Senin, 04 Maret 2013

Tension in the East China Sea : Economic implication for RI


Tension in the East China Sea :
Economic implication for RI
Kemal Azis Stamboel ;  Member of the House of Representatives’ Commission I Overseeing Foreign Affairs from the Prosperous Justice Party
JAKARTA POST, 28 Februari 2013


The tension between Japan and China over the Senkaku/Diaoyu Islands has driven Japan’s new Prime Minister Shinzo Abe to make defense central to his policy platform. 

The dispute escalated when Chinese warships near the islands locked on to a Japanese helicopter and destroyer in separate incidents in January. 

The Abe administration has announced Japan’s first defense budget increase in over 10 years and signaled his intention to amend the “pacifist” constitution.

The dispute is unlikely to escalate into an armed conflict. The threat to regional stability and security, political and economic considerations and the economic interdependence of Japan and China should see to that.

The East China Sea is home to three of the world’s largest economies: China, Japan and South Korea. The waters are vital trade routes for both Japan and China, with the shipping lanes used for both China’s and Japan’s crude oil imports. 

Regional security is guarded with three major military powers with formidable naval capabilities: China, Japan and the US.

Whether hostilities break out or not, the tension has disrupted relations between Japan and China, reducing Japanese exports into China and forcing Tokyo to distance itself economically from its larger neighbor. 

The Financialist reports that Japan’s export-driven companies have hedged their China exposure by increasing sales to other Asian economies. 

Automakers are among those hardest hit. Nissan’s sales in China have fallen 5.3 percent to 1.18 million units, Toyota’s by 4.9 percent to 840,000 units, and Honda’s 3.1 percent to 600,000 units. 

Japan will try to diversify away from China and conclude commercial partnerships with the countries of Southeast Asia, with India and with some places as far as the Middle East and Africa.

Japanese investment in China dropped precipitously in October 2012. Direct investment fell by almost a third. 

The sharp fall knocked Japan’s overall direct investment in China to an annual growth rate of 11 percent, from 17 percent in the first nine months.

Japan-China tension brings economic opportunities for Southeast Asia countries, especially Indonesia, in two ways: greater Japanese investment and export relocation.

Abe’s call for further quantitative easing and urging the Bank of Japan to focus its monetary policy on an inflation target has resulted in a weakening of the yen, buying time for exports and further overseas investment. 

Japanese companies will continue investment in countries with a high return. In this light, Indonesia’s banks return on capital (ROC) is higher than other Southeast Asian countries. Indonesia’s recorded ROC was 32.97 percent in 2011, higher than Thailand’s 21.38 percent.

Japan also views Indonesia as attractive for overseas business operations. In 2007, the Japan Bank for International Cooperation ranked Indonesia as seventh most-promising country for overseas business operations in the medium term, up from eighth in 2006. Indonesia was second among Southeast Asian countries after Thailand.

In December 2012, after a meeting of the Japan Indonesia Association and dozens of Japanese executives with Industry Minister MS Hidayat at his office, major Japanese investors committed to increase and accelerate investment in Indonesia. Japan’s automakers, which have reported falling sales in China, are attracted by Indonesia’s automotive boom and promised to pour in more investment to tap into the country’s fast-growing car market.

Further Japanese investment shall be fetched by maintaining a friendly investment climate through improving infrastructures, especially security guarantees and a stability of political situation, as well as industrial estates and land provision.

Besides greater Japanese investment, there may be increased in trade between the two countries as Japanese relocates exports to Indonesia. 

Indonesia is one of Japan’s trade priorities, with US$17.7 billion exports to Indonesia and $33.9 billion imports in 2011. This number is 11.8 percent up on the previous year and represents 2.2 percent of total Japanese exports. 

Japanese exports to Indonesia consisted mainly of machinery and transportation equipment (61 percent), iron and steel (11.5 percent) and chemical products (8.2 percent), similar numbers to Japan’s exports to China. The similarity makes Indonesian market the easiest destination for Japanese to relocate their former exports to China.

Japan has a huge trade deficit with Indonesia, increasing from $9.61 billion in 2004 to $16.24 billion in 2011. This trend doesn’t seem about to decline, as Japanese companies increase overseas activity. With Japan-China trade curtailed by the Senkaku/Diaoyu dispute, Indonesia is in pole position to be the next destination for Japanese exports. 

This is in line with Indonesia’s interests since products imported from Japan are mainly capital goods related to investment and domestic industrial needs. Indonesian exports also contain many imported components, especially in manufacturing. To make the most of this opportunity, the government should ease restrictive trade policies and embrace emerging global production networks.

Meanwhile, Indonesia’s exports to Japan are losing out to Thailand through lack of promotion in the Japanese market. Other Southeast Asian countries are very active in promoting their products and inviting investment from Japan, while Indonesia relies more on its huge domestic market. Indonesia needs to make better use of the Japan External Trade Organization to expand exports and invite more investors to Indonesia.

While Japan-China tension can bring opportunities to Indonesia, we still need to safeguard stability in the East Asia and the Pacific region. Indonesia’s diplomatic weight and confidence in its assertive, multi-directional diplomacy must be used to mediate in the Japan-China dispute and play a constructive role in East China Sea issues. Regional peace and stability are essential for the conduct of trade and commerce. Tension between Japan and China will disrupt security of the East China Sea, and stifle not only economic relations between the two countries, but may also affect economic flows with other Asia-Pacific countries.

Indonesia played a crucial role in ensuring peace and stability in the region in the last year. Indonesia and Japan have a strategic partnership. The Chinese government views Indonesia as a key partner in maintaining stability in the Asia-Pacific region. Indonesia, Japan and China are members of many regional forums, such as ASEAN Plus Three, the East Asia Summit, and the ASEAN Regional Forum. The time is ripe for Indonesia to increase both its political and economic clout in the region. ●

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