Chinese investments in Indonesia.

An Indonesian
pivot to China?
Name: dhr. Petrus J. H. (Pieter) van den Supervisor: Mr Dr L.G.H. (Laurens)
Heuvel Bakker
Student Number: 10891609 Second readers: Mrs Dr L.J. (Luisa) Steur
Email: p.j.h.vandenheuvel@gmail.com & dhr. Dr G. (Gerben) Nooteboom MSc
Programme: Master Contemporary Asian Word count: 19,558
Studies Date: August 2018

-1-
 Theory is always for someone, and for some purpose. (Cox, 1981, p. 207)

Statement of originality
This document is written by master’s student Petrus J. H. (Pieter) van den Heuvel, who
declares to take full responsibility for the contents of this document. I declare that the text
and the work presented in this document is original and that no sources other than those
mentioned in the text and its references have been used in creating it. The Graduate School of
Social Sciences of the University of Amsterdam is responsible solely for the supervision of
completion of the work, not for the contents.

-2-
Table of Contents
List of abbreviations ............................................................................................................. - 4 -
1. Introduction ................................................................................................................... - 5 -
1.1 Relevance .................................................................................................................... - 7 -
1.2 Methods ....................................................................................................................... - 8 -
2. A rising China .............................................................................................................. - 10 -
2.1 China’s dream ........................................................................................................... - 10 -
2.2 Indonesia’s economic nightmare ............................................................................... - 15 -
3. Indonesia’s dream interpretation ................................................................................. - 17 -
3.1 Indonesia China relations at the macro level ............................................................ - 17 -
3.2 History of foreign direct investments in Indonesia ................................................... - 19 -
3.3 Indonesian infrastructure investment plan ................................................................ - 22 -
4. Indonesia-China relations at the micro level – a cultural contradiction ...................... - 24 -
5. Theory: policy and risk ................................................................................................ - 30 -
5.1 Risk and regulation.................................................................................................... - 30 -
5.2 Risk management and regulation connected ............................................................. - 33 -
6. Analysis: Indonesian government versus Chinese investments .................................. - 35 -
6.1 Circumstances in Jakarta ........................................................................................... - 35 -
6.2 Chinese investments .................................................................................................. - 37 -
6.3 Tender management system ...................................................................................... - 38 -
6.4 The high-speed rail project ........................................................................................ - 42 -
6.5 Risks analysed ........................................................................................................... - 45 -
7. Conclusion ................................................................................................................... - 50 -
Bibliography ....................................................................................................................... - 53 -
Appendix A – List of interviews ......................................................................................... - 62 -

-3-
List of abbreviations
AIIB Asian Infrastructure Investment Bank
ASEAN Association of South-east Asian Nations
Bappenas Badan Perencanaan Pembangunan Nasional (Ministry of National
Development Planning/Indonesian National Development Planning Agency)
BKPM Badan Koordinasi Penanaman Modal (Indonesian Investment Coordinating
Board)
BUMN Badan Usaha Milik Negara (State-Owned Enterprise)
CCP Chinese Communist Party
CDB China Development Bank
CEXIM Export-Import Bank of China
CREC China Railway Group Limited
CTCE Tiesiju Civil Engineering Group Co., Ltd.
DAC Development Assistance Committee
FDI Foreign Direct Investments
GDP Gross Domestic Product
IDR Indonesian Rupiah
IIGF PT Penjaminan Infrastruktur Indonesia (Indonesia Infrastructure Guarantee
Fund)
IMF International Monetary Fund
KPK Komisi Pemberantasan Korupsi (Indonesian Corruption Eradication
Commission)
MP3EI Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia
(Masterplan for Acceleration and Expansion of Indonesia’s Economic
Development)
NIL Negative Investment List
ODA official development assistance
OECD Organisation for Economic Co-operation and Development
PPP Public Private Partnership
PT KCIC Perseroan Terbatas Kereta Cepat Indonesia Cina (Fast Train Indonesia China
Company)
SOE State-Owned Enterprise

-4-
1. Introduction

As a child, one of my most prized possessions was a large map of the world. It was
pinned on the wall by my bed, and I would stare at it every night before I went to
sleep. Before long, I had memorised the names and locations of all the countries,
noting their capital cities, as well as the oceans and seas, and the rivers that flowed in
to them; the names of major mountain ranges and deserts, written in urgent italics,
thrilled with adventure and danger. (Frankopan, 2015, p.1)

This is how Peter Frankopan introduces his book The Silk Roads: A New History of the
World, in which he offers an alternative canon of world history, using the ancient Silk Road,
instead of the classic western dogma of ancient Greeks, the Roman Empire and
Enlightenment. Although the wall-sized map in my room depicted the European continent
only, it still amazed me as much as a child as Peter Frankopan describes it above. I learned
the geographic names on the map. A map which did not show land borders. It made me
curious about the world beyond the lines portrayed on my wall. While the European continent
is the far end of the ancient Silk Road, it is also a place where East and West met in historical
times. Apart from the land route through central Asia, the ancient Silk Road also had a sea
route passing south Asia. Cultural exchange, religious encounters and economic transactions
made several civilisations along the route prosper.
In 2013, China announced the then called Silk Road Economic Belt. It was later
rebranded as the One Belt One Road initiative. The name resembles the ambition of
regeneration of the ancient Silk Road and is gratefully coined as such by the Chinese
government. It is expected that infrastructure projects, under the umbrella of the One Belt
One Road initiative, such as rail links and seaports, will cost $900 billion to develop on the
Asian and African continent. Although it is not clear what the initiative exactly entails, due to
vague Chinese branding, China is determined to invest massively in connecting its industries
with the world market through the One Belt One Road initiative (Phillips, 12 May 2017).
Around the same time, Indonesian President Joko Widodo, commonly known as Jokowi,
started to focus its own national development plan on infrastructure projects at the start of his
presidency mid-2014 to make the country’s economy more competitive.
As a result, the Indonesian development plan perfectly bridges with China’s One Belt
One Road initiative. While Indonesia looks for finances to achieve its development plan,
-5-
China has a big pot of money to invest. As McKinsey (n.d.) puts it: “The Indonesians were
quite clearly excited about how is this going to play out. How is Chinese infrastructure
investment going to make a difference in a place where they need that?”. Although financial
help is welcome for the Indonesian government to carry out its development plan, as they are
only capable of financing 40 per cent of it through government funding, historical
Indonesian-Chinese relations might be problematic to welcome help from China with open
arms. Despite these problematic relations, is Indonesia pivoting towards China in order to get
its infrastructure development plan done? The problems that Indonesian-Chinese relations
face in a number of facets and the wish of Indonesia to develop its infrastructure result in
conflicting interests. In this thesis, I will look at how Indonesian policy-makers are dealing
with these issues.
This thesis will start with unpacking the puzzle that Chinese investments in Indonesia
defines. I will do that by setting out both the Indonesian-Chinese relations at the macro level
as well as their relations at the micro level. The context and debate section is divided into
three chapters. Chapter two will focus on the new powerful position and potential for China
at the international stage, with both an economic as well as a political increasing role. In
addition, I will contextualise the position of Indonesia in this changing environment in
macroeconomics and international politics with a politically and economically rising China.
Chapter three will follow with a political and economic context from Indonesia’s perspective.
Here, I will also deal with the economic policy of Indonesia and their approach to foreign
direct investments. Also, I will stress out the importance of the need for improving
infrastructure in Indonesia and how Indonesia applies its development plans to do so. Finally,
I will discuss the socio-cultural relations between Indonesia and China, and between
Indonesia and its ethnic Chinese minority internally in chapter four. These relations at the
micro level include old longstanding debates concerning identity in Indonesia, in which
ethnic Chinese are being discriminated at. These political, economic and socio-cultural
alignments that I will discuss in the chapters two, three and four cannot be seen in isolation
from each other. All these elements together characterise a complex relationship between
Indonesia and China.
After these chapters of context and debate, I will present a theoretical framework in
chapter five. This will be the basis for my analysis of the Indonesian approach to Chinese
foreign direct investments in the country. This framework is based on risk management in
policy and regulation, based on pyramidal stages and several types of risk. This framework
will help analysing how the Indonesian government assesses a potential risk of Chinese
-6-
investments in their country. With these tools in hand, I will answer my research question:
how does the Indonesian government deal with Chinese investments to implement its national
development plan in a changing geopolitical arena with an increasing role for China?
Looking at the agency of various actors in Indonesia, I will examine how the Indonesian
government manages and regulates foreign investments in its infrastructure. To do so, I will
take the planned 140-kilometre-long high-speed train project that should connect Jakarta with
Bandung as a case. This case is selected as many factors that are mentioned above are
combined in it. The high-speed train is a politically sensitive project for a number of reasons.
Both China and Japan were running for the concession to build and operate the line. Overall,
both the macro level and the micro level alignment come together in this project and its
policy-making process. Hence, this project is, an ideal case for a first-hand analysis of the
actual events of Chinese investment in Indonesia. Finally, I will conclude and discuss the
implications of my findings and propose challenges for future research.

1.1 Relevance
There are a number of reasons to think why unpacking the position of Indonesia
towards Chinese investments are relevant. First, it is obvious that China is a rising power.
This also has implications for the position of Indonesia in the region. This issue and the
future prospects of a peaceful rise of China is widely debated among scholars. Whether this
question can be discussed within classical theories in International Relations, or new
perspectives are needed, is one of the main paradigms among International Relations
theorists.1 The increasing influence in the economy of neighbouring countries, partially due
to the One Belt One Road initiative, is also discussed among political scientists, among
others. Another group of scholars focus on the possible detrimental effects of Chinese aid in
African states with weak governmental institutions, where China invests in infrastructure to
extract essential natural resources for its own industries. Moreover, the share of Chinese
investments tends to be higher in weak African states. It is argued that this is not caused by a
specific focus of Chinese investors on such countries, but unlike western investors, they are
rather indifferent to the type of regime (Chen, Dollar & Tang, 2015). Yet, contrary to many
African countries, Indonesia is not a weak state. However, it has different issues with China,
linked to their common history which has been problematic at times. This historical

1
See for example Mearsheimer, J. J. (2010). The gathering storm: China’s challenge to US power in Asia. The
Chinese Journal of International Politics, 3(4), 381-396; Ikenberry, G. J. (2008). The rise of China and the future
of the West: can the liberal system survive?. Foreign affairs, 23-37 and Shambaugh, D. (2011). Coping with a
conflicted China. The Washington Quarterly, 34(1), 7-27.

-7-
background makes Indonesia a deviant case compared to poor and weak states which heavily
rely on development aid. While Indonesia has ambitious plans to improve its infrastructure,
the country is also looking outwards to finance these plans. Little has been written about the
Indonesian position at the governmental level regarding this issue. Hence, I will contribute to
clear this gap in this thesis.

1.2 Methods
For this research, I have collected data during fieldwork to offer an explanation to
how Indonesia deals with Chinese investments to implement its national development plan in
a changing geopolitical arena with an increasing role for China. In order to do so, I have done
a case study in Jakarta, Indonesia. While I have focused on Chinese foreign direct
investments in Indonesia in general, I have also gathered information about the high-speed
train project more specifically. I use Gerrings’ work in order to classify my case study
research. Gerring distinguishes a number of research designs, depending on the number of
cases in the study and whether or not there is a temporal variation. Using his classification
model, this research is defined as a single-case study, using a synchronic analysis. This
research represents a single point in time, for the reason that policy is not static. While
Indonesia is the case, separate infrastructure projects are sites of management. The various
government agencies that execute the foreign direct investment regulations of Indonesia work
synergistically. As such, the high-speed train project which I will discuss in this thesis is a
site of management. I use this project to show how Indonesia deals with Chinese investments.
Case study research involves a “comprehensive examination of a phenomenon”. As a result,
context and case mingle together. The fieldwork in Jakarta has resulted in a better
understanding of the context of Chinese investments in Indonesia and the context in Jakarta
in particular. Moreover, experiencing the real-life context is a complementary method
together with a historical and contextual analysis (Gerring, 2007, p. 17-18, 29-30).
During this three-month fieldwork period, I have interviewed a number of actors
concerning foreign investments in Jakarta, on which my arguments in this thesis are based. I
connected with scientists, journalists, policy-makers and employees involved with the
construction of the Jakarta-Bandung high-speed train line during my time in Jakarta.
Furthermore, I interviewed consultants who are involved with Chinese investments in
Indonesia. A full list of interviews can be found in the Appendix. Respondents were mostly
contacted via email. In some cases, I was introduced to people by friends I made during my
stay in Jakarta. I used semi-structured interviews to collect data on their respective

-8-
perspectives of Chinese investments in Indonesia. The duration of the interviews was
typically between one and two hours. As my Bahasa Indonesia is limited to a few basic
words and short sentences only, most interviews were conducted in English. Only two
interviews were held in Dutch, which was our common mother tongue in both cases.
Interviews were typically held at the office of the interviewee or we met in a mall. The form
of a semi-structured interview was chosen for practical reasons. On the one hand, it gave me
the opportunity to make a shortlist of questions that I wanted to address, while it also gave the
respondent the opportunity to give wider information on topics she or he wanted to talk
about. This primary data was collected between 31 December 2017 and 30 March 2018. All
interviewees were informed about the purpose of collecting information for a master’s thesis
and were asked their consent about this, either in the process of getting in touch with them,
before the start of the interview, or both. Secondary data were collected before, during and
after the fieldwork. This includes data to prepare for interviews on the position of a ministry
or employer on foreign investments. Lastly, not only the interviews themselves but also
living there and getting around has been an added value both personally as well as for
understanding the context in this research.

-9-
2. A rising China
Although the focal point of this thesis is the position of Indonesia, I will start with
discussing developments of a rising China and the political and economic implications of
their growing position in the world arena in this chapter. Then, I will examine how these
developments affect Indonesia and their approach to China. As I will mainly focus on the
position of China in this chapter, I will shift my focus to Indonesia’s political and economic
policy in the third chapter.

