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China’s Lock Opened, Good or Bad News for Indonesia?

China officially opened its international borders at the end of last week. It is hoped that China’s big move will benefit Indonesia in terms of exports, investment and tourism.

China officially opened international borders on Sunday (8/1/2023) by providing a number of easings. Among them is the abolition of quarantine for travelers and the permitting of Chinese citizens to travel abroad.

The opening of the border ends three years of China’s “lockdown” period which has been going on since March 2020.  The opening of the border is also only a matter of days away from the biggest holiday period in China, namely New Year or Chinese New Year which falls on January 21.

Chinese New Year celebrations usually last for 16 days and are the pinnacle of Chinese consumption. During this period, millions of Chinese citizens will also travel abroad.

With these facts, the opening of China’s borders ahead of the Chinese New Year Holiday is very important.
Bank Mandiri chief economist Andry Asmoro said the opening of China’s international border would be a game changer for the Asian region’s economy.

“Reopening China will be a game changer for the regional economy, especially Indonesia. The impact on the Indonesian economy is of course huge because China is one of Indonesia’s largest export destination countries and source of investment,” said Andry, to Indonesia.

China is Indonesia’s biggest trading partner. Indonesia’s exports to China in January-November 2022 reached US$ 57.76 billion or 25.6% of the total.
Indonesia’s main export commodities are coal, iron and steel, crude palm oil (CPO), pulp, ferronickel, ore and copper.

BCA economist Suryaputra Wijaksana explained that Indonesia’s economic exposure to China is large so that opening China’s borders will have a significant impact on Indonesia.

The opening of China will also indirectly support the movement of the rupiah exchange rate.

“Exports are (expected) to increase and economic growth to increase. (There is an impact) on tourism because of Chinese tourists. This will have an impact on the rupiah exchange rate because increased exports and tourism will push demand for rupiah,” he said.

Referring to data from the Central Statistics Agency (BPS), as many as 2.07 million Chinese citizens visited Indonesia in 2019. This number is equivalent to 12.5% ​​of the total tourist visits that year.

The number of Chinese foreign tourists has dropped dramatically since the pandemic. In January-November 2022, the number of Chinese tourists visiting Indonesia only touched 114,513. The majority of these foreign tourists are traveling for business.

In the investment sector, China’s position is also increasingly important. In January-September 2022, the Bamboo Curtain country is the second largest investor in Indonesia after Singapore.

China’s investment value reached US$ 5.2 billion, an increase of 126% compared to January-September 2021 which was recorded at US$ 2.3 billion.

Chinese investment in Indonesia had slowed down and was below US$ 1 billion in the second-fourth quarter of 2022 or after the hurricane of the Covid-19 pandemic hit the world.

In 2021, Chinese investment will exceed US$ 3.2 billion. This number only lost to Singapore and Hong Kong.

However, Suryaputra warned that the positive impact of opening China’s borders would take time. Moreover, the case of Covid-19 in the Bamboo Curtain country is increasing.

” The wave of Covid-19 infections will disrupt economic activity and the long Chinese New Year holiday in China will suppress export-import activities,” he said.

He added that the uncertainty over China’s policy direction since the Party Congress in October and the property sector crisis could hinder private sector investment.

For the record, the Chinese Communist Party proposed a constitutional amendment regarding the abolition of the presidential term at the October 2022 congress.

Andry explained that opening China’s borders could also have a negative impact on the domestic stock market.

“Reopening China will make some flows return to China and will limit Indonesia’s equity market performance ,” said Andry.

Bank Indonesia (BI) data, based on January 2-5 2023 transactions, shows foreign investors recorded a net sell of IDR 1.68 trillion on the stock market.

The recorded sell-off on the stock market is somewhat out of the ordinary. In previous years, stock markets usually recorded net buys in the first week of January.

In the first week of January 2022, on the stock market, a net buy of Rp. 2.19 trillion was recorded, while in the first week of January 2021, a net buy of Rp. 1.03 trillion was recorded, and in early January 2020 it was around Rp. 1 trillion.

Source: CNBC Indonesia