China is one of the countries that has experienced rapid development in recent years. The rapid growth of China makes this country classified as one of the emerging powers that have a significant influence on the international world. The economic power has made the Government of China have many initiatives and ideas to strengthen China’s economic leadership in the global economy by promoting trade, cultural and technological exchanges among Eurasian countries. To support this idea, the Government of China has actively promoted infrastructure development, including roads and railways, throughout Eurasia to increase trade and improve logistics networks among participating countries.

In late 2013, Chinese President Xi Jinping announced one of China’s most ambitious foreign policy and economic initiatives. He called for the expansion of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, cooperatively referred to as the One Belt One Road (OBOR) but later famously known as the Belt and Road Initiative (BRI). BRI’s ambition is arguably one of the most significant development plans in modern history (Cai, 2017). Around 60 countries have expressed their interest in BRI, which represents more than half the global population and approximately one-third of global GDP (Gill, 2017).

When this initiative is completed, it is believed that it will connect the many cities in the countries involved, and will integrate this economy more closely together. This will enhance foreign trade, physical and financial capital flows, transfer of knowledge and technology, cultural exchanges, political relations, and the flow of people among the countries involved. In addition to these benefits, a country can use the initiative to develop its own economy, increase employment and production, and improve economic growth (Wong, 2017).

Indonesia as the largest archipelago in the world is located in a strategic location that connects the Pacific and the Indian Ocean. In this regard, Indonesia has a very vital and essential maritime connectivity position in the ambitions of the China’s Belt and Road Initiative (Damuri et al, 2019). BRI provides an excellent opportunity to develop connectivity and infrastructure in Indonesia as well as strengthen its position in the global market. BRI is also expected to become an economic integration to improve member countries’ economies, especially developing countries like Indonesia. However, Damuri et al (2019) explain that given its economic size, it is surprising that Indonesia is far from integrating into the global economy. In international trade, Indonesia is not the centre of regional countries, let alone the centre of global trade. Ideally, Indonesia should be able to see this strategic geographical location for their national interests.

Research Questions

How can participation with China’s Belt and Road Initiative give benefit to Indonesia?
What preparations have Indonesia been undertaking towards the Belt and Road Initiative?
What are the challenges of BRI from Indonesia’s perspectives?

Research Objective

To find out the benefits of participation with China’s Belt and Road Initiative for Indonesia;
To assess preparations that Indonesia has made towards the Belt and Road Initiative; and
To understand the challenges faced by Indonesia in China’s BRI.

Significance of Research

In this research I expect that it can inform the readers about the prospects and obstacles that Indonesia has and face in the Belt and Road Initiative. At the same time, such a study is needed to assess Indonesia’s pace of economic integration with regional and global economy And finally, since BRI is thus far the biggest global economic adventure of China, its impact on Indonesian economy deserves a great deal of systematic and serious analysis.

Theoretical Framework

BRI has the potential to accelerate economic integration and the development of a large number of countries, including Indonesia. At the center of BRI is economic integration, Regional economic integration has grown into one of the main trends in the development of international economic relations in the last few decades. There are different ways or processes of economic integration in developed countries and developing countries.

In the economic literature, the term “economic integration” itself has no clear explanation. However, it is explained that economic integration is a process and as a state of affairs. Regarded as a process, it includes measures designed to eliminate discrimination between economic units belonging to different national states; seen as a state of affairs, it can be represented by the absence of various forms of discrimination between the national economies (Balassa, 1961). Many scholars claimed that economic integration theory goes through two stages of development, each of which addresses the political and economic issues that are relevant for its time. Marinov (2014) explained, the first stage is the traditional theory of economic integration, which explains the possible benefits of integration and is often referred to as static analysis. However, unfortunately the analysis of static effects cannot fully assess the impact of integration on welfare.

The second stage includes a new economic integration theory, developed in changed economic conditions and the trade environment; this theory is commonly referred to as a dynamic analysis of economic regulation. This theory is a better way to explain the economic reasons behind the creation of customs unions and overall economic integration scheme. The only clear drawback of dynamic analysis is that, unlike static analysis, this theory does not exist as a reliable method for quantitative assessment of dynamic effects (Marinov, 2014).

However, in most cases, theories of economic integration, either dynamic analysis or even static analysis, cannot be fully applied to integration agreements between developing and least developed countries. Meier (1960) examined the integration analysis offered by Viner and commented that it has limited or no relevance to integration among developing countries. Furthermore, Balassa (1965) observed that the theoretical literature on the issue of economic integration only addresses customs unions in industrialized countries. However, some generalizations can be made about the motivation of countries to participate in the integration process. Therefore, Marinov (2014) concludes that the reasons behind economic integration among developing countries cannot be defined and explained only by the static and dynamic effects that determine integration between developed economies.

However, Marinov believes that some generalizations can be made about the motivation of countries to participate in the integration process. The expected benefits and feared negative consequences can be known through three main factors, namely, the general economy determinants, market-related determinants, and trade-related determinants. These three main factors are fundamental to help determine countries’ motivations to participate in economic integration.

First, in general, for economic determinants, a country can look at: (1) Development perspective, which when it comes to Indonesia, economic integration must be considered as an instrument for Indonesia’s economic development. (2) Macroeconomic policy coordination, differences in macroeconomic policies between countries and also the lack of coordination among members can reduce the potential benefits of integration. (3) Size of participating countries. It should also be seen that economic integration assumes that the greater (in economic terms) participating countries the greater the benefits of integration.

Second, for market-related determinants, a country can assess namely four factors. (1) Labor and productivity effects. The benefits of integration will be more apparent when shifting trade from low productivity sectors and activities to activities with more added value high, and welfare will increase. (2) Specialization of production. Developing countries generally specialize in the production of primary products. Through economic integration, balanced growth can be achieved by increasing market size and increasing their inter-industry transactions. (3) Protection for industrial development. Protection of trade can be beneficial for developing countries such as support the development of their industries which can be achieved through protection because integration is equivalent to import substitution, which is a tool to support industrial development. (4) Competition and complementarity. The purpose of integration is to achieve a significant level of complementarity, thereby increasing intraregional trading volume.

Third, in trade-related determinants, three factors that must be seen. are (1) Benefits of trade diversion. Diversion of trade must be able to benefit developing countries. In this case, economic integration is expected to increase market size and reduce costs through the economies of scale and space. (2) Share of intra-regional trade. Integration agreements will bring more benefits in terms of social welfare if the share of intra-regional trade increases, while trade with the rest of the world decreases. (3) Transport infrastructure. In preparing integration agreements between developing countries, people must pay special attention to the problems of existing transportation facilities and infrastructure. Easy and affordable costs in infrastructure will increase profits for each country that join the initiative.

From some of the motivational factors above it can be easily known why countries join in an economic integration. However, to assess the benefits and costs of integration for developing countries, one must consider broader specifics such as the stage of economic development, economic structure, production characteristics, demand preferences, trade regimes and policies, and other factors (Marinov, 2014).

China here is a pioneer of the Belt and Road Initiative as a form of Economic Integration. Thus, countries should not only focus on the motivation that drives them to join economic integration but also must be confident about the success that will be found in the belt and road initiative. According to Wong (2017) there are several reasons why countries are confident about the success of this initiative. First, China has an excellent track record in recent years of infrastructure development such as highways, bridges and high-speed trains. China has shown that it has the ability, effectiveness, technology and resources for infrastructure development. Second, China initiated the Asian Infrastructure Investment Bank (AIIB) at almost the same time to support and finance the infrastructure projects in Asia. Third, China has become the largest trading country in the world. For many countries involved in this initiative, China is their biggest trading partner. Fourth, most of the countries involved are developing countries. They are happy to get the flow of funds from banks, infrastructure development, and their economic integration with their neighbouring countries.