2.1 China’s dream

China proposed a project which resembles the historical Silk Road in 2013. In
September of that year, China’s President Xi Jinping announced the Silk Road Economic Belt
in Astana, Kazakhstan. This “Belt” should connect China over land with Europe. The
Maritime Silk Road was announced one month later, on 10 October 2013, in Jakarta,
Indonesia, by Xi Jinping as well. This second “Road” is designed to connect south-east Asia
with China. Later, both initiatives were put under one umbrella term, the One Belt, One Road
initiative or Belt and Road Initiative (Yu, 2017, p. 353). The network should connect China
with central Asia and Europe, south Asia and east Africa, and south-east Asia. The country is
investing heavily in this network, with an expected amount totalling $900 billion in
infrastructure and energy supply projects. The idea is that the One Belt One Road initiative
should boost economic development in both China as well as the other regions which will be
connected. Over the past decade, China has already increased its economic power
dramatically by building an export-oriented industry. Its economy rose with double-digit
numbers for a long time. Although this pace has slowed down to about 7 per cent for the past
couple of years, it is still impressive. However, the Chinese growth is mainly based on its
export economy, rather than consumer expenditures. In a time when more developing
countries adopt the policy to accelerate growth by developing an export market, this might
culminate into overproduction. The danger of overaccumulation in China, which is an
“excessive investment and over dependence on demand from other countries”, boosts the
need for new markets to export its products, as it can potentially result in an economic crisis
(Hung, 2008, pp. 150-151, 168-169).
At the same time, the USA, the biggest export market for Chinese goods, with 18 per
cent of total exports, is recently trying to close the trade deficit with China with $200 billion
(Wildau, 2018). The One Belt One Road initiative is designed to better connect Chinese

- 10 -
industries with the world market and, as a result, to get better access to new markets to export
its products. New markets in south-east Asia could, therefore, be a substitute for other
markets to compensate losses elsewhere, as well as draw upon new growth. Although US’
approach to free trade and Chinese export surplus has only altered recently to protectionist
measures, it is an extra reason for China to explore new export markets. One of the receivers
of – so-called – aid in accordance with the One Belt One Road initiative is Indonesia.
Indonesia and China signed a Comprehensive Strategic Partnership in Jakarta a week before
the Maritime Silk Road was announced. This partnership already calls for strengthening
cooperation on the field of economy and development between the two countries. The
Maritime Silk Road is the name for the network of overseas infrastructure as part of the One
Belt One Road initiative. Thus, the Maritime Silk Road is used as a vehicle for this
partnership. The Maritime Silk road was originally a plan for maritime cooperation between
China and the ASEAN (the Association of South-east Asian Nations, a regional organisation
with ten member states in south-east Asia). However, the project has extended its area
westwards to other parts of Asia and even to the African continent (China Daily, 2013;
Ministry of Foreign Affairs of the Republic of Indonesia, 2013; Tiezzi, 2014).
The funding of infrastructure projects under the One Belt One Road initiative is
categorised as “aid” by China. However, Chinese aid does often not match the official
definition of aid. The official definition of aid, or official development assistance (ODA),
according to the Development Assistance Committee (DAC) of the Organisation for
Economic Co-operation and Development (OECD) is defined as:

those flows to countries and territories on the DAC List of ODA Recipients and to
multilateral institutions which are:
i. provided by official agencies, including state and local governments, or by
their executive agencies; and
ii. each transaction of which:
a) is administered with the promotion of the economic development and
welfare of developing countries as its main objective; and
b) is concessional in character and conveys a grant element of at least 25 per
cent
(calculated at a rate of discount of 10 per cent). (OECD, 2018, p. 1)

- 11 -
However, China’s official finance can only be accounted as official development assistance
for a small share of the total. Most assistance fall in the category Other Official Flows (OOF),
which is defined as “non-concessional in terms (< 25% grant element)” and “primarily
intended for commercial or representational purposes”. Moreover, Chinese aid is of a
different nature than that of classic donors. While classic donors tend to focus on social
sectors, China is aimed at productive sectors. Out of the total official finance of $350 billion
between 2000 and 2014, more than $130 billion was allocated to energy generation and
supply, and almost $90 billion was allocated to the transport and storage sector (Aiddata,
2017). Another difference is that Chinese aid is not given through development agencies, but
through state-owned institutions.
Swedlund focuses on the erosion of the bargaining power of traditional donors from
the Development Assistance Committee in African states due to Chinese involvement in
financing development. Or, from the receiving perspective, whether this could surge the
bargaining power of African states. She notes that Chinese investments have caused that
African countries can finally freely choose from potential lenders and can use this as a
bargain (Swedlund, 2017, pp. 389-393). By assuming this, she also assumes that Western
DAC members have been a homogeneous group. That traditional ODA donors are a
homogeneous group is a questionable note. In the case of Indonesia, the country now has
another option to choose from as well. Apart from its classic main investor Japan, China has
come into play as a considerable actor. Besides focusing on the giving actor, I will also focus
on the receiving actor in my thesis. From that perspective, Swedlund notes that a policy-
maker might not acknowledge openly that he or she, or the institution he or she is working
for, might lose on its sovereignty.
The hint of the ancient Silk Road, as suggested in the introduction, seems a smart
choice from a diplomatic perspective. It does not directly resemble a ubiquitous economic
plan at first sight. The ancient Silk Road suggests an economic and cultural interaction and
interdependence, not merely focused on the interest of China alone. However, together with
the Asian Infrastructure and Investment Bank (AIIB), the One Belt One Road initiative can
dramatically modify the basis of the world economy. The main purpose of the AIIB is to help
in developing a wide range of infrastructure projects on the Asian continent and beyond to
integrate economies. It is not a coincidence that the AIIB was announced in October 2013 as
well, by Xi Jinping in the Indonesian Parliament (AIIB, 2018; The Economist, 4 October
2013). Therefore, this institution is designed to help to implement the One Belt One Road
initiative. The world economy can be altered dramatically, as, if China’s proposal works out,
- 12 -
it leads to an extensive infrastructure network with branches that are all leading to China.
McKinsey makes a comparison with the Marshall Plan, which helped Europe recover after
the Second World War. To put this in perspective, China plans to spend a twelvefold of
money in the One Belt One Road initiative compared to the Marshall Plan, measured in
current dollars (McKinsey, n.d.).
There are multiple motivations for China to invest in infrastructure throughout Asia.
First, the One Belt One Road initiative offers Chinese companies business deals to invest
abroad. As a result, it can export knowledge in infrastructure building, and sell its
overcapacity in several industries, such as in the construction sector, abroad. Second, the
project can connect industries in western regions of China and bring economic growth to
these less developed regions in western China. Third, and more important for the case I will
focus on here, it will help neighbouring Asian countries to improve and modernise their
infrastructure. By helping them, China is able to integrate the region economically with
China. Connecting Asian countries with China by rail and ports will boost trade and
development for both sides. Better connectivity can supply necessary raw materials for
China’s industry and is beneficial for other countries to industrialise. Together, these form
one way for China to pursue its Chinese Dream. The Chinese Dream was coined by President
Xi Jinping in 2013. The goal of China is to emerge as a global leader. Political influence and
economic integration will help China to pursue this goal. Instead of following international
rules and norms, it ultimately wants to form these international institutions itself. The One
Belt One Road initiative gives China the opportunity to give itself a central position in Asia
and the world, as many Asian countries look at China for economic opportunities. Just as it
had an important position in past times with the ancient Silk Road (Yu, 2017, pp. 357, 358).
Numbers show that China is a key actor in the regional economy and, hence, on the
regional political stage. For Indonesia, China is by far the biggest import and export partner.
China accounts for over 20 per cent of both Indonesian imports and exports. These trade
numbers have grown sharply in the past two decades. As a result, China is not only a major
economic actor but also an important political and strategic actor in Indonesia, as much as it
is in other ASEAN countries (CIA World Factbook, 2018; Yu, 2014, p. 14). In addition,
according to Guild (25 October 2017), China is steadily taking over the leadership position of
the US in south-east Asia. He notes that several countries in the region are now entailed in the
Chinese supply chain. And south-east Asian states are welcoming the vast amount of Chinese
investments.

- 13 -
 One of the most considerable and at the same time politically controversial projects in
Indonesia which is financed by China is a planned high-speed rail from Jakarta to Bandung.
Yu (2014) is one of the few scholars who analysed the high-speed rail battle between Japan
and China, and more generally the efforts towards infrastructure development in south-east
Asia. However, he does that primarily from the Chinese perspective, focusing on the
challenges that China meets. Later on, I will offer an analysis based on the Indonesian
perspective towards infrastructure development by China in Indonesia. The reason that China
wants to export its high-speed rail technology is based on their efforts to promote and
increase its economic and diplomatic power in the region. As Yu notes, there are a number of
reasons for China to carry out its high-speed rail diplomacy as part of the One Belt One Road
initiative. First, it is a way to pursue its influence in the region as part of their national
interest. It offers China’s infrastructure corporations projects to grow its businesses abroad
and promotes high-value-added industries to develop. And second, economic cooperation
between China and countries in south-east Asia is a way to show that a peaceful rise of China
is possible, despite the territorial disputes, especially in the South China Sea, that China has
with neighbouring countries. Moreover, building high-speed railways also shows China’s
progress from labour-intensive production to high-technology production (Yu, 2014, pp. 15-
16, 23-24). However, the Chinese effort to connect south-east Asia with high-speed rail links,
sometimes called China’s railway diplomacy, has not been very successful so far.
Despite the railway diplomacy, few lines are actually under construction. The
construction of a high-speed train link between Thailand and China via Laos has started in
December 2017. However, a track that should connect Kuala Lumpur with Singapore has
been cancelled for the time being while a line which will connect Bangkok with Chiang Mai
in the north of Thailand is under construction. Yet, the latter is a cooperation between
Thailand and Japan. Other proposed projects see problems along the way as well. Lines in
Vietnam and Myanmar are cancelled for now. Of course, such expensive infrastructure
projects are often politically sensitive. Moreover, China tends to overvalue the potential
economic impact of infrastructure projects, both nationally as abroad (Ming, 2018; Reuters,
2017; Jotikasthira, 2018; Kynge, Peel & Bland, 2017; Bataineh, Bennon & Fukuyama, 2018;
Kratz & Pavlićević, 2017). The high-speed train that should connect Jakarta and Bandung is
the first Chinese built project abroad that has effectively started constructing, after a long
decision-making process. It is not only a project of prestige for Indonesia to build a state-of-
the-art train connection between the most populous and the third-biggest city of the country,
the reputation of China’s high-speed rail industry is also at stake to deliver its first foreign
- 14 -
track without considerable technical issues or delays, as stated in an interview by a Chinese
team member of CTCE Railway Group on 21 February 2018.

2.2 Indonesia’s economic nightmare

In this section, I will discuss the position of Indonesia as a self-proclaimed regional
power in south-east Asia and how too much influence from a foreign power in this region,
and from China specifically, would be a nightmare for Indonesia.
While both China and Japan contest each other to be the regional hegemon in south-
east Asia, Indonesia sees itself as the regional leader within ASEAN. This means that
Indonesia tries to seek a balance between both Japan and China. However, there is a dilemma
for Indonesia. On the one hand, it needs foreign investments to boost its economic
development, as the national government does not have the financial capacity to implement
all infrastructure plans in the spacious country with over 17.000 islands. China has been
taking that role of external financer more and more over the past decade with aid and cheap
loans. On the other hand, Indonesia has a problematic history with China and the Chinese
diaspora. I will look into these socio-cultural issues regarding ethnic Chinese more deeply in
the fourth chapter.
Nowadays, China’s undemocratic values and power of the Chinese Communist Party
(CCP) could be a threat to Indonesian democratic values. The influence of the Party abroad
and the lack of criticism allowed within China are worrisome developments if they can get
ground in democratic countries, argues Clive Hamilton in an interview in The Australian. The
argument is that Chinese involvement could surge the sovereignty of a receiving state, as
China could influence foreign institutions (Callick, 21 February 2018). As a result, this could
be an argument for Indonesia to treat China differently than other countries, or at least with
caution.
Investing in Indonesian infrastructure is needed to accelerate its economic growth.
However, its bad investment climate prevents investors from investing in Indonesian projects
(Bland, 2017a). Nonetheless, as part of the One Belt One Road initiative, China increased its
investments in Indonesia. According to the World Bank, Indonesia ranks 63 in its 2016 report
on logistics. According to the American Chamber of Commerce in Indonesia, the high costs
of logistics are a limiting factor for manufacturing in Indonesia. While in Thailand logistics
costs account for 16 per cent of GDP, in Indonesia this is at a 50 per cent higher rate
(American Chamber of Commerce Indonesia, 2016). As Yu focuses on the Chinese ambition
to be involved and build infrastructure in south-east Asia, it is relevant to look into the

- 15 -
perspective of the receiving countries of these investments. What for China seems to be a
contest with Japan to deliver the best infrastructure projects in the region, is for Indonesia a
choice between two competing candidates to improve its infrastructure and improve its
economy.

- 16 -
3. Indonesia’s dream interpretation
In this chapter, I will look at the Indonesian economic and political policies. I will
offer a view on the Indonesian place in the international order and how they ideally see
themselves in this order. Furthermore, I will show how Indonesia has had a changing view on
foreign direct investments over the past decades. Then I will briefly discuss Indonesia’s
economic outlook to make the importance of investing in its infrastructure clear. The goal of
this thesis is to examine how Indonesia deals with Chinese investments to implement its
national development plan in a changing geopolitical arena with an increasing role for China.
In answering this research question, it is essential to examine the needs to invest in
infrastructure in Indonesia. This includes details about the status of the current infrastructure
in Indonesia and the financing of existing programmes. Furthermore, I will stress out how the
rising power of China is important in the world, the south-east Asian region and for Indonesia
in particular.

3.1 Indonesia China relations at the macro level

After the coup in Indonesia in 1965, China and Indonesia did not have diplomatic
relations until late 1990. Although China denied any involvement in the coup, the case still
influenced bilateral relations between the two states. As a result, a wide mistrust in Indonesia
towards China remained after their rapprochement. China’s help in the aftermath of the Asian
financial crisis of 1997 through regional development was important to create confidence
about China’s peaceful aim in the region and in Indonesia in particular (Nabbs-Keller, 2011,
p. 27). As China’s power is growing, it is perceived as a revisionist state. This is for states in
south-east Asia a reason to rethink their stance towards their big neighbour. In International
Relations theory, there are ideas on how smaller states should deal with Great Powers. Both
balancing and bandwagoning are strategies that such countries can use. Although these
strategies characterise opposite actions, they can be used at the same time.
Waltz was the first one to coin the term balancing within structural realism theory of
International Relations. According to Waltz, states primarily seek survival, which they can
achieve through power. Balancing suggests a state to join the weaker coalition, while
bandwagoning suggests that a state joins the more powerful coalition (Waltz, 1979, p. 126).
Roy argues that both strategies are used in different fields by Indonesia regarding their
position towards China. Roy notes that Indonesia is a case of what he calls low-intensity
balancing. Roy suggests that Indonesia bets on two sides of the coin. While the ASEAN, thus

- 17 -
Indonesia as well, is against foreign military bases on its territory, the US has a limited
military presence in a number of south-east Asian states (Holmes, 9 August 2017). However,
member states are mostly focusing on cooperating economically to enjoy the perks of China’s
economic growth. Although Indonesia does not see itself as an ally of the United States
either, it sees China as a possible military threat which should be contained. Tensions in the
South China Sea between China and neighbouring states amplify that China could be a
military threat for Indonesia. Although Indonesia does not claim vast areas in the South
China Sea compared with other ASEAN member states, there are tensions between Indonesia
and China about the Natuna Islands. These islands are claimed by Indonesia, China and
Taiwan. In general, Indonesia takes a position to neither of the Great Powers. However,
China is seen as a greater threat to Indonesia’s sovereignty (2005, 31-319).
The new position of China has implications for other actors in the world. While we
have been living in a Washington Consensus society, it is to be expected that China will form
rules in international institutions more and more, in what would be called a Beijing
Consensus. The Washington Consensus is an economic system in which the United States, as
the main great economic and political power in the world, predominantly determines political
and economic rules through multilateral institutions. Washington in this concept is referred to
as “both the political Washington of Congress and senior members of the administration and
the technocratic Washington of the international financial institutions, the economic agencies
of the US government, the Federal Reserve Board, and the think tanks” (Williamson, 1990).
Thus, a Beijing Consensus means that China would determine such rules through their
respective institutions and think tanks. Beijing based bilateral and multilateral institutions,
such as the Asian Infrastructure Investment Bank (AIIB), China Development Bank (CDB)
and the Export-Import Bank of China (CEXIM) could be a substitute for Washington based
institutions such as the World Bank and the IMF. These institutions are already used for the
benefit of executing China’s One Belt One Road initiative (Bataineh, Bennon & Fukuyama,
2018). Whether these institutions could replace the institutions that form the Washington
Consensus over time is debated among scholars (Feigenbaum, 2017).
As Pattiradjawane stresses, the shift in economic power on the world stage to China
makes it possible for Indonesia to balance its strategy between Great Powers, which now are
the US, Japan and China in the region. In the Asia Power Index by Lowy Institute, Indonesia
ranks only 10th, with a score of twenty out of hundred, while China ranks second with a
score of 75,5. The US remains the main power in the Asia-Pacific (Lowy Institute, 2018).
However, interdependence between Indonesia and China has risen (Pattiradjawane, 2016, p.
- 18 -
260). Indonesia’s foreign policy is historically based on four strategies. The first is to ensure
that Indonesia’s voice is heard. Second, to preserve the status quo in the region, to ensure
Indonesia’s interests. The third strategy is to limit the presence of Great Powers in Indonesia
and the region, which could potentially curb Indonesia’s leadership in the region. And lastly,
to embed national interests in multilateral agreements and institutions to increase Indonesia’s
capability. The ASEAN is an important tool for this last strategy. The third strategy, the
strategy of non-alignment, has been one of the two functions of the ASEAN for the region
(Weatherbee, 2013, pp. 16-17, 59).
What then, is Indonesia’s national interest? As we have seen, Indonesia sees itself as a
south-east Asian regional power, and the ASEAN is a tool for the Indonesian government to
exercise its power. According to Pattiradjawane, the Indonesian interest is twofold. Both
prosperity for Indonesia itself, as well as stability in the region, is in its interest. He puts
regional stability as a requisite for the ultimate interest of Indonesia, which is national and
regional development (2016, p. 266). Also, the dispute in the South China Sea is a
problematic topic for relations between Indonesia and China, because the dispute challenges
the status quo. Although Indonesia’s involvement in this dispute is limited – both have a
small coincidental area which is claimed by both states – China’s claim does affect ASEAN
member states and hence, it projects a greater great-power influence in its surrounding
waters.

