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Indonesian Trade with China Rises, Despite Fears of Tough Competition

  • Brian Padden

Indonesian union members protesting against a trade agreement with China

Indonesian union members protesting against a trade agreement with China

When Chinese President Hu Jintao visits Indonesia May 17, the free-trade agreement between China and its neighbors in Southeast Asia will be a major topic of discussion. Some labor groups in Indonesia want the government to cancel the agreement.

At a rally in Jakarta, the National Workers Union voices opposition to the free trade agreement between China and the Association of Southeast Asian Nations. Since the agreement went into effect in January, some textile factories have gone out of business.

Union leader Baso Rukmana says Indonesian industries must be protected until they receive the training and support needed to compete with China.

"The government is obligated to give protection to its people and that protection should be supported by law," said Baso Rukmana.

Before it went into effect some economists predicted the trade agreement would increase sales of Indonesian commodities such as palm oil, copper, and rubber, but would hurt low-end manufacturers.

But Indonesia's shoe industry contradicts that forecast.

Footwear sales rose by about 10 percent in the first quarter of this year, with exports to several markets, including China, up.

The head of the Indonesian Footwear Association, Binsar Marpaung, says while comparable for now, China's wages are rising while Indonesia's are more stable.

And he says the Indonesian government is helping factories purchase modern equipment to make them more competitive.

"We cannot say subsidies but we call it machinery restructuring, because as you know the machinery for the shoe is already 20-years-old," said Binsar Marpaung.

China still benefits, because it sells modern machinery to Indonesian manufacturers. Ping Jian Sheng, director of the Chinese-owned Yi Fan Trading Company, says he is helping a number of Indonesian leather manufacturers modernize.

"There is a good future in selling their equipment here because the Indonesian leather manufacturers are improving," said Ping Jian Sheng.

Overall, Indonesian exports to China more than doubled from January to March, while imports from China rose by about 50 percent.

Marpaung says the government could do more to help, such as requiring the military and government agencies to purchase domestically made goods. But he says too much help will hinder productivity.

"I should say that is rather contradictory," he said. "If you put a lot of subsidy that means the production is not competitive or not cost efficient."

He says only by engaging China can Indonesia's economy make the changes necessary to compete in the global economy.

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