Above it is mentioned that to have the successful economic integration, several factors must be considered, especially infrastructure factors. According to Wong (2017), infrastructure development requires significant investments, which will lead to many macroeconomic effects and favourable growth. These include increased employment and local production, and positive growth factors such as technology transfer and accumulation of human capital. When infrastructure development is complete, a country can expect to experience a large increase in foreign trade, which can bring benefits to the local economy.

Major Argument

Based on the theories above, it is known that a rational series was formulated to explain how a country sees and is convinced to join in economic integration. So, we can propose a simple argument: “Economic integration in the Belt and Road Initiative would likely to create a better economic prospect for Indonesia.”

Furthermore, if Indonesia prepares itself by building important basic infrastructure for future economic integration, the most suitable answer to the question ‘why’ might be as simple as this would benefit Indonesia comprehensively and long-term in the local and global economy.

Literature Review

In recent years, the “One Belt and One Road” (OBOR) initiative has been widely discussed in the media. According to Siddiqui (2019) it is rarely seen the interest shown among economists regarding the project, and in general there appears to be almost no serious effort by western academics to study and analyze whether this strategy will produce real effects in terms of economic integration and trade in countries who participated in the road-belt initiative. Siddiqui also commented that there are gaps in the literature on the economic impact of the OBOR initiative, especially on the economies of developing countries like Indonesia. This statement is the same as explained in the theory above that economic integration between developed and developing countries has differences and also the lack of literature describing economic integration in developing countries which is being implemented in this initiative.

In its implication for the success of BRI, the financial integration would be carried out with BRI, which is referring to China, which became the pioneer of this initiative. Infrastructure development financial is funded because there are still poor infrastructure in most Asian countries included in the BRI. At present, the primary sources of finance for the BRI project are Asian Infrastructure Investment Bank (AIIB), the Silk Road Fund, and the BRICS (Brazil, Russia, India, China and South Africa) Development Bank (Shiddiqui, 2017).

Along with that, Wong (2017) argues that this initiative involves investment in infrastructure along the Land and Maritime Silk Road. This is because many of the countries involved are developing countries, funding for this infrastructure project will come from external sources or an injection of investment funds into the local economy, and thus can give a macroeconomic impact on the local economy. First, the project will improve the number of local employment situation because its production will require many local workers, especially construction workers and possibly many administrative, financial, and managerial employees as well. Besides, there are around 60 countries including Indonesia that have expressed their interest in BRI, which together represents more than half the global population and approximately one-third of global GDP (Gill, 2017).

Several studies have tried to compare the China’s BRI project with the US-funded Marshall Plan in the early 1950s. According to Overholt (2015), He considers that the Belt and Road Initiative as China’s grand strategy towards Europe, Asia and Africa which is very similar to the great US global strategy in the post-World War II era. Further, Overholt believes that the US strategy in this matter succeeded in making the prosperous countries of the world become its allies who also supported US interests. However, according to Deepak (2018) this analogy is inaccurate considering the Marshall Plan is an emergency plan that only lasts for four years. On the other hand, BRI aims for long-term investment in far-reaching economic fields such as infrastructure, energy, manufacturing and trade integration between recipients and China. Deepak also explained that Marshall’s plan coincided with the establishment of Britton Woods institutions, namely the IMF (International Monetary Fund) and the World Bank, which led to the absolute dominance of the US dollar as an international currency. Also, this is an attempt by the United States to revive the economy of western Europe, and the recipients are eager to rebuild their economies destroyed by war and therefore have little choice but to accept them.

As well as that, Lundestad (2005) believes that the United States has many significant advantages in the Marshall Plan that China does not have in its BRI efforts. In substantial terms that the Marshall Plan has shared cultural and political values; current and significant cooperation in combating World War II; beginner security alliance relations in opposing Soviet threats to Europe. The result is the creation of a Europe that is growing and much safer, which in turn is increasing rapidly through political and economic unification. The Marshall Plan is an interrelated effort that links security and prosperity.

Summer (2016) addresses China’s intention behind BRI as an economic and commercial need for new markets for Chinese businesses to avoid building excess industrial capacity and holding excessively the US dollar. Besides, Cheng (2016) cited on his journal that China’s vision and mission document, “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road”, which was endorsed by the Chinese State Council and published jointly by the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry The country trades in March 2015. According to this document, this initiative was firstly proposed by President Xi Jinping when he visited Central and Southeast Asia (Indonesia) in September and October 2013 respectively. Xi Jinping said:

“It is aimed at promoting orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets; encouraging the countries along the Belt and Road to achieve economic policy coordination and carry out broader and more in-depth regional cooperation of higher standards; and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all.” (Cheng, 2016)

Furthermore, the establishment of this initiative, made the initiative also plans to recruit solutions for investment and trade facilitation, remove trade and investment barriers, and create free trade zones between countries in the region. It will also strengthen bilateral investment agreements, promote integrated Research & Development processes and regional industrial compatibility, and facilitate the establishment of cross-border industrial value chains. (Huang, 2016). In the context of bilateral relations between Indonesia and China, this initiative is expected to play an important role. China and Indonesia are among the most populous countries in the world (Damuri et al).

In this case, the initiative will also help Chinese entrepreneurs, as Chan (2018) studied that the government is encouraging domestic companies to operate abroad, especially since the launch of BRI. With increasing government support, Chinese companies are more likely to move abroad, because this support makes it less risky for these businesses to move abroad. More information and government support in the form of available funding and reduced bureaucracy will make it easier for Chinese companies to operate in foreign markets

In addition, in the development of routes and infrastructure, Lee and Kim (2017) illustrate that BRI includes five integrative routes consisting of three land routes and two maritime routes. Land routes connect China and the Western European region through Central Asia, the Middle East and Russia. Meanwhile, maritime routes connect the Indian Ocean and the South China Sea. By observing the integrative route, BRI’s primary goal is to improve connectivity between China and the Eurasian countries by developing infrastructure and trade cooperation in the form of free trade zones (Lee, et al., 2015).

Gabusi (2017) states that China’s National Development and Reform Commission defines BRI as a systematic project of integrating national development strategies aimed at all potential markets, promoting investment and consumption, creating demand and jobs, and encouraging person-to-person exchanges. Free trade and an open world economy are the main foundations of BRI. It also prioritizes cooperation that promotes policy coordination, connectivity, and reduction of barriers between participating countries. This integration is expected to improve the economy of the country of China and also the countries involved in this initiative.

Moreover, Du and Zhang (2018) addresses that the Land and Silk Road Maritime projects will not only facilitate free trade throughout the region, but the large infrastructure integration plan led by infrastructure will result in a long period of economic and social change for participating countries. He also drew a blueprint for China’s economic integration with the economies of crossing countries by developing the infrastructure of these countries, such as roads, railways, ports and airports, to be more efficient. However, some commentators have argued that one of the objectives of BRI is to strengthen China’s diplomatic relations with the countries involved in the initiative and increase China’s popularity among partner countries; it is a strategy of building friendships that are motivated by geopolitical goals (Cheng, 2016)

Apart from the China’s investment in infrastructure, Damuri et al (2019) mentioned that the infrastructure that BRI will support is in the form of a railroad network, roads, power plants, oil and gas pipelines, ports and airports that will help connectivity in the countries involved in this initiative. BRI is considered to have some potential that will benefit participating countries. Besides, Chatterjee and Kumar (2017) highlight three potentials that related to infrastructure development, transportation costs, and trade facilitation. Infrastructure development is one of the main objectives which has become a vital engine for BRI’s implementation. In this case, business groups especially from China have a great opportunity to take part in completing infrastructure projects in countries involved in BRI.

The potential reductions in transportation and logistics costs are another promising aspect of this initiative. A more efficient transportation and logistics service sector will create a significant reduction in trade costs. And finally, benefits from a trade facilitation perspective. The prospect of foreign companies doing business in China and vice versa will be more promising because there will be a reduction in non-tariff barriers. Therefore, BRI will benefit China because it will increase China’s international trade with BRI participating countries, and promote China as the main production center in the Eurasian region (Damuri et al, 2019).