3.2 History of foreign direct investments in Indonesia

Indonesia is an economically fast-growing south-east Asian country. Its economy has
been growing roughly between 5 and 6 per cent per year since 2010 (World Bank, 2017a).
According to Piketty, the recent economic development in developing states, such as
Indonesia, is made possible by their ability to invest in itself rather than investments from
third parties (2014, p. 72). However, the poor infrastructure in Indonesia limits future growth
in the country. Therefore, investing in infrastructure is key to future growth, and therefore the
Indonesian government is focusing on improving infrastructure through several finance
programmes (Word Bank, 2017b). Yet, Indonesia has limited resources to finance its
infrastructure investment plan and is looking overseas for help. Among the financers are
Chinese investment banks, such as the Asian Infrastructure and Investment bank (AIIB) and
the China Road and Bridge Corporation (CRBC). As Indonesia is in dire need of
infrastructure investments, and its own financial possibilities are limited, loans from

- 19 -
international institutions can be helpful. However, they can also form a risk. Possible risks
are financial liabilities and losing its sovereignty in the decision-making process.
What is, in general, the approach of Indonesia towards foreign direct investments? To
understand the contemporary state of the Indonesian approach to foreign direct investments
into the country, I will elaborate briefly on the modern history of capital in Indonesia. Three
phases of economic strategy can be defined according to Robison. The first stage, from 1965
to 1975, defines an economic policy to pursue high economic growth through foreign private
investments. The second phase is a reaction to that open economy policy and is defined by
economic nationalism and was executed until the early 1980s. Finally, when Indonesian
institutions became incapable to finance its national industrialisation programme, it opened
up a bit again in the 1980s (2009, p. 132). Lindblad defines in a more recent article three
slightly different phases. The first phase from 1966 to 1982 is a period of “economic
rehabilitation” from the postcolonial era, helped by the oil boom in those years. During the
second phase until the Asian financial crisis in 1997, Indonesia underwent a structural
economic change. The last phase after the economic crisis is defined by a slow recovery from
the economic crisis (2015, pp. 218-219). In this first phase, foreign direct investments were
thought to create initial economic development. However, this approach changed in the
1970s, when policy became more restrictive towards foreign direct investment. Joint ventures
were required, and indigenous Indonesians had to be trained. While the income from foreign
direct investments declined, the oil boom increased income from natural resources.
Van Zanden and Marks mention the “open-door policy” in the early period of Suharto
in the late 1960s to attract new capital as well. However, there was a setback in the early
1970s, after which FDI inflow surged. Protests and more restrictive policies regarding FDI
made the country less interesting for foreign investors. However, the oil boom of that time
resulted in little economic repercussions, as the oil exports were a welcoming substitute
income for the Indonesian government. When oil prices decreased again in the 1980s, the
restrictive foreign investment regime became a burden, and deregulation measures were taken
again. When deregulation measures finally showed an effect on net FDI income in the mid-
1990s, the Asian financial crisis of 1997 started kicking in (2012, pp. 176-178). While some
scholars argue that nationalist tendencies among policy-makers have been a reason for
generally tight regulations regarding FDI, or economic growth and an increasing FDI go hand
in hand, Lindblad argues that this is not the case for Indonesia. The natural resources the
country has makes it relatively “insensitive” to changes in FDI income (2015, pp. 218, 233-

- 20 -
234). As a result, the policy regarding foreign direct investments has been changing quite a
bit over the years. Uncertainty is not in the interest of foreign investors.
The Indonesian current economic policy is based on two pillars according to Basri, a
former chair of the Indonesian Investment Coordinating Board (BKPM) and Indonesian
Minister of Finance in 2013-2014, and Patunru. On the one hand, this means opening up to
the world market and investing in an export economy. On the other hand, the economic
policy focuses on creating and maintaining a stable internal market. They note that the level
of protectionism is relatively low at the moment, although there have been some minor
setbacks (2012, pp. 191-192). Nevertheless, Indonesia has opened up its economy to foreign
investors by making changes in the Negative Investment List. The ease of doing business has
improved in Indonesia as a result of the efforts of the Jokowi administration. On the World
Bank list of doing business, the country has moved up from place 106 in 2015 to the 72nd
place in 2017 out of 189 economies. Also, the Asia Power Index gives high grades for the
variable of future trends, in which Indonesia ranks fourth. The institute measures future
trends using projections of economic size, military expenditure and working-age population
in 2030 as indicators (World Bank, 2018; Lowy Institute, 2018).
A similar view has professor Supancana, whom I interviewed at UNIKA Atma Jaya in
Jakarta on 16 January 2018. The natural resources, its huge internal market and the
demographic bonus of many young Indonesians are all advantages for Indonesia. However,
as he admits, there are a couple of important disadvantages that restrict economic growth.
These include the bureaucracy, nepotism, political insecurity and that the population is not
highly skilled. As a result of the latter, Indonesia has a relatively low productivity. As
Robison and Hadiz also stress, Indonesia is the country of high economic expectations but
fails to deliver. Some argue that weak institutions, an inexperienced corps diplomatique, the
middle-income trap and changing global economy are to blame for falling behind the long
and high expectations of an Indonesian dream. The Indonesian dream may be out of their
sight for now, as the nation is looking abroad to the real big economic powers such as China
for investments in infrastructure and energy projects. Indonesia lacks a development bank to
play a serious role as a regional power (2017, pp. 896, 899).
To invest in infrastructure, Indonesia needs a lot of money. However, the government
is only able to finance 40 per cent of the plans during the term of President Jokowi. The rest
of the financing needs to be found through other resources. State-owned enterprises (SOEs)
are one way to finance infrastructure works. Also, domestic and foreign investors are
considered to help to finance through public-private partnerships.
- 21 -
3.3 Indonesian infrastructure investment plan
Indonesian infrastructure is not competitive if you compare it with other countries.
Some of Indonesia’s cities are notoriously among the most congested in the world. According
to the World Economic Forum, Indonesia ranks number 64 in quality of roads. The quality of
railroad infrastructure is ranked 30th and port infrastructure is ranked 72nd. Especially the
level of its port infrastructure is striking for an island nation such as Indonesia. The
performance of Indonesia and four selected ASEAN countries can be seen in Table 1.
Indonesia is listed fourth in most subunits compared to these relevant neighbouring countries,
behind Thailand. Only the Indonesian railroad infrastructure qualifies relatively well.
Quality of Quality of Quality of port Quality of air Overall
Road railroad infrastructure transport
infrastructure infrastructure infrastructure
Indonesia 4.1 (64) 4.2 (30) 4.0 (72) 4.8 (51) 4.1 (68)
Singapore 6.3 (2) 5.9 (4) 6.7 (2) 6.9 (1) 6.4 (2)
Malaysia 5.3 (23) 5.0 (14) 5.4 (20) 5.7 (21) 5.3 (21)
Thailand 4.3 (59) 2.6 (72) 4.3 (63) 5.2 (39) 4.1 (67)
Viet Nam 3.4 (92) 3.0 (59) 3.7 (82) 3.8 (103) 3.6 (89)

Table 1: Quality of Transport infrastructure, score 1-7 (best) and between brackets ranking out of 137 listed
countries (World Economic Forum, 2018).

To make the pressure for infrastructure investments clearer, an estimated extra of

$550 trillion investment in infrastructure, on top of the money already planned by
governments, is needed for south-east Asia, due to economic development, with a growing
middle-class, and ongoing urbanisation (Goldman Sachs, 2013). The report expects that
Indonesia would have 24 million more urban residents by 2020, which puts an increasing
pressure on its urban infrastructure. On top of that, while it would be undue to compare
Indonesia with developed western countries, a comparison with neighbouring states is
appropriate. Looking at other ASEAN countries, especially Singapore and Malaysia are
doing better on the quality of their infrastructure. To become more competitive and boost its
economic growth, the Indonesian government has several development plans. These include a
National Long-Term Development Plan (Rencana Pembangunan Jangka Panjang Nasional),
covering 2005-2025, which is divided into four Medium-Term Development Plans (Rencana
Pembangunan Jangka Menengah Nasional), and a Masterplan for Acceleration and
expansion of Indonesia’s Economic Development (Masterplan Percepatan dan Perluasan
Pembangunan Ekonomi Indonesia, MP3EI). The Medium-Term Development Plan is a

- 22 -
project designed by the president, which directs policies and programmes of ministries
(Bappenas, 2004). Not coincidently, the Medium-Term Development Plans coincide with the
election term of the president. As a result, a president can easily leave his mark on the
development programme, which is also important for their reputation.
The current MP3EI plan is an ambitious plan which aims for Indonesia to become a
developed country by 2025. Three core goals comprise this plan. First, decreasing the
distribution costs and expanding the industrial value chain. Second, take measures to become
a more competitive economy, both locally as well as internationally. And third, to become a
more innovation-driven economy (Indonesia Investments, n.d.). The current third National
Medium-Term Development Plan covers 2015-2019. Regarding infrastructure, it focuses on
better and more efficient financing of infrastructure projects. As developing infrastructure is
considered important, but finances are limited, alternatives such as public-private
partnerships are considered. The purpose is to achieve goals to show improvements in its
infrastructure in the third year of the Medium-Term Development Plan. The focus of the plan
is on infrastructure in the widest form to strengthen national connectivity in order to enable
balanced economic growth. These plans can be developed through public-private cooperation
and private funding. Furthermore, trade between the ASEAN bloc should be promoted, as
well as small and medium-sized businesses (Bappenas, 2014, pp. 5-14, 6-14, 6-30, 6-37, 6-
103).2

2
Unfortunately, the English language Bappenas link to the 2015-2019 Medium-Term Development Plan refers
to the former plan. A version in Indonesian of the plan is available, but I cannot sufficiently understand this.

- 23 -
4. Indonesia-China relations at the micro
level – a cultural contradiction
While I have been focusing on the economic and political perspectives at the macro
level until now, I will now shift to the socio-cultural affairs which define the Indonesia–
China relations. To emphasise the importance of the argument that Indonesia should in theory
not be keen to address Chinese investors, I will examine the multifarious history between
Indonesia and China. This dates back to the colonial times of the Dutch in the Dutch East
Indies. In this chapter, I will also include discussions about the contemporary perceptions of
Indonesians towards Chinese to unpack the political and social sensitivity regarding Chinese
involvement in Indonesia. This includes a short historical outline of Chinese in Indonesia and
the view of Indonesians on China at the micro level nowadays. However, I will not elaborate
extensively on the history of Indonesia, as I do not intend to write and discuss a historical
reflection here. Together with the economic and political perspectives as discussed in chapter
2 and 3, this will develop the argument that Chinese investments come with a conflicting
interest in Indonesia.
According to the World Fact Book (2018), Chinese form just over one per cent of the
population of Indonesia. This means that approximately 3 million ethnic Chinese citizens live
in Indonesia. While Chinese have been present in what is now called Indonesia for centuries,
Indonesia and China have a long, and sometimes turbulent history together. Although ethnic
Chinese already live in Indonesia for generations, they are still considered as non-natives.
This construct to ethnicity dates back to the colonial era when several ethnic groups were
defined by the Dutch colonial administration. The discrimination against the Chinese in
Indonesia also dates back to this time, with registration and restrictive laws for ethnic
Chinese (Lindsey, 2005, pp. 42-43). First, in the colonial era, Chinese men often married
indigenous women, as there were not many Chinese women on Java. These Indo-Chinese are
called Peranakan. Totok, on the other hand, refers to full blood Chinese in Indonesia. The
Peranakan mostly mingled, and their culture adapted to that of the indigenous people in Java
(Suryadinata, 1993, p. 78).
In the post-colonial times, Chinese were incorporated in Indonesian nationalist
statebuilding, although this did not mean that the minority group was treated equally.
Moreover, a more recent event that has shaped the perception of Chinese in Indonesia in post-
colonial Indonesian history is the coup in 1965, which was assigned to Chinese communists
- 24 -
(Suryadinata, 1990, p. 683).3 This event did not only have political consequences at the
macro level, as discussed in the previous chapter, it also had an influence at the personal
level. In the months after, many communists and ethnic Chinese were killed, as terrifyingly
pictured in the 2012 documentary The Act of Killing. Moreover, during the New Order
regime of President Suharto, who was in office from 1968 to 1998, a regime of assimilation
was held for the Chinese minority. The Chinese had to adopt official indigenous cultures as a
result of this regime. Nonetheless, they were still categorised as the “Other”, or non-pribumi
(non-native) as opposed to pribumi (native). This is a dichotomic distinction of a constructed
culture of indigenous versus foreign people. Moreover, in 1966, ethnic Chinese were forced
to change their surnames into Indonesian sounding ones (Hoon, 2006, pp. 149-152). This
makes clear that ethnic Chinese have been discriminated against. This was also done by
denying the group access to state-owned universities, marginalising their language and
culture and access to public service and employment. Despite these discriminatory measures,
the Chinese-Indonesian minority was not limited in their – and the country’s – economic
expansion. Indonesian Chinese have relatively many businesses in trading and industry
(Suryadinata, 1978, p. 142). Moreover, among the richest Indonesians are many from the
Chinese minority. The combination of imposed assimilation to the Chinese and at the same
time marginalising the group is a problematic set of policies, which was one of the causes for
the anti-Chinese riots in the wake of the Asian financial crisis in 1998, according to Hoon
(2006, pp. 152-153).
As a result, Chinese Indonesians still have the majority of capital. Also, under
Suharto, the Chinese Indonesian elite was kept in place. Second, a coup in 1965, which was
allegedly supported by China, resulted in mass killings of ethnic Chinese and communists.
While Suharto broke diplomatic ties with China, and the alleged interference of China in
Indonesia politics stopped, the regime institutionalised the split of citizenship of non-pribumi
and pribumi (Aguilar, 2001, pp. 516-517). Furthermore, there had been attacks on ethnic
Chinese during the 1990s too, during the Asian financial crisis. However, it is also
noteworthy to mention that demonstrations against foreign ownership have not always solely

