollars in 2021, a year-on-year increase of 58.4%. China has become Indonesia's largest trading partner for 9 consecutive years, and maintained Indonesia's largest export destination for 6 consecutive years; In 2021, China's investment in Indonesia will reach 3.2 billion US dollars. In addition, according to customs data, in 2021, the largest non oil and natural gas import trade partner of Indonesia will be China, which will account for US $55.74 billion, accounting for 32.66%.

At the beginning of 2022, the Regional Comprehensive Economic Partnership Agreement (RCEP) officially entered into force, including the ten ASEAN countries including Indonesia. According to customs data, from January to July 2022, ASEAN will continue to maintain its position as China's largest trading partner, with the total value of bilateral imports and exports reaching 3.53 trillion yuan, an increase of 13.2%. As the main market of RCEP, the import and export scale between ASEAN and China accounted for nearly half of the foreign trade scale between China and RCEP trading partners in the first seven months. RCEP also further promoted international trade and investment cooperation between China and Indonesia.

The scale of order outflow is controllable and has limited impact

Supply chain transfer is an inevitable link in development. With the adjustment and development of science and technology and industrial structure, the middle and low-end value chains with replicability and substitutability will gradually migrate to countries with lower human and material costs. Since the British Industrial Revolution, there have been several large-scale waves of world-class manufacturing transfer around the world. From the United Kingdom to the United States, then to Germany, Japan, and later the four Asian dragons, until the early 1980s, they moved to China.

Li Xingqian, Director General of the Department of Foreign Trade of the Ministry of Commerce, said at the regular briefing of the State Council on promoting foreign trade stability and quality improvement held by the State Council Information Office in June this year that since this year, with the gradual recovery of the production end of neighboring countries, some foreign trade orders returned to China last year have flowed out again. On the whole, the scale of these order outflows is controllable and the impact is limited.

"The relocation of some industries conforms to the economic law. China has been the largest exporter of goods in the world for 13 consecutive years. With the continuous upgrading of domestic industries, the factor structure is changing. Some enterprises have taken the initiative to carry out the global layout, transferring part of their manufacturing links to foreign countries, which is a normal phenomenon of international trade and investment division and cooperation."