The existence of Indonesia in the strategic location which is situated in between Pacific and Indian Oceans and the Pacific gives Indonesia opportunities. In marine infrastructure, mentioned by President Xi during his visit to Indonesia in October 2013, Chinese president Xi Jinping proposed an initiative to promote maritime and trade cooperation among China and ASEAN countries, especially Indonesia. China and Indonesia also agreed to build maritime cooperation, which is the key to this strategic partnership. This is a new step to strengthen the previous maritime collaboration between the two countries. Both parties have made efforts to strengthen the mechanism of bilateral maritime cooperation in the field of shipping safety, maritime security, and maritime environment (Hermaputi, 2017). With the joining of Indonesia in BRI, Indonesia aspires to develop its marine activities. As an island nation, maritime activities such as fisheries and sea transportation to connect various parts of the archipelago, have become an integral part of the livelihoods of many Indonesians. Also, with the development of the Indonesian maritime sector, this will also lift Indonesia’s international market revenue.

However, Damuri et al (2019) explain that given its economic size, it is surprising that Indonesia is far from integrating into the global economy. In international trade, Indonesia is not the centre of regional countries, let alone the centre of global trade. One reason is that Indonesia does not have a well-developed trade strategy. Although most of Indonesians think that exports will have a better impact on the economy, many Indonesian producers still consider the domestic market large enough to absorb their products. At the same time, many Indonesians consider imports to be a bad thing for the economy. Besides, Indonesia’s share in world trade when viewed shows relatively small numbers even compared to some of its smaller neighboring countries.

In President Joko Widodo’s administration, the president’s main concern was improving inter-island connectivity and building and improving domestic infrastructure. In November 2014, at the East Asia Summit, the President of Indonesia, promoted his concept of the Global Maritime Fulcrum (GMF) of Indonesia, which later became the basis of Indonesia’s maritime policy. Therefore, in 2016 the Indonesian government published a White Paper on Indonesian Marine Policy. This book was released as a sign of the government’s commitment to turn Indonesia into a maritime power and realize the Global Maritime Fulcrum (GMF). Presidential Decree (Presidential Regulation) No. 16/2017 concerning Indonesian Maritime Policy on March 1, 2017, has also strengthened Indonesia’s motivation to realize its global maritime footing (Damuri et al, 2019).

Damuri (2019) also added, low state competitiveness can be seen in a number of factors, ranging from relatively low human capital, unprofitable regulatory frameworks, and more importantly the lack of quality infrastructure. Thus, Maryaningsih (2014) addresses that the provision of adequate necessary infrastructure both in quantity and quality. The infrastructure in the form of electricity and transportation facilities, both road and sea are a precondition for achieving high and sustainable economic growth because it needs to be underlined that the carrying capacity of infrastructure in Indonesia is still weak.

Apart from the infrastructure in the China Road Belt Initiative, the main content of land silk is the construction of high-speed trains (HSR) and related facilities that can be used to move commodities and people faster from one country to another. Indonesia and China have done this in the development of the Bandung-Jakarta HSR. When finished, the Jakarta-Bandung Fast Train shortens the journey from Jakarta to Bandung from about 3 hours by car to around 40 minutes by this train. The loan agreement was signed by the two parties in Beijing in May 2017 during the BRI Summit. The project is scheduled for completion in 2019 but is hampered due to land acquisition issues (Damuri et al, 2019).

Damuri (2017) highlighted that there are two channels where infrastructure provides essential support for economic development. First, infrastructure facilitates the development of new activities that can stimulate economic growth. There will be a systematic effect of infrastructure development, from increasing capital flows and employment opportunities to generating income for the community. Second, infrastructure development will develop human capital through greater access to education and health services.

However, there are more things to be considered for the success of this initiative such as giving more attention, not only in the business and economic sectors but also to consider other non-economic factors during BRI’s implementation. Consider non-economic factors such as socio-political and environmental. Besides, the development of such soft infrastructure must also be considered such as promoting more activities in research and education as well as developing more Chinese Studies centers in BRI member countries and vice versa (Damuri et al, 2019).

In the development of this initiative, various obstacles were also found. Cai (2017) found that there were delays in several projects that were deemed not fast. President Xi wanted the infrastructure projects to be implemented quickly and show tangible benefits and initial success. Because the project was quickly completed, China was able to deal with excess capacity and trade zones. Huang (2016) added that the recent downward trend in Chinas’s economic growth has also been another reason why China wants to fully implement BRI so that the world trade network can be reshaped and sustainable growth can be maintained. Cai (2017) summarize that BRI is facing many severe challenges. First, a significant lack happened on political trust between China and some important BRI countries. the second problem that mentioned is that almost two-thirds of BRI countries have a sovereign credit rating below investable grade. And the third problem is caution and opposes the risk of member states to get funds from China.

In Indonesia, there are several problems that Indonesia face. The first problem is about the potential entry of a huge number of Chinese workers because Chinese investment in the country has increased. This is a legitimate concern. Indonesia government is struggling to generate more than two million jobs annually. Therefore, it wants to limit the entry of foreign workers. Meanwhile, China currently suffers from excess capacity in several industries such as steel, cement and several others. Besides, China also faces an excessive number of workers. According to one report, China has planned to lay off between five and six million workers as part of its efforts to limit excess industrial capacity and pollution (Reuter, 2016).

Since China has more or less reached its infrastructure and housing development targets. It has been shown that experiencing real estate on the increase. During the heyday of construction activities, some of these products were in high demand. The same applies to workers, especially construction workers. Sending workers abroad is one way to alleviate the excess workers. Meanwhile, it has been informed in Indonesian national media about the huge number of Chinese workers in Morowali, Central Sulawesi, exactly at PT Indonesia Morowali Industrial Park (IMIP), which is building a manufacturing park. Shanghai Decent Investment based in China has a 66.25 percent stake in IMIP while Indonesian mining company Bintang eight Group has 33.75 percent. The presence of large numbers of Chinese workers there has attracted the attention of the Indonesian media (the Jakarta Post, November 15, 2017).

The second issue about Technology, Technology Transfer and Environment. In this term Indonesia has had the experience of Chinese investors on the technology issues. One example is the PLN(Indonesian National Electric Company) fast-track energy cooperation. This program is an effort to increase electricity capacity in Indonesia to solve the increasing demand for electricity. Initially, the program began in 2006 and is expected to be completed in 2010. However, due to various problems, the program was extended to 2014. Some power plants experienced severe problems during the dry run period and took several months to fix. Not only limited to quality but also to the age of the technology used, it seems that in some cases, the technology used is quite old and has been removed in the country of origin for environmental reasons (Jakarta Post, 11 April 2012). In this experience, the government must emphasize that only reliable and financially sound companies will be involved in BRI projects in the future. In addition, the government must also emphasize that the technology to be introduced is high quality and environmentally friendly.

The third is the problem of Indonesia’s trade balance with China. Damuri et al (2019) observed that Indonesia had experienced an ongoing trade deficit with China over the past few years. Infrastructure financing under BRI is expected to increase imports from China because Chinese investors will likely use parts, components and equipment from China. Increasing infrastructure is likely to increase the country’s competitiveness which, in turn, will improve its trade balance in the future. Therefore, Indonesia must try to diversify its technological resources. Besides, there are also concerns about the potential adverse impact of BRI’s infrastructure financing on the government.

Intensive infrastructure development in recent years has raised concerns over the government’s ability to manage its debt risk. However, another concern is whether loans from China under the BRI scheme will be relatively more expensive. In this case, it will increase debt risk even further. However, as reported by Tirto (Tirto.id, 27 April 2019) Coordinating Minister for Maritime Affairs Indonesia, Luhut Binsar Pandjaitan, said that Indonesia had a strategy to avoid the debt trap of the Belt and Road Initiative. The debt trap that was also feared by several countries. This strategy uses a B to B (business to business) scheme instead of G to G (government to government), which is believed to reduce the risk of debt traps.