3
In the days after the coup of October 1965, President Mao had hopes that the Indonesian Communist Party
(PKI) would gain power. However, Suharto gained power and fought against China. Moreover, the Indonesian
army attacked the Chinese embassy in April 1966 before diplomatic relations between the two states were
suspended in October 1967 (Zhou, 2015, pp. 224-225). For a deeper understanding of the 1965 coup and the
relations with China at that time, see Zhou, T. (2015). Ambivalent Alliance: Chinese Policy towards Indonesia,
1960–1965. The China Quarterly, 221, 208-22

- 25 -
focused on Chinese. Notably, Japanese cars were set on fire during violent riots against
foreign ownership of businesses in January 1974 (Van Zanden & Marks, 2012, p. 177).
As a result of these aforementioned events, the general attitude of the Indonesian
population towards Chinese and Chinese Indonesians is somewhat unfavourable. This also
affects the perception of Indonesians on China. Fitriani distinguishes a number of different
perceptions concerning the rise of China among various Indonesian actors. These perceptions
differ among various actors such as the military, political elites, government officers and the
business community with Chinese connections on the one hand and whether you look at the
economic or military power of China on the other hand. These various perspectives show the
ambivalent view regarding China in Indonesian society. One stakeholder that she specifically
highlights is the Indonesian military. Although their perception is generally negative, due to
negative perceptions among the grand public, they are in a split (2018, pp. 1-2). There have
been attempts of security cooperation between the Indonesian and Chinese military. The U.S.
had placed an embargo on the Indonesian military in 1991, after a bloody massacre in East
Timor. The U.S. policy towards Indonesia became gradually stricter in the years up to 1999
(Berrigan, 2001). This ban lasted until 2006 when the U.S. undersecretary acknowledged the
democratic reforms made in the years before (U.S. Department of State, 2006). However, the
weapon ban caused the Indonesian military to collaborate with China to transform its military
apparatus and build a defence industry to maintain its military equipment. Although genuine
intentions were stated by Chinese officials, such as the signing of a Memorandum of
Understanding to collaborate with the Indonesian military to create a security cooperation, it
seems that promises from China to ensure security and invest in the modernisation of
Indonesian forces have not been kept.
Fitriani also argues that the Indonesian perception of Chinese is diverse within the
society. At the same time, Indonesian cooperation with the United States is as much a
troubled one. Indonesia likes to see itself as a regional power, as it is the largest country
within the ASEAN (Fitriani, 2018, pp 7-13). Furthermore, there is a distinct difference of
opinion among Indonesians per field of cooperation with China according to Pattiradjawane.
Looking at cooperation in the sea and air transport, only 7 per cent of respondents see China
as the most favourable country, while 22, respectively 25 per cent of respondents see the
United States and Japan as the most favourable country to have good relations within this
field. Possibly, rising tensions over the dispute in the South China Sea influences the opinion
regarding cooperation in this field. At the same time, China is clearly favourable as a future
economic and trade partner over Japan and particularly over the USA, as you can see in Table
- 26 -
2 (2016, p. 276). This is especially notable, as the One Belt One Road initiative is positioned
as an economic cooperation, although it cannot be dissociated with a political and cultural
partnership.

Field of cooperation China USA Japan Other/DK

Have the best cooperation with Indonesia in the 18 % 20 % 27 % 35 %
last 10 years
An IMPORTANT country for Indonesia in the 16 % 22 % 29 % 33 %
future
Cooperation in the fields of economy and trade in 44 % 9% 29 % 18 %
the future
Cooperation areas of sea and air transport in the 7% 22 % 25 % 46 %
future

Table 2: Opinion of Indonesians on cooperation in various fields (Pattiradjawane, 2016, p. 276).

Pew Research questioned whether respondents view a number of countries as

favourable or unfavourable since 2005.4 The surveys were conducted in the second quarter of
each year. The exact statement that respondents were asked in the face-to-face survey was
“Please tell me if you have a very favorable, somewhat favorable, somewhat unfavorable or
very unfavorable opinion of country X?”. The sample size is 1000 adults, nationwide.
However, Papua and remote areas were not surveyed. The results, as can be seen in Figure 1,
fluctuate over the years, and there is not a clear long-term trend visible. Pew Research found
a height in both 2005 and 2013, with respectively 73 and 70 per cent of respondents
answering (very) favourable. While the Maritime Silk Road was announced in October 2013.
In the other years, they find less favourable numbers. For 2017, the last year with data
accessible, they found a decade low of an only 55 per cent favourable response to the
question. This can possibly be explained by rumours about an influx of Chinese workers into
Indonesia (The Straits Times, 30 December 2016). Pew Research also questioned
Indonesians on their opinion of the United States and for a few years on Japan. For the United
States, it seems that results particularly depend on which president is in office. Indonesians
clearly had a more positive view of the United States during Obama's presidency from 2009
until 2016 in comparison to Bush’ presidency. And again, with Trump in office, the
popularity tumbled. Therefore, it seems that the view of Indonesians about China is much

4
Pew Research data for China and Japan available for the years 2005 - 2017, with the exception of 2012 and
2016. For Japan: data is available for 2013 – 2015.

- 27 -
more stable compared with their view about the United States. Although there is little data for
Japan available, it seems that, based on the data of 2013-2015, the view of Indonesians
towards Japan is generally at a more favourable pace compared with their view on the other
two countries.

Do you have a favorable or unfavorable view of...?

90

80 79 77
73 71
70 70
65 67 66
62 63 61 63
62
60 58 59 59
58 59
54 55
50 48
40 38 37
30 30 29
20

10

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

United States China Japan

Figure 1: Perception of Indonesians towards selected countries in selected years (Pew Research Center, 2018).

Although the Indonesian society is rooted on the basis of five principles which
together form the national philosophy of Pancasila, and its national motto is Bhinekka
Tunggal Ika, which means “unity in diversity”, and some big historical crises are past, there
may still be latent discrimination against the Chinese-Indonesian minority and Chinese. This
latent discrimination may rise up again in the surge of political events, such as elections or a
new crisis. At the same time, Jokowi uses the growing economic power of China to help to
invest in Indonesian development. This financial capacity of China offers Jokowi a chance to
increase development investments and roll out his development plan for Indonesia.
Considering the perception about Chinese, this offers a clear dilemma for Jokowi, with
possible political repercussions as a result.
Many of the richest Indonesian families have Chinese roots. Moreover, Ahok,
governor of Jakarta between 2014 and 2017, who was jailed in a politically charged court
case for blasphemy, has Chinese roots too. Furthermore, the Islamic leader who led the
controversial protests against Ahok announced to shift his focus to the unequal distribution of
capital, focusing on the Chinese minority and foreign direct investments from China. These

- 28 -
recent cases of anti-Chinese sentiments fear Chinese investors. Moreover, there have been
rumours of a flood of Chinese workers coming to Indonesia taking jobs and depriving
working standards (Bland, 2017b; Allard & Da Costa, 2017). Although these fears are merely
based on rumours, it once again stipulates ethnic tensions towards Chinese.

- 29 -
5. Theory: policy and risk
In this chapter, I will set out a framework of risk management which will assess the
Indonesian approach towards Chinese foreign direct investments in infrastructure in
Indonesia. I will use this framework to analyse how Indonesia manages infrastructure
investments in the next chapter. As I made clear in the previous chapters, Chinese
interference in Indonesian economy could be a risk factor at both a political, economic and
socio-cultural level. This framework is designed to address these risk factors and ultimately
to analyse how Indonesian actors deal with such risks.

5.1 Risk and regulation

Knowing that foreign direct investment from anywhere, let alone the emerging
superpower China, could be a powerful force in the Indonesian society, the Indonesian
government will have systems in place to deal with the potential threats of undesirable
consequences. These systems can be both legal and quasi-legal. Simultaneously, it has to
balance that against the potential of over-management whereby the strict rules may create too
much burden on foreign investors and push back desirable investments. The regulatory craft
of Indonesia here is important regarding both the socio-cultural concerns of the Indonesian-
Chinese relationship as well as the economic desirability of Chinese investments. These
combine fray and different, possibly conflicting interests for policy-makers. As I will later
analyse the risk assessment of Indonesian policy-makers, I will develop the possible risk
theoretically in this chapter.
The purpose of regulations is to diminish the threat of undesirable consequences.
Therefore, a widespread set of regulations can be used to adjust behaviour. However, too
much regulation with the initial purpose to prevent risk may have an undesirable effect on
businesses. Risk and regulation are therefore two coherent terms. As Haines puts it: “Risk
and regulation are brought together through scientific and technical assessments combined
with economic analyses to determine when, what kind and how much regulatory control
should be forthcoming to reduce particular risk to an acceptable level” (Haines, 2017, pp.
181-182). As policy and regulations are an answer to risk, one should determine what risk is.
So, how can we define risk? Haines describes three ideal types of risk. The first type
is what he calls actuarial risk and is “the possibility of harm to an individual, collective or the
environment arising out of an unwanted event” (2017, p. 183). I will focus on the possible
harm to Indonesia as a collective, and not on individuals, nor on the environment, as foreign

- 30 -
investment regulations focus on the economic and developmental state of the country.
Furthermore, as risk and regulation are often affected by economic, political and social
interests, Haines distinguishes two other ideal types of risk: socio-cultural risk and political
risk. Although actuarial risk will be part of the analysis of Chinese investments in Indonesian
infrastructure too, both socio-cultural risk and political risk are for the matter of this thesis
more interesting and relevant, considering the issues that define the Chinese-Indonesian
relationship.
Socio-cultural risk involves the collective. It involves the risk of a threat to the sense
of belonging and security. This type of risk is often used to assess migration regulatory.
Moreover, Indonesia is a plethora of cultures, combining more than 600 ethnic groups in one
nation (Arifin, Hasbullah & Pramono, 2017, p. 310). As set out above, ethnic Chinese are still
considered non-pribumi, although they live in Indonesia for many generations. Political risk
concerns the legitimacy of politicians and the economy. Both types are relevant here. And I
argue that they are closely linked to each other. Socio-cultural risk, because Chinese
involvement in the Indonesian economy might be seen as a threat to the Indonesian collective
culture. This can also become a political debate, as we have seen in the case of Ahok and the
Islamic cultural heritage of Indonesia that has become a topic in political debates. This may
not be an “actuarial risk”, but it becomes a risk by issuing a potential cultural risk. And
political risk is evidently an issue regarding foreign investment policy, as politicians have to
weigh their policies according to opening up to foreign investors on the one hand and
protecting national industries and SOEs from competition on the other hand.
Hence, regulating foreign investments becomes a way to legitimise the political
system. However, as Haines also acknowledges, although a certain risk may not exist in
reality, the fear, assumption or uncertainty about a risk results in the existence of a risk.
Political decision-making is in a sense about bringing order out of chaos, to diminish
uncertainty. Therefore, the framing of what risk entails is important for what regulation will
look like. What should be taken into consideration as well is that full information about the
chance of risk is nearly impossible. Thus, the impact of a risk is more important than the
probability in the regulatory making process. In addition, a highly politicised risk, such as the
chance of terrorist attacks, such as in a touristic area in Bali in October 2002, may be
regulated more stringently. Once a certain risk is distinguished by politicians or a policy-
maker, an instrument to reduce that risk can be formulated. Then, there is an agency that is
appointed to monitor compliance of a certain set of regulations. The Investment Coordination
Board (BKPM) serves as such to regulate foreign direct investments in Indonesia. In fields as
- 31 -
business regulation, it has been quite popular to diminish the regulatory burden for
businesses, in order to make the country more business-friendly. Regulations in this field can
benefit some industries or businesses more than others (Haines, 2017, pp. 184-191).

Figure 2: Regulatory framework.

We can derive a scale of risk management from Haines’ conception of risk, as

situated in Figure 2. This scale can be used as a framework for the study of Indonesian
approach to Chinese foreign direct investments. This results in a scale from soft measures to
harsh measures. However, the types of risks are not rigidly placed along the line.
Measurements can vary between no management at all to over-management. In case of over-
management, relevant authorities or governments are paranoid about very minor or non-
existent risks and would invest significant resources to control, which then destroys
productive relationships between the government and relevant stakeholders such as foreign
investors. While the economic nationalism of the 1970s resulted in little economic
repercussions due to the oil boom of that time, this may be different now, with an extensive
infrastructure and development plan to finance. While actuarial risk is explicit and easy to
identify, it is also easy to control with regulations such as safety standards or minimum
requirements. For example, the approval process for medicines before it can be marketed is
highly managed, to prevent unwanted harmful physical effects. Socio-cultural risks and
political risks can be positioned along this line, whereas they are harder to identify and hence
harder to manage. Moreover, socio-cultural risks and political risks may be first and foremost
be used in political and public debates. The government needs to balance the design of this
management system to ensure robustness in identifying risks without deterring foreign
investments. In the case of Chinese foreign direct investments which could help to implement
the Indonesian national development plan, the Indonesian government ideally balances its

- 32 -
policies to minimise socio-cultural and political risk and at the same time minimises the
burden on its national budget.

5.2 Risk management and regulation connected

The existing system for dealing with foreign direct investment is understandably
focused on actuarial risks such as the occupational health and safety issues of the workers, the
public health of the citizens, and the injuries caused by the disruption to the usual operation
of public infrastructure. However, there is scant data on the socio-cultural and political risks
which can be equally threatening. Socio-cultural risks can include the long-standing racial
and religious tensions in Indonesia. The Muslim Indigenous Indonesians discriminate
explicitly against the Chinese, many of whom are Christians. The bloody part of Indonesian
history is fairly well known and may play into the broader sentiment of the people. In the
contemporary context, Chinese investment into Indonesian infrastructure can be perceived as
an invasion to the economic and social fabric of the Indonesian society. The political risk, on
the other hand, is perhaps more hidden. Indonesians may feel that the Chinese government
has undue influence over the political decision-making of Indonesian politicians under the
radar. The uncertainty here creates more fear among the people, and therefore more resistance
and negative sentiment against the Chinese investment. Having said all that, these could well
be merely academic and journalistic speculation. The system for dealing with FDI is not clear
on how socio-cultural and political risks were dealt with. These discussions may well have
been conducted behind closed doors in cabinet meetings or informal chats between the
president and individual relevant ministers.
Responsive regulation is a critical view of the idea that policy is a rational choice-
based approach that has rules and the choice to penalise an offence or not. What could a
system that is not primarily based on the assumption of rational choice look like? Instead of
the assumption of rational choice, it is argued that civic virtue has to be added to the idea of
regulation. That is, people are not purely rational entities, but social human beings. As a
result, rather than immediate penalties, low-cost conversations based on context are deemed
to be more effective (Drahos & Krygier, 2017, pp. 5-6). A more flexible system is suggested
instead of an apathetic system of law enforcement. A number of suggestions are made by
Braithwaite (2017, pp. 117-130). Pyramidal responsiveness suggests a system in which levels
of persuasion start in the beginning, before penalising a lawbreaker as last resort. At the
bottom of that pyramid of response to failure, it is suggested that the actor is virtuous. At this
point, it is tried to adjust lawbreaking behaviour through dialogue, or, what is called, through

- 33 -
“restorative justice”. The system is built upon the idea of de-escalation by the regulator at the
bottom of the pyramid.
A more aggressive path will be followed in the case the former approach does not
meet the standards of the law. This second step on the pyramid presumes that a transgressor
acts rationally and weighs the costs of being penalised with the benefits of breaking the law.
More intense, or escalating, measures are taken higher on the three-step pyramid. Thus, this
theory does not denounce the assumption of rationality entirely, but assuming that actors are
generally virtuous makes it possible to start with restorative justice, which is a cheaper policy
measure. Not all actors are presumed solely rational. However, for an actor that still does not
comply with the rules after an attempt of dialogue and does not change its habits after
punitive measures, a more deterrent action is needed to enforce the law. We come to the final
step in the pyramid when the actor is deemed either incompetent or irrational. The final step
in the pyramid is incapacitation. When nothing else works, harsh measures are ready to be
taken. The result of this pyramidal system is that regulating is cheaper at the lower levels,
while it is also considered more legitimate (Braithwaite, 2017, pp. 118-121).
Instead of the pyramidal responsiveness set out above, a substitute called networked,
nodal responsiveness is used by Drahos. As regulators in developing countries may not have
the capacity to build the pressure on lawbreaking actors, he comes with this alternative
adjusted type of responsiveness. Networked, nodal responsiveness uses a similar pyramid as
the former type does. However, other actors may be used to escalate responsiveness higher
upon the ladder. These other actors can include international regulators, industry regulators,
civil society groups. Even other states can be part of the responsive regulation. Furthermore,
socialist responsiveness is a way in which a government contributes to safer industries
through nationalised companies. It can be a “temporary socialism as a path to less destructive
capitalism”. Socialist responsiveness can, therefore, be a “public value” (Braithwaite, 2017,
p. 128).

