Akihiro Komuro
Akihiro Komuro

China and South Korea are increasing their investments in Indonesia. According to BKPM (Indonesia’s Investment Coordination Agency), China (including Hong Kong) accounted for $8.4 billion in foreign direct investment (FDI) in 2020, up 11% from the previous year, and South Korea accounted for $1.8 billion, up 64%.

Japan, which has been the driving force behind investment to date, has seen a clear decline of 40% to $2.6 billion. Singapore ranked first in FDI in 2020 with $9.8 billion, followed by China and Japan in second and third place, then the European Union in fourth place, and South Korea in fifth place.

In Singapore, there are many cases of countries bypassing Indonesia, and it is strongly believed that China is practically in first place. In the October-December 2020 quarter, South Korea surpassed Japan for the first time in the same quarter.

China is increasing its investment in mining and refining. South Korea is investing in the automotive sector, and Hyundai Motor Company is planning to start operations at its automobile plant in Bekasi, West Java.

One of the pillars of future investment by Chinese and Korean companies will be EV batteries, which the Indonesian government aims to produce domestically by 2024. Leveraging its strength as the world’s largest producer of nickel, the main material used in EV batteries, Indonesia plans to make the country a major production base for EV batteries and is calling for foreign investment. The Indonesian government is negotiating with China’s CATL and South Korea’s LG Chem to attract investment. China is also strengthening its ties with Indonesia in terms of trade and aid and has recently supplied most of the country’s domestic supply of vaccines for COVID-19.

Source: The Nikkei (The original article was partially revised by the author.)

PSR Analysis: I wrote about Indonesia’s resource strategy in the February 2021 issue of PowerTALK News™, and this report also shows that Indonesia is becoming more aggressive in attracting investment.

In addition to COVID-19, Southeast Asia is currently in turmoil in many other ways. In Thailand, anti-government demonstrations are gaining momentum. In Myanmar, there has been a coup d’état, and Toyota and Suzuki, which have operations in the region, have suspended or postponed operations at their plants; in 2020, the GDP of most countries except Vietnam fell, and governments are reviewing their strategies to rebuild their economies. In many cases, the economy is based on investments from foreign manufacturing companies, so maintaining political stability and security is very important.

Indonesia has a large population and a large domestic market. Not only that, but it is also a geographical hub connecting the Middle East and Africa with East Asia, making it a country with potential not only for China but also for many foreign companies. The way in which Indonesia deepens its economic ties with China and other neighboring countries in the future will be extremely important not only for automakers and other manufacturers, but also for international security, and it is necessary to keep a close watch on this. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research