Research Methodology

Research is a kind of systematic attempt to study materials to solve a problem or test a hypothesis to generate and develop general principles. This research aims to investigate the benefits that Indonesia will be able to generate for its economy under the Belt and Road Initiative and the preparations that Indonesia has undertaken towards the Road Belt Initiative.

Research Design

The research design that will be used for this study is qualitative research. This research can be done at this time because some BRI supporting infrastructure has started in the development phase. Over time, we can observe and analyze the consequences of joining Indonesia in BRI. In our research investigation, we will use qualitative methods to achieve a better understanding of our research questions. After the data is collected, data analysis will be carried out to obtain the results.

Data Collection

This study will use a qualitative approach by collecting data and documents such as (1) The official publications from the federal, state and local government. (2) The publications and official reports from the business organizations, trade associations, and chambers of commerce. (3) The data published in the journal, magazines, newspaper. (4) The publications made by International Organizations such as United Nations, World Bank, IMF and many others. (5) Speeches by the government and relating to BRI. The document review supports and strengthens the overall understanding of economic integration under the Belt and Road Initiative in Indonesia.

Data Analysis

In analyzing, this paper using SWOT analysis, which compares journals that have been published. This comparison of data is also carried out with aggregate documents such as reports, statistics, data from companies, and others that will be searched for answers to the real status of integration. Furthermore, the report documents from each member country will be examined and compared to find out the developments, benefits, and challenges that have been achieved by member countries before and after joining the initiative.

Result and Discussion

The Overview of Indonesia Land and Ocean Infrastructure Development

The Belt and Road Initiative has the primary goal of creating an integrated economy in which infrastructure development is a very vital thing to execute at this time. In this case, Business groups have the opportunity to be involved in infrastructure development in the BRI member countries, especially China as a pioneer country. This initiative has priority in infrastructure development which includes roads, power plants, oil and gas pipelines, ports, airports, logistics centres and free trade zones.

With the creation of adequate infrastructure, this will reduce transportation costs significantly for long-term economic integration. The cost of transportation reduction is one indicator to measure the effectiveness of the infrastructure development of this initiative. Herrero and Xu (2016) state that reducing transportation cost on the rail and maritime by 10 percent can increase trade profit by 2 percent. That is certainly a motivation for BRI member countries to improve their infrastructure.

As a member of this initiative, Indonesia has a vital geographic position, especially in the field of maritime. Indonesia, as the largest archipelago in the world, is located in a location that connects the Pacific Ocean and the Indian Ocean. It certainly provides an excellent opportunity for Indonesia to develop connectivity and infrastructure and also strengthen its position in the global market. This strategic geographical location should be maximally utilized by the Indonesian government as a national interest to obtain a significant profit. However, due to inadequate and quality infrastructure, Indonesia has so far not been able to maximize this strategic position.

Given the size of its location, it is quite surprising that Indonesia is far from being integrated into the global economy. In international trade in the geographical region, Indonesia is not the centre. It is because Indonesia does not have a well-developed and coherent trading strategy. Furthermore, most Indonesians still think that the domestic market is still large enough to absorb their products which makes the motivation to expand overseas products diminished. Besides, Indonesia’s share in world trade is relatively small, even compared to some of its neighbour countries.

In data published by the World Trade Organization (WTO), at the end of 2015, Indonesia in the world merchandise export stock was only 0.9 percent (ranked 30), while Singapore was 2.3 percent (ranked 14) and Malaysia 1.2 percent (ranked 23) (WTO, 2015). Competitiveness is one of the main obstacles for Indonesia to become a more prominent global player. Indonesia’s low competitiveness is also due to various other problems, such as its human resources, complicated bureaucracy, and also the lack of quality infrastructure.

Lack of investment in infrastructure development has also made Indonesia lose a large amount of national income each year in terms of direct and indirect costs (opportunities). Indonesia spends around 24 percent of its GDP every year on logistics which is the most expensive logistics cost in Asia (gbgindonesia.com, 2016). Infrastructure investment will have a significant influence on Indonesia’s economic development in both the process and the outcome. First, infrastructure development will facilitate the development of new activities that can stimulate economic growth. Infrastructure development will provide opportunities for increasing capital inflows and opening up employment opportunities for the community. Second, infrastructure development will make it easier to develop human capital through broader access to various services, especially education and health.

However, financing and funding are constraints that often become obstacles to infrastructure development in Indonesia. In 2019, the Indonesian government, through Bappenas (Ministry of National Development Planning of the Republic of Indonesia) re-designed the national medium-term development plan 2020-2024. This design is said to have a target in which Indonesia’s per capita income will reach a level of welfare equivalent to upper-middle-income countries (MIC). That also refers to the condition of infrastructure, the quality of human resources, public services, and better people’s welfare.

One of the 7 RPJMN (Draft National Medium-Term Development Plan) agendas is to strengthen infrastructure to support economic development and basic needs. To achieve the target of average economic growth of 5.4 – 6.0 percent per year, an investment of 36,625.9 – 37,225.8 trillion rupiah is needed for the year 2020-2024. Of the total needs, the government and BUMN (Indonesian State-Owned Enterprises) will contribute 8.6-11.0 percent and 8.5-9.0 percent respectively, while the private sector will meet the rest. The government carry the private sector due to the limited budget owned by the Indonesian government to finance development. In the earlier period, Indonesia demanding the total budget of IDR5,500 trillion to build infrastructure. Nonetheless, the government was only able to meet around IDR1,941 trillion or 40 percent of it.

At present, the budget is the main obstacle for the government to fund infrastructure projects. The government’s ability to raise funds through debt issuance is also limited by law. Besides, the government budget deficit must not exceed three percent of GDP, which is stated in the law. Meanwhile, the amount of funds needed to finance the country’s economic development is huge. Therefore, the Indonesian government has been very open to any initiative in order to promote infrastructure development in Indonesia. The purpose of the Belt and Road Initiative is to promote infrastructure development and connectivity in member countries in line with the attempt of the Indonesian government to improve the availability and quality of infrastructure, particularly in developing connectivity in the country and region.

Indonesia has proposed several investment projects in collaboration with BRI. That includes the East-West Line MRT, a railroad that will connect three provinces, namely Banten, Jakarta and West Java which has a length of 100 km. In addition, there is also the Sulawesi Train which will connect South Sulawesi and North Sulawesi with 1,513 km of rail. Then, the Jakarta-Bandung Fast Train which is a joint venture project between Indonesian and Chinese state-owned companies.

Furthermore, this initiative is also in line with Indonesia’s aspirations to become a more maritime-oriented country, as stated by President Joko Widodo on the Fulcrum Global Maritime program. Indonesia, as the largest archipelago in the world, has made this program a unique role to increase inter-island connectivity in Indonesia. At the East Asia Summit in November 2014, President Joko Widodo promoted his concept of Indonesia’s Global Maritime Fulcrum (GMF), which is now also the basis of Indonesia’s maritime policy (lowyinstitute.org, 2018). As a follow-up, in 2016 the government through the Indonesian Coordinating Ministry for Maritime Affairs published a White Paper on Indonesian Maritime Policy in 2016. The book became a sign of the government’s commitment to genuinely realizing the Global Maritime Fulcrum (GMF).

The Indonesian government subsequently prepared a strategic plan in the form of a road map, known as the roadmap of the Indonesian Ocean Policy towards GMF. This road map covers six principles, seven policy pillars, and 76 strategic programs on the Indonesian Ocean Policy. Furthermore, Presidential Decree (Presidential Regulation) No. 16/2017 concerning Indonesian Maritime Policy has also strengthened Indonesia’s motivation to realize global fulcrum maritime. Indonesia’s marine economic development has a clear target which is to cut down the costs on logistic from 23.6 percent in 2015 to 19.2 percent in 2019. It is, therefore, crucial to have the quality infrastructure to achieve this target.