- 34 -
6. Analysis: Indonesian government versus
Chinese investments
With the framework I have set out in the fifth chapter, I will now analyse how
Indonesia negotiates Chinese investments to implement its national development plan in a
changing geopolitical arena with an increasing role for China. How does Indonesia take up
Chinese foreign direct investments in the programme to implement its development plan?
First, I will describe the circumstances which I encountered during my fieldwork. Then, I will
organise my analysis themed by type of risk. This is partially based on interviews with
policy-makers at the ministry level and with employees of PT KCIC (Kereta Cepat Indonesia
Cina, Fast Train Indonesia China), the developer of the high-speed train. Therefore, a
separate section will be designated to discuss the high-speed train project between Jakarta
and Bandung. Although the third Rencana Pembangunan Jangka Menengah Nasional
(Medium-Term Development Plan) under the presidency of Jokowi focuses on connecting
the periphery, this project on Java, the core and most populous area of Indonesia, is a prestige
project for both the Indonesian central government and China. For Indonesia to connect two
of the most populous cities in the country and for China to build the first high-speed train
track based on Chinese technology abroad. The framework I will use here is based on the
three pyramidal stages, restorative justice, deterrence and incapacitation and the three types
of risk as defined in the previous chapter. This framework will help analysing the presence or
absence of risks identified by Indonesian policy-makers. Regarding the risk that will be
assessed later on, it is important to note that I will primarily focus on the risk to the
government and not to the private sector. Also, I will focus on the Indonesian perspective on
this risk, rather than on the Chinese perspective.

6.1 Circumstances in Jakarta

When prowling around Jakarta during my fieldwork in the first quarter of 2018, the
necessity to invest in the infrastructure of the city was made very clear to me. It makes little
sense to use a car in the city, as during most of the day you will barely move due to the traffic
jams. Motorbikes take over continuously, zigzagging around the congested roads with rows
of – mostly Japanese – cars which expel their fair amount of emission gasses while moving
forward slowly. And pedestrian walkways are practically nonexistent, with street vendors

- 35 -
occupying precious space. Only on Car Free Day on Sunday mornings, cars make place for
recreational jogging, cycling and other sorts of sports on the busiest streets in central Jakarta,
near Monumen Nasional.
A Transjakarta bus route system was set up in 2004 to back off some of the pressure
of the sclerotic traffic in the city. However, public transport is far from an efficient alternative
to travel within Jakarta. Ride-hailing services like GO-JEK and Grab are more capable of
handling travels around the city efficiently. Moreover, car sales rose between 2009 and 2013,
from barely half a million per annum nationwide to over 1,2 million in 2013, after which the
number of cars sold levelled out. These include mainly Japanese car brands. In 2017, 90 per
cent of cars sold in Indonesia were Japanese brands such as Toyota, Honda and Suzuki,
among others. And measures to limit traffic on the toll roads have been lifted, which caused
even more traffic jams along the city (MarkLines, 2018; Wijaya, 2016). The fact that
Japanese carmakers are dominating the Indonesian car sales market may not be that relevant
at first sight. However, one Chinese worker at PT KCIC whom I spoke in Jakarta, suggested
that Japan was trying to delay the high-speed train project, as it would affect their car
industry. Whether this is the case indeed is hard to say, as I did not hear about it more often.
Nevertheless, Japan and China are both competing for the promising large and young
consumer market that Indonesia is in the world market, with the prospect of a growing middle
class.
Regarding the policy of Indonesia towards foreign investments, or more specifically
Chinese investments, I wonder what risks there are for Indonesia. What is at risk for the
collective of Indonesia? The government must conduct a cost-benefit analysis, which
includes the possible consequences of both receiving foreign investments as well as denying
those. Obviously, such an analysis cannot include all possible information, as not everything
can be known. However, I can presume the central government of Indonesia discusses the
consequences when they establish or rearrange a Negative Investment List. Independent
policy-makers may have their bias towards the policy. During my fieldwork, every single
policy-maker I interviewed told that there are just a number of regulatory policies which
foreign investors have to comply with. Once there is a tender for an infrastructure project,
anyone can apply, and the best may win the tender, without any discriminatory judgements.
Moreover, Indonesia has been trying to cut regulations for foreign investors, to make
the country more attractive for them. As Professor Dr Supancana pointed out, since Indonesia
has become a decentralised country after it started a process towards democratisation in 1999,
local governments have more tools for regulations. As a result, there are many contradictive
- 36 -
regulations between the central government in Jakarta and local governments. Jokowi has
taken up this problem, in order to ease regulations for businesses and foreign direct
investments in general.5

6.2 Chinese investments

As noted before, Indonesia’s foreign policy is aimed at containing China to secure its
national interests. However, in the past years, Chinese investments in Indonesia have risen
dramatically. Notably, especially after 2013, when the One Belt One Road initiative was
announced, China started to promote and encourage Chinese businesses to go overseas. This
is also the time when Chinese businesses started to apply for more legal advice at law firms
in Indonesia.6 While foreign direct investments from China to Indonesia were quite
insignificant in 2012, total FDI from China was $3.4 billion in 2017, ranking third after
respectively Singapore and Japan. This is roughly ten per cent of total incoming FDI.
Moreover, Chinese investments increased with over 90 per cent in the first six months of
2017, compared to the same period the year before (BKPM, 30 January 2018; Hermansyah,
27 July 2017). While Singapore is a prominent investor in Indonesia, it was emphasised in
several interviews that quite some Chinese investments come in via Singapore. This might
corrupt the figures significantly, which are shown in Table 3.
2012 2013 2014 2015 2016 2017
Singapore $4.9 billion $4.7 billion $5.8 billion $5,9 billion $9.2 billion $8.4 billion
(19.7%) (16.3%) (20.4%) (20.2%) (31.7%) (26.2%
Japan $2.5 billion $4.7 billion $2.7 billion $2.9 billion $5.4 billion $5.0 billion
(10.0%) (16.5%) (9.5%) (9.8%) (18.6%) (15.5%)
European $2.3 billion $2.4 billion $3.8 billion $2.3 billion $2.6 billion $3.8 billion
Union (9.2%) (8.3%) (13.3%) (7.7%) (9.0%) (11.8%)
USA $1.2 billion $2.4 billion $1.7 billion $0.9 billion $1.2 billion $2.0 billion
(5.1%) (8.5%) (6.1%) (3.1%) (4.0%) (6.2%)
China $0.1 billion $0.3 billion $0.8 billion $0.6 billion $2.7 billion $3.4 billion
(0.4%) (1.0%) (2.8%) (2.1%) (9.2%) (10.4%)
Table 3: share of foreign direct investments in Indonesia for selected countries, between brackets the share in
total foreign direct investments in that year (BKPM, 30 January 2018).

These numbers were also stressed by the Chinese employee of CTCE during our
interview on 21 January 2018, who brought me a copy of the article. Especially Indonesian e-
commerce was an interesting sector in which several Chinese companies invested in. Several
Indonesian businesses received major investments, such as GO-JEK, Tokopedia and

5
Interview with Professor Dr Supancana, Jakarta, 16 January 2018.
6
Interview with Gustaaf Reerink, Jakarta, 12 January 2018; interview with Dennis Yu Ying Li., Jakarta, 21
February 2018.

- 37 -
Traveloka. As a result, 94 per cent of total investment volume in this sector came from China
in January – August 2017, up from just 2 per cent a year earlier (Google & A.T. Kearny,
September 2017). Although this is not about development funding, it does show that
Indonesia is becoming increasingly more interesting for China as an investment destination.
Having said that all, I should not fall for the too obvious argument that China as a
rising power necessarily is the bad guy by definition, while other countries are automatically
prudent traders. China is not less sinister than others. Moreover, western countries protected
their industries before being competitive at the world stage during the start of the
industrialisation themselves in various ways. When Britain was a hegemonic world leader, it
advocated free trade. While Britain had a competitive advantage over developing countries
and exported relatively high-skilled products of that time, France, Prussia and the US
exported low-value manufactured products and primary products. The latter group turned to
protectionist measures when they had developed suitable infrastructure with imported British
technology and had the financial means to develop an industry of their own (Schwartz, 2010,
p. 76). Point is, l’histoire se répète, history repeats itself. An open economy is in the interest
of competitive industries while protecting sectors has been a common policy measure to
create a competitive industry.
BKPM is the agency that is appointed to promote domestic and foreign investments in
Indonesia and to create a competitive industry and therefore become a competitive economy.
The organisation has stated nine priorities regarding foreign investments. These include a
“clean, effective, trusted and democratic governance”, reforming law enforcement agencies
and increasing the productivity and competitiveness of the country. Moreover, one of the
priorities is to develop domestic strategic sectors. As such, it does not seem that there is a
different approach to Chinese investors, although the goal is to “promote economic
independence” (BKPM, n.d.).

6.3 Tender management system

The Indonesian National Development Planning Agency, Bappenas, is appointed to
select projects which are delivered by project owners to find investors. Together with BKPM
and other ministries, Bappenas is responsible for executing the Medium-Term Development
Plan. I met with the director PPP at the office of Bappenas. It is located in Menteng, central
Jakarta, with one of the few urban parks in town, Taman Suropati, across the street. A
fountain surrounded with flowers and a statue of Diponegoro separate the agency and the
urban park, as can be seen on the cover photo. Diponegoro was a Javanese prince who

- 38 -
revolted against the colonial power from Holland with a peasant army between 1825 and
1830 (Glissenaar, 2003, p. 19). He is depicted as a combative warrior on a horse with a head
of a dragon. The foot of the statue looks like a rough rock. Diponegoro is ready to spear his
target. The target of Bappenas is to attract investments in Indonesia.
At their office, civil servants of Bappenas judge which projects are suitable to be
funded. Possible projects could be proposed by “project owners”. This could be institutions
such as ministries or local governments. When a project is proposed, the agency will screen it
according to value for money. Then, several schemes are available to finance infrastructure
projects. These include schemes using government budget, through public-private
partnerships (PPP), assigning to a State-Owned Enterprise (SOE) or using an on-loan
mechanism. The latter is a bilateral loan or government-to-government cooperation. PPP is
also open for foreign investors, and the vast majority of foreign investors come from China
and Japan. Bappenas offers a PPP book each year with a list of projects.7
There are two types of schemes available within PPP projects. In the first type, a user
fee is used to pay back the loans, as is common with toll roads. Alternatively, the government
pays a yearly fee from their budget (Bappenas, 2018). The latter is more often used in less
populous areas outside Java.7 According to the original plan, the high-speed train would have
been financed with a IDR 200,000 ticket fee, using the first type. Bappenas sets out projects,
delivered by project owners such as ministries, and publishes it in their PPP book. While
Bappenas is assisting project owners, Indonesian Investment Coordinating Board (BKPM)
does a market sounding, to ensure projects are viable. To make Indonesian infrastructure a
reliable investment for foreign investors, the Indonesia Infrastructure Guarantee Fund (IIGF)
offers guarantees against certain risks under the PPP scheme. The IIGF is an SOE, which
offers guarantees through standardised procedures. As a result, the credibility of government
loans must be guaranteed, also under uncertain political circumstances (World Bank, 2014).
While this is in theory the set of regulations in Indonesia regarding foreign direct
investments, this may not correspondent entirely with the practices in the field.
As I met with several government actors, I decided to get in touch with the Port of
Rotterdam, which holds office at the Erasmushuis at the embassy of the Kingdom of the
Netherlands. The Port of Rotterdam is involved in a project to develop a harbour in Kuala
Tanjung near Medan on Sumatra. I figured that it is useful to hear and find out the
bureaucratic process a potential investor has to go through from their perspective and verify

7
Interview with director PPP at Bappenas, Jakarta, 21 March 2018.

- 39 -
the information collected from policy-makers. While government officials I spoke to seemed
to be honest, I cannot ignore the possibility that they might gold-plate procedures. Willem
Dedden, director at PT Pelabuhan Rotterdam Indonesia, Port of Rotterdam sheds some light
on problems he encounters. The main issue according to him is that the government is aimed
at quick results. While the Western approach is that projects need a good integral preparation,
which costs a lot of time, the Chinese just start the project and deal with problems they
encounter on the spot.8 This is also what happens with the high-speed train project. From
several sources, I hear that land acquisition is problematic, which delays the entire project.
Moreover, it appeared that a technical safety mechanism in case of an earthquake was not
developed until short before the start of construction. This short-term orientation seems
typical for the Indonesian approach. The president has to show results well within his 5-year
term before new elections take place. As the Medium-Term Development Plan is a way to
show the nation that the president is capable of developing the nation, it is needed to
desperately show results in a relatively short time for infrastructure projects. This is one
reason for Jokowi to choose China’s proposal instead of the Japanese original proposal to
help to finance and to construct infrastructure projects.
One of the problems for the third Medium-Term Development Plan, which is in effect
now, is that the national government is only capable of financially supporting 40 per cent of
the in total IDR 4,900 trillion ($343 billion) plan for investments that are required until
2019.9 As a result, the national government has to be critical on which projects to finance
with government funding. Thus, when China offered a loan to build the high-speed train for
which no government funding is needed, it became highly interesting for Indonesia. It saves
money, which can be spent on other projects. However, as Dedden puts it, you have to spend
money to make money. You get what you pay for.
This short-term orientation in national development to see quick results, that Dedden
recognises in his business, the development of seaports, is also noticeable in other sectors.
Moreover, China often fails to deliver according to Fitriani. For example, China offered to
build a number of coal plants to add energy to the Indonesian grid. However, few coal plants
have been successfully finished since.10 And indeed, land acquisition is a big problem which
delays the construction of the high-speed train track. When I had brief contact with the PT
KCIC project management staff member late May again, it became once again clear that

8
Interview with Willem Dedden, Jakarta, 2 March 2018.
9
Interview with director PPP at Bappenas, Jakarta, 21 March 2018.
10
Interview with Evi Fitriani, Depok, 27 March 2018.

