Improving Economy of China Positive for Indonesian Exports
The economy of China grew 6.8 percent year-on-year (y/y) in the third quarter of 2017. An improving Chinese economy is important for the Indonesian economy as China is the biggest trading partner of Indonesia. Slightly over 10 percent of total Indonesian exports are shipped to China, the world's second-largest economy.
Although China's GDP growth slowed slightly in Q3-2017 compared to the two preceding quarters (6.9 percent, each), it remained above China's annual growth target of 6.5 percent in 2017 supported by a higher-than-expected increase in trade and bank lending. This target equals the economic growth realization of China in full-year 2016. It is highly likely that China's 2017 economic growth will exceed the target that was set by Beijing.
For Indonesia this is good news as it should lead to a rise in Chinese demand for Indonesian exports. Mohammad Faisal, Director at research institute Core Indonesia, says he detects a structural change with regard to the Chinese economy. China is transforming from being a country dependent on production to consumption. This means that the giant nation will import more products - especially finished goods - from other countries, including Indonesia.
Faisal therefore predicts that Indonesian exports to China will also experience a structural change. Up to now, Indonesia is primarily dependent on commodities in terms of exports. However, there should now emerge solid growth of exports of manufactured goods to China.
Meanwhile, Benny Soetrisno, Chairman of the Indonesian Exporters Association (GPEI), expects to see a rise in energy exports to China in the form of coal, minerals and palm oil. China requires these products as sources for power generation. Hence, according to Soetrisno Indonesia will not only see a rise in quantity of exports to China but will also benefit - considering rising demand - from a rise in commodity prices.
Indonesia-China Trade:
| 2013 | 2014 | 2015 | 2016 | |
| Total Indonesian Export (in million US dollar) |
182,089.2 | 175,292.8 | 149,124.5 | 144,444.8 |
| Export to China (in million US dollar) |
22,425.9 | 17,301.9 | 14,611.0 | 16,670.7 |
Source: Kontan