The Indonesian government uses a business-to-business scheme on its infrastructure investment planning which reduces the risk of the debt trap. The government will only be involved in projects where the private sector might not dare to take the risk. The Indonesian government seems to be adopting this scheme because of some field experience in other countries. For example, the Hambantota Port in Sri Lanka was the project that working on with the help of debt financing from China. Due to one some reasons, Sri Lanka had not been able to repay debts to China, and the port that had been built need to be leased to China for 99 years and China Merchants Port Holdings also holds 70 percent shares and the Port Authority according to the agreement (China Daily, 2017).

Investment projects of BRI in Indonesia

Indonesia has proposed several investment projects in collaboration with BRI. Several large investment projects are still in the process of implementation and negotiations, which include Indonesia Morowali Industrial Park, Jakarta-Bandung highspeed rail project, and the new capital of Indonesia.

Indonesia Morowali Industrial Park

IMIP is presently the biggest Chinese investment in Indonesia. In fact, this plan had occurred before the official launch of BRI precisely in 2009 between the China Eligible Group together with PT. Sulawesi Mining Investment (SMI) Indonesia invests in the mining and export of nickel ore as a major component of lithium batteries. Previously, the company’s investment was in the mineral ore export sector, but the Indonesian government banned the mineral ore export that later turned to the ferronickel smelting industry. In 2014, PT. Indonesia Morowali Industrial Park (IMIP) was officially established by the Worthy Group and the Bintangdelapan Group, which under the control of PT. Sulawesi Mining Investment (SMI). The company was built in the morowali area, Central Sulawesi, which is known for its wealth of nickel deposits.

The IMIP industrial estate covers an area of more than 2000 ha and has around 370 million tons of nickel deposits which is sufficient for decades of mining. Besides, IMIP also has decent access to sea, land and air transportation. The company has a 30,000-ton quay berth and eight 5000-ton quay berths. Supporting infrastructure facilities such as telecommunications and electricity have also been developed. IMIP proposed to absorb 20,000 workers plus 80,000 other workers indirectly through local companies that supply and service companies in the national park (industrialestateindonesia.com).

As previously mentioned, Indonesia-China investment adopts a B-to-B (business to business) scheme, as well as an investment scheme in IMIP. It had also circulated in several national news portals that IMIP employs large numbers of Chinese workers. However, the IMIP representation and the Coordinating Minister for Maritime Affairs and the Minister of Industry of Indonesia had confirmed that his presence was only temporary. The IMIP also ensured that there would be a transfer of knowledge from China workers to Indonesian workers which was estimated to take about five years to accomplish.

Jakarta-Bandung High-Speed Rail Project

In January 2016, the groundbreaking ceremony was held for one of the national strategic projects of President Joko Widodo Jakarta-Bandung High-Speed Rail Project. This project has been granted a permit based on Presidential Regulation No. 3/2016. With this presidential regulation, the project has been given special priority by relevant government agencies, especially in terms of licenses and legal framework. Jakarta-Bandung train will shorten the travel time between the two cities which if taken by car about 3 hours will turn only into 40 minutes. Funding for this project comes from China with a loan model worth USD 6 billion.

This project was initially rumoured to be completed in 2019. However, this project was finally called back to be completed in 2021 due to several obstacles. According to the summary of the State and Suryadinata (2018), several problems have slowed the progress of this project, such as the uncertainty of actual benefits, unclear business modalities, non-transparent tender processes, and lack of environmental impact and regional spatial planning studies. In April 2020, the Indonesian government, through the Coordinating Minister for Maritime and Investment Affairs, confirmed that this project would be delayed again. The delay caused by the coronavirus pandemic (Covid-19) that is happening currently.

In developing this project, Land acquisition is one of the complicated problems faced by the government. From the beginning of 2016 to 2017, only around 54 percent of the total land has been cleared. The project developer, PT Kereta Api Indonesia China (KCIC), exclusively appoints PT Pilar Sinergi, a state-owned company in charge of handling land acquisition. Even so, the process is still not running smoothly in accordance with the Indonesian government estimates. The ministry of state-owned enterprises, Rini Soemarno, explained that the Regional Spatial Planning (RTRW) delayed the projects in four cities due to land acquisition problems. This problem eventually triggered the China Development Bank (CDB) to stop loan payments for the Jakarta-Bandung High-Speed Rail project (Dipa, 2017).

Earlier, in May 2017, President Joko Widodo attended the Belt and Road Initiative Summit in Beijing. During the visit, there was a signing of a loan commitment between PT KCIC and CDB worth 75 percent of a total of USD 6 billion. Two months later, The Indonesian government appeared to concern about the increase of financial risks for Indonesia’s State-Owned Enterprises (SOE) from the project. Thenceforth, the Coordinating Minister for Maritime Affairs and the Minister of SOEs were instructed by President Jokowi to find a way to reduce Indonesia’s BUMN shares in the project from 60 percent to only 10 percent.

In the initial agreement, the project’s share ownership was 40 percent for China and 60 percent for BUMN (PT Kereta Api Indonesia (KAI), PT Wijaya Karya, PT Perkebunan Nusantara VIII and PT Jasa Marga). In mid-February 2020, the progress of the Jakarta-Bandung Fast Train project has reached 44%, where land acquisition has reached 99.96%, the rest is constraints in the Karawang area. In March 2020, the project has been suspended due to the covid-19 pandemic. The loss of costs for delaying project implementation is still in the calculation period.

Project in Indonesia’s New Capital City

In mid-August, Jokowi requested permission from members of Parliament in order to move the capital city to the island of Kalimantan, precisely in East Kalimantan. Geographically, This new location is in the centre of the country. The government also has been considered the potential for natural disasters that might happen. The new capital region will include Penajam Paser Utara and Kutai Kertanegara Regency. The new capital city is also considered strategic because it is close to the two developing cities of Samarinda and Balikpapan. The Coordinating Minister for Maritime Affairs and Investment reported that several people had been appointed as the steering board of the new capital. The three were the Crown Prince of the United Arab Emirates (UAE) Sheikh Mohamed bin Zayed (MBZ) as chair of the steering committee, then founder and CEO of Softbank Masayoshi Son, and former British Prime Minister Tony Blair.

The government targets the cost of relocating the new capital to reach 33 billion US dollars or the same amount of 485.2 trillion rupiah. The composition of the cost consists of 19.2 percent from the state budget, 54.6 percent from the PPP, and the remaining 26.2 percent from the private sector. The amount of 26.2 percent is the same as Rp127.3 trillion. The Japanese company Softbank offers investments of up to 100 billion US dollars, equivalent to Rp1,400 trillion. However, according to Axios, Softbank itself has a bad record in investment history, and it causes Indonesia to be more careful. In the end, Indonesia indeed relies on two countries with more convincing opportunities, namely China and United Arab Emirates (UAE), one of the largest investor countries in Indonesia and the largest Middle Eastern country to become Indonesian investor respectively. In October 2019, UAE signed four new partnerships: defence, agriculture, ship dealing, and the construction of a mosque with a total investment of 68.2 million US dollars.

On the other hand, China has an investment value of 2.3 billion US dollars. This investment is inseparable from China’s economic plan to help the world development in the design of the Belt Road Initiative (BRI). Indonesia is targeting the Beijing-based Asian Infrastructure Investment (AIIB) bank to channel funds into the new capital project. AIIB has so far not disputed the request. In this case, China is considered to have a good experience of investment in the infrastructure field. Chinese Ambassador to Indonesia Xiao Qian said that China could do several infrastructure projects such as the construction of the railroad network, toll roads, and the energy sector that includes power plants.