- 40 -
there is a lot of pressure on the project. I texted him an article which discussed an upgraded
Japanese Shinkansen high-speed train themed with a Hello Kitty interior. Although the
message was obviously meant quirky, his reply was rather serious: “we are facing different
problems … We need to finish this project asap”. A similar comment was made by the
systems engineer during our interview in late January, mentioning the pressure from the
president to get the project finished as soon as possible.
As told earlier, the Chinese tend to promise a lot, but delivering is problematic. While
President Jokowi has been relying on China for its infrastructure development plan during the
earlier years of his term, it appears that he is returning to Japan for support. While Chinese
funded projects are delayed, Japanese funded projects are on schedule. One of the main
projects funded with a Japanese loan is a mass rapid transit system in Jakarta. Shimizu
corporation started building this commuter line in 2013. It is still due to be finished before the
next presidential elections of 2019 (Suzuki, 14 February 2018). A reason for this could be the
longer and better preparation time by the Japanese in advance. The success of projects in
cooperation with Japanese corporations seem to make the Jokowi administration pivot away
from China to Japan. While official statements have been that every investor with a good
proposal is welcome, it may in practice not be the case. For example, when I asked the
policy-maker from the President’s Office a couple of days after our interview to comment on
a news article in NIKKEI Asia Review arguing that Jokowi would want to shift his focus
towards Japanese financial support, a reply was denied. It is only guessing about the reasons.
While new working infrastructure is a clear and visible improvement to show to the
public, another tactic is also used while attracting foreign investments to develop the country.
Transfer of technology is often negotiated. For example, the rolling stock for the high-speed
track will be built in China, then shipped to Indonesia and will be assembled locally. While
the director PPP at Bappenas acknowledges that they want to attract as many foreign
investors as possible to supplement insufficient government funding and investments from
Indonesian SOEs and national investors, some sort of compensation is asked. The purpose is
that Indonesian companies learn from the best practices used by their foreign counterparts in
a joint venture. Both technology and knowledge will be transferred through such a
cooperation. Ideally, local investors would grow and in the long term have the knowledge to
build major infrastructure projects themselves.11

11
Interview with systems engineer PT KCIC, Jakarta, 31 January 2018; Interview with director PPP at Bappenas,
Jakarta, 21 March 2018.

- 41 -
6.4 The high-speed rail project
One of the most considerable and at the same time politically controversial projects is
a planned high-speed rail from Jakarta to Bandung, which has been mentioned a couple of
times already. With the current line, the approximately 150-kilometre trip from Stasiun
Gambir in central Jakarta, within a stone’s throw from Monumen Nasional, to Bandung is a
three-and-a-half-hour train ride and costs between IDR 90,000 and IDR 130,000 (≈ $6.30 -
$9.10). The high-speed train, which was scheduled for completion in 2019, is said to decrease
the travel time to only 36 minutes for IDR 200,000 (≈ $14). This project is one of Jokowi’s
plans to connect the country. The road to the tender of this project, however, was a long
politically motivated process. The initial plan was proposed by the Japan International
Cooperation Agency in 2008, which was tightly researched by the Japanese consortium.
However, in 2015 Jokowi finally decided to offer the bid to China, whose offer primarily is a
financially more interesting proposal (Harding et al, 2015). First of all, the deal does not
require government funds, while the Japanese agency offered a soft loan to the government.
Under the initial Chinese terms, the costs would be paid back with ticket sales over a
concession period of 50 years.
I will go back to the original plan as proposed by the Japan International Cooperation
Agency first, before going into detail on the current plan. In a feasibility study for the
Japanese Ministry of Economy, Trade and Industry the original plan of connecting Jakarta
with Surabaya via a coastal route is compared with a route via Bandung. As the initial costs
of JPY 2.1 trillion ($18.7 billion) for a 700-kilometre island covering line via the northern
coast of Java were deemed too high, a route to connect Jakarta with Bandung first was
suggested to cut costs (Yachiyo Engineering & Japan International Consultants for
Transportation, 2012). However, in a politically charged process, in which various ministers
had opposing opinions, the project was finally appointed to a Chinese-Indonesian consortium
by President Jokowi.
Now, the Jakarta to Bandung high-speed track is the first Chinese high-speed train
project under construction overseas. Therefore, it is the main priority of China to make a
success out of it. Nonetheless, for now, only some site preparation and technical preparations
have been done so far. The China Development Bank has agreed to send the promised funds
only when all land has been secured, which causes delays (Suzuki, 2018; interview with

- 42 -
Systems Engineer, 31 January 2018). Now, it is expected that it takes three to five years to
build.12
Under the current national FDI-rules, foreign companies are required to start an
Indonesian business with local shareholders. As a result, although majorly funded by the
China Development Bank, the Chinese shareholder has a minority share of 40 per cent in PT
KCIC. The Chinese shareholder is China Tiesiju Civil Engineering Group Co., Ltd. (CTCE),
a subsidiary of China Railway Group Limited known as CREC. CTCE is sometimes also
referred to as CREC-4. The consortium PT KCIC has signed a loan worth $4.5 billion with
China Development Bank. The four Indonesian companies involved include the national
railway operator, a contractor and an agricultural state-owned enterprise, which owns a
significant amount of land which is needed to acquire to build the track. These four
companies have a 60 per cent share while funding only 25 per cent. Nevertheless, these
Indonesian companies, and more specifically the contractor PT Wijaya Karya, will benefit
from this project through a transfer of technology and knowledge. As PT KCIC is not a PPP
project, but a business-to-business project, it involves a bilateral agreement between
Indonesia and China. As a result, there is no government guarantee from the Indonesia
Infrastructure Guarantee Fund. The Japanese proposal was planned to be a public-private
partnership; however, it appeared not to be a feasible project, as it would have needed a 49
per cent fiscal support.13

PT Kereta Cepat Indonesia China (PT KCIC)

Indonesian ownership: 60 per cent share, 25 per Chinese ownership: 40 per cent share, 75 per cent
cent funding funding
• PT Kerata Api Indonesia (only railway operator • China Tiesiju Civil Engineering Group Co., Ltd.
in Indonesia) (CTCE), a subsidiary of China International
• PT Jasa Marga (toll road operator in Indonesia) Railway (CREC)
• PT Wijaya Karya (WIKA) (contractor) • Funded by China Development Bank
• PT Perkebunan Nusantara VIII (farming
company)

Table 4: Ownership and funding for PT KCIC.

Despite the involvement of PT Perkebunan Nusantara VIII in the joint venture, land
acquisition is a major issue. PT Perkebunan Nusantara VIII is a farming company and
contributed to the purchase of land. As it is the owner of land particularly in less inhabited

12
Interview with advisor infrastructure projects at President’s Office, Jakarta, 25 February 2018.
13
Interview with director PPP at Bappenas, Jakarta, 21 March 2018.

- 43 -
areas along the track. By mid-January, approximately 30 per cent of the land was reportedly
acquired.14 And by the end of January, about 50-60 per cent was acquired. At the same time,
the contract with China Development Bank required that all land must have been acquired
before any financial resources would be allocated, which formed another obstacle for the
schedule for completion of the project.15 By the beginning of March, it was reported that
“more than 50 per cent” of the land was acquired.16 As several SOEs are involved in the joint
venture, the project is now under the supervision of the respective ministry, BUMN (Badan
Usaha Milik Negara). Now, Bappenas is only monitoring the project, and can only, when
requested, offer advice. Considering all the problems PT KCIC is facing, it is suggested that
this is normal, or at least not unusual, when entering a new market as a business. Moreover,
Chinese companies are facing similar issues as Japanese and Korean companies saw when
they started entering the Indonesian market 20 years ago. They are finding out the best
practices and therefore making mistakes in finding the best way to address the local market
and circumstances.17
Going back to the procedures around the high-speed train, the concession is under
renegotiation at the moment of writing. Although it was not yet publicly known what these
renegotiations were about at the point of my fieldwork, a few things can be said about the
matter. Train ticket sales alone seem to be an unprofitable business for the high-speed train.
The Chinese team member working for CTCE at PT KCIC expected that the company will
probably not make any profits from the Indonesian project. However, as he told in January, it
is seen as a prestige project in which China can show that it is able to build a high-speed track
abroad as well. For that reason, losses are accepted for the sake of long-term advantages, as
they choose to pick their battles. My second source at PT KCIC, who pledged to stay
anonymous, told in March that PT KCIC offered the government to change the concession
period to 23 years. At the same time, it wants to develop real estate around the two train
stations between Jakarta and Bandung, the industrial area Karaway and educational area
Wakini. Hence, instead of earning the investments back with ticket sales, the consortium is
planning to develop business districts along the line, which are more profitable.
In sum, the high-speed train project has been having a number of distortions, with
negotiations to alter the concession deal as a result. This can be characterised as restorative
justice. To define this as either actuarial, socio-cultural or political risk is harder to determine.
14
Interview with Chinese team member at CTCE Railway Group, Jakarta, 21 January 2018.
15
Interview with systems engineer PT KCIC, Jakarta, 31 January 2018.
16
Interview with project management staff member PT KCIC, Jakarta, 08 March 2018.
17
Interview with Interview with Head of Operations A.T. Kearny, Jakarta, 22 February 2018.

- 44 -
As the construction of the project is delayed, measures are taken to change the starting date of
the concession period. There are also fears that the operation of the train through selling
tickets will not be profitable for PT KCIC. As these negotiations are behind closed doors,
journalists are hunching to possible measures that are being taken with PT KCIC. Another
consequence of these distortions is that an upgrade for the rail track from Jakarta to Surabaya
in the northeast of Java is thought to be granted to Japan, according to a number of
interviewees. However, again, policy-makers mostly stressed that this will be a new fair
concession again. Balancing projects between China and Japan was mentioned as another
possible explanation.

6.5 Risks analysed

Seeing these results, I will now assess each type of risk. The types of risks were
actuarial risk, political risk and socio-cultural risk, as discussed earlier. Not coincidentally,
the second and third type correspond with one of the relational issues which the relationship
between Indonesia and China defines, both at the macro level and the micro level. Both
political risk and socio-cultural risk of a potentially growing presence of Chinese businesses
in strategic assets are issues that worry actors. And each risk can be assessed with different
kind of measures. To recapitulate shortly, socio-cultural risk involves a threat to the sense of
belonging and security of the collective. Hence, a perceived threat is also considered a risk.
Political risk concerns the legitimacy of politicians and the economy. Then the question pops
up how Indonesia engages with China, with these types of risks in mind? In the section on
risk and regulation, I stated that the purpose of regulations is to diminish the threat of
undesirable consequences. Thus, to start analysing the regulations, it is worth to give a brief
recap again on which undesirable consequences there are for the Indonesian government. I
will take each “ideal type” of risk and assess them in the analysis separately.
First, actuarial risk may be relatively easy to put the finger on, as measures can be
taken easily in the form of for example FDI regulations. The decision-making process is set
through rules. A certain purpose can be achieved with such rules. Consequently, rules form
legitimacy to the bureaucracy (Stone, p. 289). As Weber put it: “The management of the
office follows general rules, which are more or less stable, more or less exhaustive, and
which can be learned.” (1946, p. 198). Regarding the case of infrastructure development in
Indonesia, this means that the goal, which is achieving economic development throughout the
country by connecting every corner of the widespread country through a better infrastructure,
is set out with a policy framework with general rules. Although Indonesia faces difficulties in

- 45 -
combatting corruption, ranking 96/180 with a score of 37/100 in the Corruption Perception
Index 2017 by Transparency International (2018), it appears that the Indonesian policy
towards foreign direct investments is rather based on clear rules than on the decision of a
single actor within the political or bureaucratic system. For example, the Negative Investment
List applies to everyone and does not discriminate against different countries. The only minor
difference which is made is that rules for investors from ASEAN member states are slightly
smoother than for investors from other states. Moreover, this list is a harsh measure to protect
certain industries which are thought to be important, of national interest, or to prohibit certain
sectors at all to develop by making it illegal. Furthermore, the general rules include that
infrastructure assets remain in government hands. The contract only includes a concession
period with a maximum of 50 years.
This Negative Investment List which Indonesia uses offers a framework for foreign
investors. This set of rules clarifies which industries are not open to foreign investors. The
regulation concerns three lists: a list of open business fields, one for closed business fields,
and lastly a list of business fields which are open with certain conditions. Conditions include
in many cases a limited foreign capital ownership, with, in some cases, fewer restrictions for
investors from other ASEAN member states. This list maintains a framework with a set of
rules concerning foreign investment. For example, in the case of passenger land
transportation through scheduled routes, a condition of foreign capital ownership is set at a
maximum of 49 per cent. To give another example, the construction of a small power plant
requires full domestic capital, while a power plant with a capacity of over 10 MW may be
financed with 95 per cent foreign capital and may be fully owned during a concession period
(Indonesia Investments, 2016, pp. 39, 52). Both foreign investors, as well as local policy-
makers at the level of ministries, have to comply with these rules. Of course, such rules can
change, as current President Joko Widodo has revised the Negative Investment List a number
of times, to open up the economy to foreign investors and the world market in an increasing
set of business fields (Hermansyah, 21 June 2017). Furthermore, Indonesia is cooperating
with the World Bank to assess risk management for government guarantees. The purpose of
this partnership is to assess and evaluate risks in infrastructure funding in accordance with
standardised measures (World Bank, 2017b).
Second, political risk concerns the legitimacy of politicians and the economy.
Therefore, political risk is perhaps harder to notice. In many cases, it is not about harsh
measures, as actuarial risk can be assessed, but with soft measures. These can be latent or
hidden in the policy-making and regulation framework. As the main paradigm is that Chinese
- 46 -
involvement could surge sovereignty of a receiving state, as Hamilton (Callick, 21 February
2018) suggests, is this also the dominant view among Indonesian politicians and policy-
makers? There are signs that this view is also discussed by Indonesian policy-makers and
politicians. An example is that, in an interview, one individual reported overhearing
geopolitical risks in the corridors of a ministry. Supposedly, it is thought to be a geopolitical
risk when China gets access to harbour projects on the northern outer sides of the Indonesian
archipelago. Therefore, it seems that ministries are wary to appoint harbour projects to China
for geopolitical reasons. However, this statement was not verified by political actors.
Moreover, without exception, all government officials I spoke remarked that it does not
matter who the investor is. Most important is that infrastructure is being built to make the
country more competitive and at the same time that the national budget is unburdened.
Moreover, When I talked about the renegotiations with the advisor infrastructure for
the President’s Office on 25 February, he did not want to tell about the circumstances of these
talks. Apparently, there is an uneasiness about the topic. Although it may not be a surprise in
general that negotiations are not in the open, the public is mistrustful regarding the topic, as
the information is not transparent. Erwida Maulia explained in an interview that she was
eager to write about the topic for this reason, but little verifiable information was available
for her. In another interview, a project management staff member at PT KCIC told about
what is being discussed in the negotiations, as set out above.
In addition, in the decision-making process regarding the tender of the high-speed
train, there have been discussions among ministers about the two options, the Japanese
Shinkansen high-speed train and the Chinese proposal. The minister of SOE argued in favour
of the Chinese proposal, while other ministers argued in favour of Japanese proposal. Finally,
President Jokowi made the decision in favour of the Chinese proposal, as no government
funding was required, while the Japanese offer required a soft loan. While in this case a
potential political risk of Chinese involvement in Indonesian infrastructure might influence
the sovereignty of politicians or the economy, this was apparently not considered a major
threat. Moreover, this project may not form a geopolitical risk for Indonesia, as it is a
passenger train and not a harbour or airport with considerable foreign exposure. However, the
many delays in Chinese funded projects, including the high-speed train, affect the risk
assessment, with possible repercussions regarding the legitimacy of politicians. While
President Jokowi is looking for examples of projects that could show that his focus on
infrastructure development is working out, with presidential elections coming up in 2019,
mostly Chinese projects disappoint. And more importantly, the Japanese seem to be able to
- 47 -
deliver on time, although their initial planning time is often longer. Moreover, maritime
disputes with China also form a political and socio-cultural risk for the Indonesian president
(Suzuki, 14 February 2018). As the maritime disputes affect the public opinion on China,
cooperating with China on infrastructure projects by Indonesian politicians may be followed
more critically by the public and hence becomes a political risk for politicians.
Nonetheless, it seems that Indonesian policy-makers do not have many concerns
regarding a growing Chinese influence in their economy and geopolitical position. At the
same time, this is a growing concern in other parts of the world. For example, in Australia,
where a public debate about an increasing role of Chinese businesses has erupted. The main
paradigm seems that Chinese commercial interests should be watched with caution. Reports
about Chinese governments paying for Australian politicians’ travels come with security
warnings about Chinese businesses. Moreover, the CCP seems to have a worrisome control
over the Chinese diaspora in Australia (Welch, 26 June 2018; Callick, 21 February 2018).
Considering that Indonesia has a relatively large Chinese diaspora, my data does not suggest
that Indonesian policy-makers perceive extremely large risks from increasing Chinese
interests in key economic areas. While unverified comments suggest that key seaport
developments at geopolitical interesting locations near international shipping lanes are
preferably not assigned to Chinese developers, in words all policy-makers emphasise that
there are clear regulations which apply to all foreign investors, without exceptions.
Third, I will assess socio-cultural risk, which involves a threat to the sense of
belonging and security of the collective. This type is already mentioned above together with
political risk, as they are sometimes difficult to dissociate from each other. A risk of Chinese
companies or the Chinese government taking control over key infrastructural projects has
both an economic as well as a socio-cultural alignment, as the arguments have been
elaborated above. Moreover, it seems that working with the Chinese does not guarantee that a
project is ready within the scheduled time. As there is a high pressure for the Indonesian
government to deliver results on infrastructure improvements, delays could bring the chance
of a political backlash during the next elections. In addition, both economic and socio-
cultural risks can result in political risks if there are potential political consequences.
Moreover, people are stressing their worries about an influx of Chinese workers in
Indonesia on social media.18 Although these reports are not based on facts, it does show the
ambivalence of Indonesia society towards China and Chinese once again. The official