Social Sensitivities and Opinions Related to China

How Indonesians view China, BRI, Chinese people, and Chinese investors are also the most critical things in launching this initiative. With the presidential election held in 2019, the issue of ‘political identity’ against China was easily ‘politicized’. Many people associate involvement of Jokowi in Chinese interests, ranging from offspring, Chinese puppets, and Chinese or communist accomplices. Moreover, the problem of Chinese labour at that time in morowali also heated the political atmosphere in Indonesia. ISEAS Yusof Ishak Institute Singapore released the results of a national survey in 2017. The survey shows about 50.2 percent of respondents that the government of Indonesia may allow a limited number of Chinese workers to work in Indonesia. Besides, around 26.6 percent respondent said that they opposed the policy of Chinese workers to work in Indonesia, and the rest 19.9 percent of respondents in the side that the government could only allow highly skilled Chinese workers to work in Indonesia.

All foreign investment should aim to create as many jobs as possible for local community. Also, It mainly should be applied to non-managerial or low-skilled jobs where Indonesia still has an abundance of workers. Bappeda (local government planning agency) of Bitung Regency, North Sulawesi, believed that limiting the entrance of foreign workers would be very helpful for Indonesian workers as the district had experienced massive layoffs as a result of a fisheries moratorium imposed by Minister Susi Pudjiastuti of the Ministry of Fisheries at that time. As a further consequence, social tensions have increased and, without such limits, the possibility of open social conflict will increase in the future. The crime rate in Bitung has increased in recent years.

However, other respondents from the legislative body in North Sulawesi were more optimistic about this labour problem. The problem of Chinese migrant workers would not cause problems because he believed that the central government would be able to manage it. As will be discussed further below, the problem of foreign workers also emerged during focus group discussions (FGD) in Manado, North Sulawesi and Medan, North Sumatra. One of the issues regarding Chinese investment that had been raised during our visit to North Sulawesi was the closure of PT Conch, a Chinese-owned cement factory, in Bolaang Mongondow District. The newly elected district head accused the company of not having proper operational licenses after several years of operation. This is basically a business problem that can occur with any company. This is also a problem of lack of coordination between provincial and district governments. Each of the two branches of government insists on having the authority to decide on this issue.

Covid-19 and Effect to Belt and Road Initiative

The Covid-19 outbreak in early 2020 shocked economies around the world. China and partners also felt the effect of this virus at BRI. Covid19 virus attacks early in China, and with the right handlers at that time, China managed to report no new cases of COVID-19 in its territory. Once completed in its country, China must immediately help other countries affected by COVID-19 to recover its economy quickly. China’s economy in the first quarter of 2020, reportedly in a lousy state, reached minus 6.8%. In fact, this economic depreciation is the first since 1992. This figure is inversely proportional to the achievement of economic growth in the fourth quarter of 2019 in which reached 6%. However, many people predicted that the Chinese economy would soon rise following the resumption of factories and companies that must be stopped due to the Covid-19 outbreak.

China, as the largest exporter in the world, certainly cannot be separated from requiring the country’s customers to be able to improve the country’s economy. There are two main reasons Chinese economic conditions depend on other countries: the massive value of Chinese exports and the existence of Belt and Road Initiative, the large-scale Chinese infrastructure projects in several countries. Likewise, to improve the economy affected by COVID-19, China must help the countries that are the location of the BRI project and also improve its relationship with its biggest export destination, the United States.

Chinese exports are one of the engines of economic growth. Chinese exports are equivalent to around 19% of the country’s Gross Domestic Product (GDP). The latest data from the Trade Map shows that Chinese exports reached 12.4% of total world trade in 2018 or US $ 2.49 trillion. Besides, the United States is China’s leading export destination country. Based on data from trading economics, Chinese exports to the United States account for 20% of total Chinese exports. In the second place in Hong Kong (12%), then Japan (6%), South Korea (4.5%), and Vietnam (3.4%).

The world is predicted to experience a recession in line with the development of COVID-19 that spreads across the globe. Kristalina Georgieva as Managing Director of the International Monetary Fund (IMF) said that the coronavirus that is endemic in almost all countries had created an economic crisis that is different from the worst financial crisis that occurred in 2008. And she continued:

“In our history, the IMF has never seen a world economy like this. The current condition is worse than the financial crisis that has occurred and some countries are very dependent on export commodities. When the prices fall, they are certainly affected. ” (CNBC, 2020)

In 2008, global economic growth was minus 1.6%, the lowest figure since the global economic crisis of 1930. the current unsteady of global conditions will reduce export demand for China. For example, COVID-19 in the United States is the cause of falling public spending. This decline in spending is predicted to hit the demand for imported goods in the United States.

Furthermore, China must ensure that the economies of its export destinations improve as well, especially the United States, Hong Kong, Japan, South Korea and Vietnam. The five countries are the main export destinations for China. China must also ensure that the implementation of the belt and road initiative project must continue, especially in member countries that are affected by COVID-19. Besides, The BRI representative countries are the target of China’s export market, which accounts for 17% of the total value of Chinese exports. During the COVID-19 pandemic, many BRI countries suspended infrastructures projects because they were more focused on handling the coronavirus in their respective countries.

Moreover, In some countries, many BRI projects have stopped temporarily because a large number of workers from China are not allowed to enter the project location country. Italy suspended the project after the first case of COVID-19 was discovered. Also, Indonesia suspended the construction of the Jakarta-Bandung high-speed train and the construction of a dam in Batang Toru. The temporary stop was the result of a ban on flights from China, which led to a delay in the arrival of Chinese workers to Indonesia.

The suspended project made China worry since it also became an entry point for China to enter the regional market. For example, the BRI project in Italy gave China access to the mainland European market. In 2018, Italy imported 6% of its goods from China or the equivalent of US $ 33 billion in 2018. Italy is one of the crucial countries for Chinese investment, especially for the fashion industry. China also has several BRI projects in the Southeast Asia region, considering that this region is the second-largest Chinese export destination. In Southeast Asia, Indonesia is one of the key countries in the BRI project flow. When countries in the Southeast Asian region are struggling against COVID-19, the BRI project in these countries will also be disrupted. It will conclusively have an impact on the Chinese economy itself.

Political and Strategic Aspects of the Belt and Road Initiative

Since Chinese President Xi Jinping announced the belt and road initiative (BRI) in 2013, there has been some speculation about China’s true motives and goals for the initiative. Experts believe that there is a broader impetus for China to carry out BRI, such as domestic drivers and external forces, with economic, financial, diplomatic, political, security, socio-economic, geo-economic and geopolitical elements (Hallgren and Ghiasy, 2017). The speculation created a negative view of China that BRI would become a form of Chinese neo-colonialism. There is a discourse that this initiative is one of China’s ways to maintain the stability and security of the regime. Alternatively, it is possible to make China a high power with broader global influence, not only to turn into the motor of the world economy but also as an active actor in the international geopolitical arena (Junchi, 2017).

Aforementioned, Willian H. Overholt as an expert Chinese economist, stated that BRI is China’s strategy towards Europe, Asia, and Africa which is very similar to the American global strategy after World War II Marshall plan. Despite the fact that several other experts deny this due to the striking difference between BRI and the Marshall plan. Plenty of other experts also thought that the emergence of this initiative as threatening the hegemony of major global and regional powers such as America, India, and Japan. Aside from problems like the debt trap that occurred with Sri Lanka, which made member countries of this initiative worry and be careful.

However, it seems that China is very conscious and sensitive to widespread misperceptions about this initiative. Therefore, BRI conceptually treated as ‘work in progress’ at the moment (Hong, 2016); China is indeed trying to interpret this initiative as ‘open and flexible’ which aims to influence the reaction of potential partners. In this regard, Indonesia seems less aware of the rise of China as a major power or new player that could pose a threat to the hegemony of global power. Instead, Indonesia focuses on some unresolved issues between the two parties that have direct or indirect negative impacts on BRI’s implementation in Indonesia.

South China Sea polemic is one of the problems faced by both parties. Up to now, this polemic problem has become a problem not only experienced by Indonesia but also in several other Southeast Asian countries. It seems that the situation is starting to become better for China and ASEAN since China is prepared to consider a code of conduct (CoC) in the South China Sea proposed by ASEAN even though this has to be postponed due to a pandemic COVID-19. On this subject, Indonesian foreign minister Retno Marsudi said that Indonesia was committed to ensuring effective, substantive, and effective CoC results even in the midst of the COVID-19 pandemic situation. Stability in the South China Sea is a vital thing for BRI members in Southeast Asia which will increase mutual trust between the two parties (cnbcindonesia.com, 2020).

SWOT Analysis

In this case, the SWOT analysis method is carried out by collecting and evaluating key data. Data is collected and sorted into four categories: strengths, weaknesses, opportunities and threats. Strengths and weaknesses generally come from internal factors, while opportunities and threats usually arise from external factors. The final step is to develop SWOT into strategies to obtain the benefits of realizing the Belt and Road Initiative.

The Strengths of Investment in Indonesia

China and Indonesia have a good relationship and have cooperated in various fields with a long time, which can be seen in several aspects as follows.

AIIB (Asian Infrastructure Investment Bank)

Both China and Indonesia are members of the AIIB (Asian Infrastructure Investment Bank). AIIB, which is headquartered in Beijing, China, is a government multilateral development bank, which mainly focuses on infrastructure investment in the Asia-pacific region. For Indonesia, AIIB helps in accelerating the development of infrastructure worked by the government, which covers various sectors such as transportation, telecommunications, agricultural development and rural infrastructure, urban development, and other productive areas.

The ASEAN–China Free Trade Area (ACFTA)

In 2000, China proposed the idea of a free trade area. ASEAN and Chinese leaders decided to consider steps aimed at economic integration in the region. In 2009, leaders of both China and ASEAN signed a trade agreement on goods and services and investment. This agreement aims to enhance close economic and trade relations between the two parties and contribute to broad economic development. This Free Trade Zone eliminates tax rates that benefit Indonesia because there are greater market opportunities for goods and services.

Current Chinese Corporations as Investment Pioneers in Indonesia

Chinese companies now play a role as a pioneer of investment in Indonesia. In recent decades they have explored the Indonesian market and achieved certain achievements. These companies also spread into several sectors. Some examples are Huawei Technologies Co. Ltd. in the telecommunications equipment supplier sector, Anhui Conch Cement Co. Ltd. in the cement industry, China Harbor Engineering Co. Ltd. at an engineering contractor. The Indonesian government continues to provide services and openness to companies that want to invest in Indonesia. With success achieved by these pioneering companies from China, it will encourage other Chinese companies to invest in Indonesia.

Identified Issues and Weaknesses

Local aversion

Indonesians, in general, see China as a country famous for its massive production. However, Chinese products are also known for their low quality and copyright issues often occur. This is often found by the Indonesian people themselves, for example in products such as Chinese-branded smartphones or many replicas of other countries’ trademarks manufactured by China. Not to mention the problems that occur, such as the massive influx of workers in one of the Chinese investment sectors in Indonesia. This caused disappointment and reduced the level of trust of the Indonesian people to accept China as an investment partner.

Furthermore, disagreement also arises because Indonesians worry that foreign investment will have a negative impact on the Indonesian market because the market is feared to be controlled by China and Indonesia is not ready to compete. Besides, as mentioned above, according to research conducted by ISEAS, Indonesians want their country to develop independently from other countries. Furthermore, according to the CAFTA (China-ASEAN Free Trade Zone), which came into force in July 2004, Indonesia is still a country that is still very dependent on imported goods. Indonesia is considered to have failed to take advantage of the CAFTA opportunity and a lack of technology and innovation causes this.

Complicated Bureaucracy

Licensing procedures in Indonesia are known to be long and complicated. Bribery cases are also said to be rampant, and the lack of sustainable development in building institutions that can help improve the business climate, such as a credible court. Therefore, Indonesia is considered to contain various business uncertainties for investors. Lack of coordination in the bureaucracy is one of the biggest problems because Indonesia is known for its hierarchical government. In this case, the central government and regional governments lack coordination and communication. Therefore, investors find it difficult to obtain several legal documents from each level of government, which makes the investment process complicated and lengthy.

Complicated Land Acquisition

The fact that most of Indonesia’s land is privately owned has become an obstacle to land acquisition. Therefore, the Indonesian government issued Law No.2 / 2012 concerning Land Procurement for Development in the Public Interest. This aims to accelerate the process of land acquisition and ensure protection for holders of land rights. However, the implementation of this law is not satisfactory because many conflicts occur. According to the China Export & Credit Insurance Corporation, which issued a national infrastructure industry research report “The Belt and Road”, the difficulty of land acquisition hampering infrastructure investment is the second biggest problem in Indonesia. Meanwhile, many infrastructure development projects have been delayed and abandoned due to it.

The Opportunity

The Belt and Road Initiative and Related Actions for its Realization

The vision and objectives of the Belt and Road Initiative have been explained at the outset of this article. Extensive infrastructure, engineering and energy projects need to be developed in the coming decades after the belt and road Initiative is enacted. In 2014, China launched the Asian Infrastructure Investment Bank and the Silk Road Fund. Both are the new financial institutions whose purpose was in response to the significant financing gap from infrastructure investment in member countries. Indonesia, as a member country, has been receiving funding for infrastructure development and high-return projects. The Memorandum of Understanding (MoU) on Strengthening the Comprehensive Strategic Partnership between the Republic of Indonesia and the People’s Republic of China was the result of the Annual Conference of the Boao Forum for Asia (BFA) in Beijing. Economic cooperation was the main topic of discussion between the President of Indonesia and the President of China. A related cooperation document has been signed, which can ensure cooperation between the two countries.

Indonesian Incentives for Investment

Afterwards, the Indonesian Ministry of Industry released a Master Plan that aims to accelerate and expand Indonesia’s economic development. This will further direct development and reform to enhance Indonesia’s competitiveness at the international level. In the plan, Indonesia provides incentives for foreign investors in the form of tax relief in specific industries, including food, textiles, metals, mechanics, property, and civil engineering construction.

Indonesia has a Large, Growing, and Promising Market

BKPM stated that Indonesia has the fourth-largest population in the world, over 61% of which live in urban areas and adopt a modern lifestyle. In addition, Indonesia has a growing market because of its population growth. Moreover, Indonesia’s GDP growth keeps increasing with an annual economic growth of over five percent. The future growth potential of the local market, inexpensive labour, the current size of the domestic market, the availability of supply based assemblers, and industrial cluster development make Indonesia the most promising country for overseas business. Indonesia has an abundance of successful infrastructure investment projects, including toll roads, water supply, airports, railways, power plants, and others.

Indonesia Government Solution to Land Acquisition

To address land acquisition issues, in March 2015, President Joko Widodo enacted two regulations to facilitate land acquisition. He amended the old regulation (2012) in three important ways, which includes private entities that are authorized under an agreement with a specified government entity (including an SOE), as a part of a program for providing public infrastructure. The new Presidential Regulations improve the legal framework for infrastructure and private sector investment. As always, however, the regulatory reform also requires appropriate government capacity and commitment to ensure its implementation.

Identified Threats

China Lacks Information about Indonesia

A lack of information is the main threat to realize future investments. This threat is caused by language constraint since Indonesians mainly use Indonesian to communicate, and the Chinese mostly use their Chinese language to communicate; only a few communicate in English. Thus, language skills are needed in the future to ensure better information delivery. In addition, the internet, which should be helpful, is also a threat. China and Indonesia use different search engines; Indonesians mostly use “Google” and are sometimes unable to link to “Baidu”, and vice versa in China. China’s firewall system also makes searching information complicated. Consequently, many investors nowadays find it hard to find information. No specialized agency promotes and introduces Indonesia’s investment opportunities in China. It is also hard to find an overview of firms and information on investors in Indonesia.