18
Interview with Erwida Maulia, Jakarta, 6 February 2018.

- 48 -
number of foreign workers from China in Indonesia totalled 21,271 in 2016 (Indonesia
Investments, 6 April 2018). Furthermore, I was told that the number of Chinese employees at
PT KCIC were 27, with 136 Indonesian employees.19 This results in just a one-sixth fraction
of Chinese employees in a company which is primarily financed by China and uses Chinese
technology. Not only a supposedly influx of Chinese workers worries people. Some
Indonesian businesses worry about their competitiveness too. Steel producers, for example,
complain about rigid regulations for Indonesian produced steel, while Chinese steel is
imported with more flexible regulations and is thought to be inferior to locally produced
steel. While all the infrastructure projects throughout the country result in a growing demand
for steel, local producers do not feel the benefits. This also fuels the anti-Chinese sentiment.20
In conclusion, while Indonesia can benefit from closing the funding gap and transfer
of technology, a number of risks have been recognised regarding Chinese investments in its
infrastructure. Political and socio-cultural risk are factors that policy-makers may not
elaborate on in interviews, but it was overheard that it is an issue which is being discussed
internally. Moreover, the president seems to look after Japan for future investments.

19
Interview with project management staff member PT KCIC, Jakarta, 08 March 2018.
20
Interview with Sulistri Afrileston, director KSBSI, Indonesian Workers Welfare Union, Jakarta, 16 March 2018.

- 49 -
7. Conclusion
In this master’s thesis, I have discussed the importance of infrastructure investments
in Indonesia and the problematic economic, political and socio-cultural context that attracting
Chinese investments or aid in this sector involves. Moreover, the investments in a high-speed
train project on Java has been taken as a case to offer an understanding of the possible
consequences in a real project. Using a regulatory framework, this resulted in answering the
research question, how does Indonesia deal with Chinese investments to implement its
national development plan in a changing geopolitical arena with an increasing role for China?
Indonesia’s infrastructure development plan and China’s One Belt One Road initiative
seem to complement each other’s interests. China is keen to invest its money in infrastructure
abroad to help its industries and businesses expand into new markets and Indonesia is looking
to finance its own ambitious infrastructure development plan. Therefore, it may be plausible
to argue that it is a perfect match. Especially because the Indonesian government only has the
financial means to support 40 per cent of the IDR 4,900 trillion plan. They need to find other
sources for the amount of approximately $200 billion. These other financiers can include
SOEs, for which the respective ministry BUMN is responsible, national investors and
international investors. China and Japan are the most significant foreign investors. Chinese
investments help to close the financial gap to complete the third Medium-Term Development
Plan. However, it may be too easy of an answer to call it a perfect match. I elaborated on
historical relations between Indonesia and China, which had been suspended for 23 years.
Furthermore, Peranakan, full blood Chinese in Indonesia, and their culture were and are
marginalised. Notwithstanding, Indonesia has a history of altering policies regarding foreign
direct investments. Also, the independent position Indonesia seeks for itself in the global
order, and the increasingly stronger position that China takes in that global order can cause
problems between the two. As a result, a couple of risks have been identified regarding
Indonesia dealing with Chinese investments to implement Indonesia’s infrastructure plan
with Chinese funds.
Therefore, I have researched whether and how actuarial risk, political risk and socio-
cultural risk for Indonesia are considered and assessed by Indonesian policy-makers. As
Indonesia aims to be an independent member of international society, without wanting to be
closely linked to the Great Powers, it needs financial support for its infrastructure investment
plan. At the moment, it is mainly China that offers funds, partially through Beijing based
international institutions such as the AIIB. While there are a number of risks identified, these
- 50 -
have not been directly acknowledged as such by my data gathered from policy-makers.
However, others mentioned that these risks are being discussed internally.
While a rising China, and moreover the impact of the One Belt One Road initiative is
debated among scholars and policy-makers worldwide, the effects and the context vary per
region and state. Scholars have been discussing the effects in countries in Sub-Saharan Africa
and other Asian countries, which often focus on indebted states. Similar to the aims of
Chinese foreign direct investments in Indonesia, their focus in Sub-Saharan Africa is also
aimed at investing in the energy and resource sectors and infrastructure projects. China was
the fourth biggest investor in the African continent in 2016, with $40 billion. And this
amount has increased heavily from $16 billion in 2011 (UNCTAD, 2018). However, the
debts that a number of other countries make to Chinese infrastructure loans could be
detrimental for future growth. The debt could prevent foreign investors to come and it can
lead to unsustainable debt levels. While Indonesia’s economy is relatively big, a big
infrastructure loan could be less of a burden compared to relatively small sub-Saharan
African countries. One bad example is Sri Lanka, which has indebted itself heavily with
billions of Chinese loans to build an empty airport, among other questionable projects.
Moreover, it turned into a political risk for the president, who eventually lost elections
partially over Chinese loans. (Oude Elferink, 2 August 2018).
Furthermore, since the Sino-Indonesian relations comprises a substantial cultural and
ethnic variable in the analysis, this results in a specific risk factor which may be less relevant
in other cases. This ethnic angle could also affect the choices that Indonesian policy-makers
can legitimately make, more than in other cases. Consequently, a deeper review of the
individual state’s perspective could be a great value in understanding the consequences of a
rising China. Rather than focusing on China’s perspective of a peaceful rise of China, or from
the perspective of Great Powers in the world the perspective from individual state offers a
valuable view in a changing political world arena. The latter is especially the main focus of
scholars in International Relations. In that perspective, this work contributes to the
understanding of a rising China from the perspective of Indonesia, with the typical factors
and history for this particular case. In that respect, it is nearly impossible to generalise the
findings from this thesis to other states, as each state meets considerably different factors to
take care of. Moreover, the consequences for the future political economy when a wide
infrastructure network is operational which connects much of the world with China should be
a big item for future research. This will not only affect Indonesia or Asia but will have an

- 51 -
effect on all countries. It is expected that this will have a major effect on the global supply
chain.

- 52 -
Bibliography
Aguilar, F. V. (2001). Citizenship, inheritance, and the indigenizing of" Orang
Chinese" in Indonesia. positions: East Asia cultures critique, 9(3), 501-533.
AidData (2017). CHINA'S GLOBAL DEVELOPMENT FOOTPRINT. The clearest
look yet at Chinese official finance worldwide. Retrieved from: http://aiddata.org/china.
Accessed on 23 June 2018.
AIIB (2018). Transport Sector Strategy: Sustainable and Integrated Transport for
Trade and Economic Growth in Asia. Retrieved from: https://www.aiib.org/en/policies-
strategies/_download/transport/2018_May_AIIB-Transport-Strategy.pdf. Accessed on 27
June 18.
Allard, T., Da Costa, A (12 May 2017). Exclusive - Indonesian Islamist leader says
ethnic Chinese wealth is next target. Retrieved from: https://www.reuters.com/article/uk-
indonesia-politics-cleric-exclusive/exclusive-indonesian-islamist-leader-says-ethnic-chinese-
wealth-is-next-target-idUSKBN18817N. Accessed on 16 August 18
American Chamber of Commerce Indonesia (2016). Vital & Growing: Adding Up the
US–Indonesia Economic Relationship. Retrieved from:
https://www.uschamber.com/sites/default/files/documents/files/vital_and_growing_-
_adding_up_the_us-indonesia_economic_relationship.pdf. Accessed on 4 May 2018.
Arifin, E. N., Hasbullah, M. S., & Pramono, A. (2017). Chinese Indonesians: how
many, who and where?. Asian Ethnicity, 18(3), 310-329.
Bappenas (2004). LAW OF THE REPUBLIC OF INDONESIA NUMBER 25 OF
2OO4 ON THE NATIONAL DEVELOPMENT PLANNING SYSTEM. Retrieved from:
http://birohukum.bappenas.go.id/data/data_tematik/UU%2025%20Tahun%202004%20versi
%20inggris.pdf. Accessed on 7 May 2018.
Bappenas, (2014). RENCANA PEMBANGUNAN JANGKA MENENGAH NASIONAL
2015-2019 BUKU I AGENDA PEMBANGUNAN NASIONAL. Retrieved from:
http://www.social-
protection.org/gimi/gess/RessourcePDF.action?ressource.ressourceId=50077. Accessed on 25
June 2018.
Bappenas, (2018). PUBLIC-PRIVATE PARTNERSHIPS. INFRASTRUCTURE
PROJECTS PLAN IN INDONESIA. Retrieved from:
https://www.bappenas.go.id/files/PPP%20Book/PPP%20Book%202018%20FINAL.pdf.
Accessed on 1 July 2018.
- 53 -
 Basri, M. C., & Patunru, A. A. (2012). How to keep trade policy open: the case of
Indonesia. Bulletin of Indonesian Economic Studies, 48(2), 191-208.
Bataineh, B., Bennon, M., and Fukuyama, F. (21 May 2018). Beijing’s Building
Boom. How the West Surrendered Global Infrastructure Development to China. Retrieved
from: https://www.foreignaffairs.com/articles/china/2018-05-21/beijings-building-boom.
Accessed on 20 June 2018.
Berrigan, (2001). Indonesia at the Crossroads: U.S. Weapons Sales and Military
Training. Retrieved from: https://worldpolicy.org/indonesia-at-the-crossroads-u-s-weapons-
sales-and-military-training/. Accessed on 12 May 2018.
BKPM, (30 January 2018). DOMESTIC AND FOREIGN DIRECT INVESTMENT
REALIZATION IN QUARTER IV AND JANUARY – DECEMBER 2017. Retrieved from:
http://www3.bkpm.go.id/images/uploads/file_siaran_pers/PAPARAN_-_ENG_-
_TW_IV_2017.pdf. Accessed on 1 July 2018.
BKPM, (n.d.). Vision & Mission. Retrieved from: https://www3.bkpm.go.id/en/about-
bkpm/vision-mission. Accessed on 6 August 2018.
Bland, B. (2017a). Chinese investors hesitate over Indonesia investment. Retrieved
from: https://www.ft.com/content/bb1a9658-4517-11e7-8519-9f94ee97d996. Accessed on 25
June 2018.
Bland, B. (2017b). Indonesia’s Chinese population fears rising ethnic tensions.
Retrieved from: https://www.ft.com/content/d7ec9e12-6de3-11e7-bfeb-33fe0c5b7eaa.
Accessed on 5 May 2018.
Braithwaite, J. (2017). Types of responsiveness. In Drahos, P. (Ed.). Regulatory
Theory: Foundations and Applications. ANU Press.
Callick, R, (21 February 2018). Clive Hamilton: poking the Chinese dragon.
Retrieved from: https://www.theaustralian.com.au/news/inquirer/clive-hamilton-poking-the-
chinese-dragon/news-story/eef6add51ca1e0919236984b7f0b96be. Accessed on 25 June
2018.
Chen, W., Dollar, D., & Tang, H. (2015). Why is China investing in Africa? Evidence
from the firm level. The World Bank Economic Review.
China Daily (4 October 2013). Xi in call for building of new 'maritime silk road'.
Retrieved from: http://usa.chinadaily.com.cn/china/2013-10/04/content_17008940.htm.
Accessed on 3 May 2018.

- 54 -
 CIA World Factbook (2018). Indonesia. Retrieved from:
https://www.cia.gov/library/publications/the-world-factbook/geos/id.html. Accessed on 7
June 2018.
Cox, R. W. (1981). Social forces, states and world orders: beyond international
relations theory. Millennium, 10(2), 126-155.
Drahos, P., Krygier, M. (2017). Regulation, institutions and networks. In Drahos, P.
(Ed.). Regulatory Theory: Foundations and Applications. ANU Press.
Feigenbaum, E. A. (2017). China and the world: Dealing with a reluctant
power. Foreign Affairs, 96, 33.
Fitriani, E. (2018). Indonesian perceptions of the rise of China: dare you, dare you
not. The Pacific Review, 1-15.
Frankopan, P. (2015). The silk roads: A new history of the world. Bloomsbury
Publishing.
Gerring, J. (2007). Case study research: Principles and practices. Cambridge
university press.
Glissenaar, F. (2003). Indië verloren, rampspoed geboren. Uitgeverij Verloren.
Goldman Sachs (2013). Asia Economics Analyst Economics. ASEAN’s half a trillion
dollar infrastructure opportunity. Retrieved from: http://docplayer.net/22173003-Asia-
economics-analyst.html. Accessed on 7 June 2018.
Google & A.T. Kearny, (September 2017). Indonesia Venture Capital Outlook 2017.
Retrieved from: https://www.thinkwithgoogle.com/_qs/documents/4881/TWG-APAC-
Indonesia-VC-Outlook-2017-Report.pdf. Accessed on 14 January 2018.
Guild, J. (2017). How the US Is Losing to China in Southeast Asia. Retrieved from:
https://thediplomat.com/2017/10/how-the-us-is-losing-to-china-in-southeast-asia/. Accessed
on 25 June 2018.
Haines, F. (2017). Regulation and risk. In Drahos, P. (Ed.). Regulatory Theory:
Foundations and Applications. ANU Press.
Harding, R., Chilkoti, A., Mitchell, T. (2015). Japan cries foul after Indonesia awards
rail contract to China. Retrieved from: https://www.ft.com/content/eca4af84-67fa-11e5-
97d0-1456a776a4f5#axzz3nccrCtG6. Accessed on 10 May 2018.
Hermansyah, A. (21 June 2017). Government set to revise negative investment list
again. Retrieved from: http://www.thejakartapost.com/news/2017/06/21/government-set-to-
revise-negative-investment-list-again.html. Accessed on 22 May 2018.