Global Competitiveness

China needs to compete for infrastructure project cooperation with other developed countries like Japan, South Korea, and the USA. Based on BKPM data from the year 2010 to 2015, several Asian countries dominate the investment in Indonesia such as Japan, Singapore, South Korea and Malaysia; other countries also contribute for instance the USA and UK, while each of them contributes more than 4% of the total foreign investment in Indonesia. Meanwhile, China’s investment realization in Indonesia is still far below those countries. In early 2015, China won the tender of the first Indonesian high-speed railway investment after competing with Japan. However, in the future, China will face more intense competition. Meanwhile, Indonesia is also faced with global competitiveness and needs its best efforts to compete with other ASEAN countries to attract more foreign investors.

Labour Issues

Labour issues in Indonesia are a threat since it influences the investment performance. Currently, demands on salary, benefits, and insurance of workers in Indonesia lack standardization. At the same time, wages depend on productivity and are subject to a deal between the firm and its employees. The wage of workers in Indonesia is low; they get a salary, and health and workforce insurance. However, the amount sometimes is deemed unsatisfactory, leading to labour strikes. The lack of skilled labour is also an occlusion since many workers are unskilled. Moreover, Indonesia now faces competition from the ASEAN Economic Community (AEC).

The issue of Technology, Technology Transfer and Environment.

The issue about Technology, Technology Transfer and Environment. In this term, Indonesia has had the experience of Chinese investors on technology issues. One example is the PLN (Indonesian National Electric Company) fast-track energy cooperation. This program is an effort to increase the capacity of electricity in Indonesia to solve the increasing demand for electricity. Initially, the program began in 2006 and is expected to be completed in 2010. However, due to various problems, the program was extended to 2014. Some power plants experienced severe problems during the dry run period and took several months to fix. Not only limited to quality but also to the age of the technology used, it seems that in some cases, the technology used is quite old and has been removed in the country of origin for environmental reasons (Jakarta Post, 11 April 2012). In this experience, the government must emphasize that only reliable and financially sound companies will be involved in BRI projects in the future. In addition, the government must also emphasize that the technology to be introduced is high quality and environmentally friendly.

Conclusion and Policy Recommendations

China-Indonesia cooperation in the belt and road initiative can be a significant advantage for both parties. Both parties take serious treatment to repair and overcome the obstacles that have been identified as potentially hampering foreign investment, especially in infrastructure development. The following strategy is a recommendation aimed at realizing the Belt and Road Initiative based on the SWOT analysis above.

First, in terms of investors, China is now the second-largest economy destined to become the largest in the not too distant future. In addition, China is now the largest trading country. Therefore, having good relations with China, good economic relations, in particular, are essential for Indonesia as the host of investment. Have a good relationship with getting to know each other both in terms of culture, tradition, law, social behaviour and religion. Besides, it is important to place a high value on respecting and acting politely on both the guest and the host side, especially by avoiding conflicts with the local community.

Moreover, China and Indonesia must create a market climate that is mutually beneficial and that can accept people from other countries and cultures and facilitate social inclusion. Corporations need to know the laws, regulations and ethics in both countries and act according to the differences between the two countries. Furthermore, it is very important to ensure the awareness of all citizens of the two countries to eliminate misunderstandings rooted in other countries. The Belt and Road Initiative will create an exchange of capital, knowledge, resources, culture and information. Thus, local reluctance towards China will be resolved because the two cultures understand, accept and respect each other.

Second, mutual trust is the basis of every cooperation between countries. A country that respects other countries when they cooperate, trust itself also includes investments that are built. The unrealized investment will cause problems of trust and shake the foundation of cooperation itself. Any company that cannot meet the planned investment exacerbates the problem and after some unpleasant cooperation, the impression of non-compliance will be deeply rooted in the minds of partners. This will cause reluctance to work together again in the future. Besides, there may be some doubts and doubts about BRI’s sustainability, and especially about China’s real motives behind this initiative. Nevertheless, a healthy dose of uncertainty and scepticism is needed, especially when it involves large businesses like BRI.

Third, Indonesia is currently trying to accelerate infrastructure development after years of neglect. However, the lack of financial resources has far prevented the government from doing so on a large scale. Therefore, the offer to join BRI gave Indonesia the opportunity to help in overcoming this problem. AIIB and BRI funds available can be utilized to finance infrastructure projects in member countries, including Indonesia. Therefore, Indonesia can use this opportunity to improve its infrastructure projects in various fields such as LRT development, highways, industry, and ports.

Fourth, bureaucracy and complicated land acquisition become one of the obstacles for investors who want to enter Indonesia. Improvements can be started from simplifying the investment process, strengthening coordination from every level of government from local to national, simplifying requirements documents, increasing investment protection and guarantees by providing laws and regulations, overcoming the issue of land acquisition with assistance and support from the Indonesian government, and preparing investment foreign promotion agent in China.

Furthermore, it has been mentioned that a number of infrastructure projects have been delayed in implementation, often indefinitely, mainly because land acquisition for these projects has proceeded very slowly. One such project is the Jakarta-Bandung Fast Train project. According to the Minister of State-Owned Enterprises, the land acquisition process for the project took place very slowly. By February 2018, only 54 percent of all land needed for the project had been secured. The projects mentioned above are examples of projects that were hastily arranged, planned and implemented.

Ideally, knowing that the process of land acquisition for public purposes tends to be long and slow, the project should be planned well in advance. Thus, the process of land acquisition must be carried out in the same manner. Therefore, when the project starts, land acquisition is no longer a problem. The government might also want to consider appointing and empowering a body, such as the Ministry of Agriculture and Spatial Planning, to be responsible for land acquisition for public purposes. The idea is similar to the one-stop licensing service at the Indonesian Investment Coordinating Board.

Fifth, the problem of foreign workers which is a sensitive issue for Indonesian people. Aritenang (2009) found that free trade zones lead to the transfer of knowledge and skills of foreign company expertise to local workers. Overall, the free trade zone will bring increased returns with more investment in the country and economic activities. In this case, the government is expected to be able to improve the quality and human resources of Indonesia’s workers. The transfer of knowledge by foreign workers to Indonesian workers is also expected in this initiative.

It has been mentioned above that the problems occur about foreign workers, which have never been a problem in the last few decades. Companies that want to employ foreign workers must fulfil all rules and regulations and also require transparency from the authorities towards the community regarding the number and position. Under such arrangements, any company that employs foreign workers is engaged and responsible for problems that may arise from hiring foreign workers without an official work permit.

In its part, the government must improve coordination among relevant agencies in monitoring foreign workers in Indonesia, namely, the Immigration Office, the Ministry of Manpower and Transmigration, and possibly also the Indonesian Investment Coordinating Board. In the IMIP case discussed earlier, none of these institutions had the latest data on the exact number of foreign workers working on the project. Given its sensitivity, the government also needs to respond quickly to any problems and disinformation regarding foreign investment in general, especially foreign workers.

In the case of foreign workers that occurred at IMIP, the government reacted quickly to resolve the issue. The Coordinating Minister for Maritime Affairs and the Minister of Industry confirmed that most Chinese workers at IMIP were only temporary, a guarantee that seemed to be able to restore calm among the local population. The ability to provide such responses is based on relevant agencies that have reliable and up-to-date data and information on the number of foreign workers currently working on projects in Indonesia. Ideally, the information is publicly available. That is the essence of transparency.

Sixth is about the technology used. If the government is serious about technology development and transfer, the government must have a mechanism to ensure that the technology carried by companies investing in Indonesia meets specific standards. They must be of high quality and new vintage. There must also be efforts to diversify technological sources to avoid excessive dependence on one technology source. Finally, the government must also find ways to ensure that companies investing in Indonesia will be willing to transfer technology to local companies or conduct research and development activities in Indonesia.

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Economic Integration under Belt and Road Initiative and its Implications for Indonesia

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