- 55 -
 Hermansyah, A. (27 July 2017). Investment from China grows by 92.79 percent:
Board. Retrieved from: http://www.thejakartapost.com/news/2017/07/27/investment-from-
china-grows-by-92-79-percent-board.html. Accessed on 6 July 2018.
Holmes, O. (9 August 2017). What is the US military's presence near North Korea?
Retrieved from: https://www.theguardian.com/us-news/2017/aug/09/what-is-the-us-militarys-
presence-in-south-east-asia. Accessed on 2 August 2018.
Hoon, C. Y. (2006). Assimilation, multiculturalism, hybridity: The dilemmas of the
ethnic Chinese in post-Suharto Indonesia. Asian Ethnicity, 7(2), 149-166.
Hung, H. F. (2008). Rise of China and the global overaccumulation crisis. Review of
International Political Economy, 15(2), 149-179.
Indonesia Investments (n.d.). Masterplan for Acceleration and Expansion of
Indonesia's Economic Development. Retrieved from: https://www.indonesia-
investments.com/projects/government-development-plans/masterplan-for-acceleration-and-
expansion-of-indonesias-economic-development-mp3ei/item306. Accessed on 25 June 2018.
Indonesia Investments (2016). Presidential regulation of the republic of Indonesia
number 44 year 2016 concerning lists of business fields that are closed to and business fields
that are open with conditions to investment. Retrieved from: https://www.indonesia-
investments.com/upload/documents/Negative-Investment-List-May-2016-Indonesia-
Investments.pdf. Accessed on 21 May 2018.
Indonesia Investments (6 April 2018). New Regulation Makes it Easier for Foreigners
to Work in Indonesia. Retrieved from: https://www.indonesia-investments.com/news/todays-
headlines/new-regulation-makes-it-easier-for-foreigners-to-work-in-indonesia/item8713?.
Accessed on 6 July 2018.
Jotikasthira, O. (27 May 2018). Bang Sue megastation project reaches halfway mark.
Retrieved from: https://www.bangkokpost.com/news/-transport/1473497/bang-sue-
megastation-project-reaches-halfway-mark. Accessed on 9 June 2018.
Kratz, A., Pavlićević, D. (18 September 2017). Chinese High-Speed Rail in Southeast
Asia. Fast-tracking China’s regional rise?. Retrieved from:
https://reconnectingasia.csis.org/analysis/entries/chinese-high-speed-rail-southeast-asia/.
Accessed on 11 August 2018.
Kynge, J., Peel, M., Bland, B (17 July 2017). China’s railway diplomacy hits the
buffers. Retrieved from: https://www.ft.com/content/9a4aab54-624d-11e7-8814-
0ac7eb84e5f1. Accessed on 10 June 2018.

- 56 -
 Lindblad, J. T. (2015). Foreign Direct Investment in Indonesia: Fifty Years of
Discourse. Bulletin of Indonesian Economic Studies, 51(2), 217-237.
Lindsey, T. (2005). Reconstituting the Ethnic Chinese in Post-Soeharto Indonesia.
Law, Racial Discrimination, and Reform. In Lindsey, T., & Pausacker, H. (Eds.). Chinese
Indonesians: remembering, distorting, forgetting. Institute of Southeast Asian Studies.
Lowy Institute (2018). Asia Power Index. Retrieved from:
https://power.lowyinstitute.org/. Accessed on 15 May 2018.
Lum, T. G., Morrison, W. M., & Vaughn, B. (2008, January). China's" soft Power" in
Southeast Asia. Congressional Research Service, Library of Congress.
Magiera, S. (2011). Indonesia's Investment Negative List: an evaluation for selected
services sectors. Bulletin of Indonesian Economic Studies, 47(2), 195-219.
MarkLines (2018). Indonesia – Flash report, Sales volume, 2017. Retrieved from:
https://www.marklines.com/en/statistics/flash_sales/salesfig_indonesia_2017. Accessed on
23 May 2018.
McKinsey (n.d.). China’s One Belt, One Road: Will it reshape global trade?.
Retrieved from: https://www.mckinsey.com/featured-insights/china/chinas-one-belt-one-
road-will-it-reshape-global-trade. Accessed on 27 June 2018.
Ming, C. (5 June 2018). Malaysia is scrapping plans for a high-speed railway to
Singapore. Here's who wins and loses. Retrieved from:
https://www.cnbc.com/2018/06/05/malaysias-scrapping-of-kl-singapore-high-speed-rail-
project-has-implications.html. Accessed on 9 June 2018.
Ministry of Foreign Affairs of the Republic of Indonesia (2013). Future Direction of
Indonesia – China Comprehensive Strategic Partnership. Retrieved from:
https://www.kemlu.go.id/Documents/RI-
RRT/Joint%20Statement%20Comprehensive%20Strategic%20Partnership.pdf. Accessed on
5 June 2018.
Nabbs-Keller, G. (2011). Growing Convergence, Greater Consequence: The Strategic
Implications of Closer Indonesia-China Relations. Security Challenges, 7(3), 23-41.
OECD (2018). Official Development Assistance (ODA). Retrieved from:
http://www.oecd.org/dac/stats/What-is-ODA.pdf. Accessed on 23 June 2018.
Oude Elferink, E. (2 August 2018). Sri Lanka zit gevangen in Chinese schulden.
Retrieved from: https://www.nrc.nl/nieuws/2018/08/02/sri-lanka-zit-gevangen-in-chinese-
schulden-a1611957. Accessed on 18 August 2018.

- 57 -
 Pattiradjawane, R. L. (2016). The Indonesian perspective toward rising China:
Balancing the national interest. Asian Journal of Comparative Politics, 1(3), 260-282.
Parameswaran, P. (2016). Indonesia and China’s AIIB. Retrieved from:
https://thediplomat.com/2016/07/indonesia-and-chinas-aiib/. Accessed on 12 June 2018.
Pew Research Center (2018). Datasets. Retrieved from:
http://www.pewglobal.org/datasets/. Accessed on 17 April 2018.
Phillips, T. (12 May 2017). The $900bn question: What is the Belt and Road
initiative?. Retrieved from: https://www.theguardian.com/world/2017/may/12/the-900bn-
question-what-is-the-belt-and-road-initiative. Accessed on 27 June 2018.
Piketty, T. (2014). Capital in the 21st Century. London: The Belknap Press of
Harvard University Press.
Reuters (21 December 2017). Retrieved from: https://www.reuters.com/article/us-
thailand-china-railway/after-delays-ground-broken-for-thailand-china-railway-project-
idUSKBN1EF1E6. Accessed on 9 June 2018.
Robison, R. (2009). Indonesia: The rise of capital. Equinox Publishing.
Robison, R., & Hadiz, V. R. (2017). Indonesia: a tale of misplaced expectations. The
Pacific Review, 30(6), 895-909.
Roy, D. (2005). Southeast Asia and China: balancing or
bandwagoning?. Contemporary Southeast Asia, 305-322.
Schwartz, H. M. (2010). States versus markets: the emergence of a global economy.
Palgrave Macmillan.
Shambaugh, D. (2005). China engages Asia: reshaping the regional
order. International security, 29(3), 64-99.
Stone, D. (2012). Policy paradox (Rev. ed.). NY: WW Norton & Company.
Suryadinata, L. (1978). The Chinese minority in Indonesia: seven papers. Chopmen
Enterprises.
Suryadinata, L. (1990). Indonesia-China relations: A recent breakthrough. Asian
Survey, 30(7), 682-696.
Suryadinata, L. (Ed.). (1993). Chinese adaptation and diversity: Essays on society
and literature in Indonesia, Malaysia & Singapore. NUS Press.
Suzuki, J. (14 February 2018). Widodo woos Japan as infrastructure ambitions stall.
Retrieved from: https://asia.nikkei.com/Politics-Economy/International-Relations/Widodo-
woos-Japan-as-infrastructure-ambitions-stall. Accessed on 1 July 2018.

- 58 -
 Swedlund, H. J. (2017). Is China eroding the bargaining power of traditional donors
in Africa?. International Affairs, 93(2), 389-408.
The Economist (4 October 2013). An Asian infrastructure bank. Only connect.
Retrieved from: https://www.economist.com/analects/2013/10/04/only-connect. Accessed on
28 June 2018.
The Straits Times (30 December 2016). Trumped up xenophobia over influx of
Chinese workers in Indonesia. Retrieved from: https://www.straitstimes.com/asia/se-
asia/trumped-up-xenophobia-over-influx-of-chinese-workers-in-indonesia-the-jakarta-post.
Accessed on 6 August 2018.
Tiezzi, S. (13 February 2014). The Maritime Silk Road Vs. The String of Pearls.
Retrieved from: https://thediplomat.com/2014/02/the-maritime-silk-road-vs-the-string-of-
pearls/. Accessed on 3 May 2018.
Transparency International (2018). CORRUPTION PERCEPTIONS INDEX 2017.
Retrieved from: www.transparency.org/cpi. Accessed on 21 May 2018.
UNCTAD (2018). World Investment Report 2018. Investment and New Industrial
Policies. Retrieved from: http://unctad.org/en/PublicationsLibrary/wir2018_en.pdf. Accessed
on 5 July 2018.
U.S. Department of State (2006). Indonesia - Military Assistance (Taken Question).
Retrieved from: https://2001-2009.state.gov/r/pa/prs/ps/2006/58686.htm. Accessed on 12
May 2018.
US Trade Representative (2018). Association of Southeast Asian Nations (ASEAN).
Retrieved from: https://ustr.gov/countries-regions/southeast-asia-pacific/association-
southeast-asian-nations-asean. Accessed on 8 May 2018.
Van Zanden, J. L., & Marks, D. (2013). An economic history of Indonesia: 1800-
2010. Routledge.
Waltz, K. N. (1979). Theory of international politics. Waveland Press.
Weatherbee, D. (2013). Indonesia in ASEAN: vision and reality (Vol. 1). Institute of
Southeast Asian Studies.
Weber, F. M. (1946). Essays in Sociology. HH Gerth and C. Wright Mills, eds. and
Trans. New York: Oxford University Press. From Max Weber: Essays in Sociology 1947.
Welch, D. (26 June 2018). Chinese tech company Huawei has sponsored more
politicians' overseas travel than any other. Retrieved from:
http://mobile.abc.net.au/news/2018-06-26/chinese-tech-company-huawei-sponsors-
politicians-trips/9907064?pfmredir=sm. Accessed on 29 June 2018.
- 59 -
 Wijaya, (2017, June 1). People complain of worsening traffic following 3-in-1
removal. Retrieved from: http://www.thejakartapost.com/news/2016/06/01/people-complain-
of-worsening-traffic-following-3-in-1-removal.html. Accessed on 25 June 2018.
Wildau, G. (4 May 2018). US demands China cut trade deficit by $200bn. Retrieved
from: https://www.ft.com/content/d0eb3e4a-4f77-11e8-a7a9-37318e776bab. Accessed on 6
June 2018.
Williamson, J. (1990). What Washington means by policy reform. Latin American
adjustment: How much has happened, 1, 90-120.
World Bank (2014). FAQs: Indonesia Infrastructure Guarantee Fund (IIGF).
Retrieved from: http://www.worldbank.org/en/country/indonesia/brief/faq-indonesia-
infrastructure-guarantee-fund#10. Accessed on 1 July 2018.
World Bank (2016). Connecting to Compete. Trade Logistics in the Global economy.
Retrieved from: https://wb-lpi-media.s3.amazonaws.com/LPI_Report_2016.pdf. Accessed
on 4 May 2018.
World Bank (2017a). World Development Indicators. Retrieved from:
http://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GDP.MKTP.KD.ZG
&country=. Accessed on 25 June 2018.
World Bank, (2017b). Indonesia: Basing infrastructure investment on more solid
ground. Retrieved from: http://www.worldbank.org/en/news/feature/2017/01/31/indonesia-
basing-infrastructure-investment-on-more-solid-ground. Accessed on 25 June 2018.
World Bank (2018). Data Catalogue. Doing Business. Retrieved from:
https://datacatalog.worldbank.org/dataset/doing-business. Accessed on 15 May 2018.
World Economic Forum (2018). Global Competitiveness Index 2017-2018. Retrieved
from: http://reports.weforum.org/global-competitiveness-index-2017-2018/competitiveness-
rankings/#series=GCI.A.02.01. Accessed on 18 June 2018.
Yachiyo Engineering & Japan International Consultants for Transportation, (2012).
Feasibility Study for Promotion of International Infrastructure Projects in FY2011. Retrieved
from:
https://www.jetro.go.jp/ext_images/jetro/activities/contribution/oda/model_study/infra_syste
m/pdf/h23_result03_en.pdf. Accessed on 10 May 2018.
Yu, H. (2014). China's Eagerness to Export Its High-speed Rail Expertise to ASEAN
Members. Copenhagen Journal of Asian Studies, 32(2).

- 60 -
 Yu, H. (2017). Motivation behind China’s ‘One Belt, One Road’ Initiatives and
establishment of the Asian infrastructure investment bank. Journal of Contemporary
China, 26(105), 353-368.
Zhou, T. (2015). Ambivalent Alliance: Chinese Policy towards Indonesia, 1960–
1965. The China Quarterly, 221, 208-228.

- 61 -
Appendix A – List of interviews
Name (blanc if Position Institution Date of
anonymous) Interview
1 Gustaaf Reerink Foreign lawyer ABNR law firm 12-01-2018
2 Professor Dr Professor of Law UNIKA Atma Jaya 16-01-2018
Supancana
3 Chinese national CTCE Railway Group 21-01-2018
team member
4 Systems Engineer PT KCIC 31-01-2018
5 Farida Susanti Journalist Jakarta Post 01-02-2018
6 Erwida Maulia Journalist NIKKEI Asian review 06-02-2018
7 Dennis Yu Ying Li Head China Service Deloitte Indonesia 21-02-2018
Group
8 Emmanuel Head of Operations at A.T. Kearny 22-02-2018
Jefferson Kuesar OLX Indonesia
9 Advisor infrastructure President’s Office 25-02-2018
projects
10 Willem Dedden Director PT Pelabuhan Rotterdam 02-03-2018
Indonesia, Port of
Rotterdam
11 Nikon Ariah, Team leader and Komisi Pemberantasan 08-03-2018
Ristya Paraisuda members anti- Korupsi (KPK,
Siswanto and Deni corruption in FDI Corruption Eradication
Rifky Purwana Commission).
12 Project management PT. Kereta Cepat 08-03-2018
staff member Indonesia China (PT
KCIC)
13 Johanes Herlijanto Professor Visiting Fellow at ISEAS 13-03-2018
– Yusof Ishak Institute
14 Sulistri Afrileston Director Serikat Buruh Sejahtera 16-03-2018
Indonesia (KSBSI,
Indonesian Workers
Welfare Union)
15 Owais Parray Chief Technical International Labour 19-03-2018
Adviser Organization (ILO)
16 Director PPP Badan Perencanaan 21-03-2018
Pembangunan Nasional
(Bappenas, Indonesian
National Development
Planning Agency)

- 62 -
17 Evi Fitriani Head International Faculty of Social and 27-03-2018
Relations Department Political Sciences,
Universitas Indonesia.
18 Mr Budi & Mr De-regulation Board Badan Koordinasi 28-03-2018
Haryo Penanaman Modal
(BKPM, the Indonesia
Investment Coordination
Board)

- 63 -