Belt and Road Initiative in Indonesia

Date: 21 August 2022

Author: Indescribled 

Tags: Asia-Pacific, Economics

The Belt and Road Initiative (BRI) is a development strategy and framework, proposed by Chinese President Xi Jinping, that focuses on connectivity and cooperation. The BRI started in 2013 and is open to countries across the world and seeks to improve global infrastructure, interconnectivity, and trade.

China and Indonesia celebrated 70 years of cooperation as of July 2020, showing clearly the already existing relations between the countries, which Indonesia strengthened by joining the Belt and Road Initiative in 2013. Additionally, Indonesia was one of the first countries to join the initiative. China's investments in Indonesia are focused on transportation and energy infrastructure, which is characteristic for the BRI around the world. 

Infrastructure is not the only benefit of the BRI; using local currencies during trade or investments between the two countries is actively encouraged and promoted by the People's Bank of China and Bank Indonesia. Local currency usage is meant to enhance and facilitate trade and investment between China and Indonesia and will lead to continued and strengthened relations..

One of the primary projects is the construction of a $4.7 billion high speed rail between Jakarta and Bandung. This high speed rail is the first of its kind in Indonesia. Once complete, the rail will be 142km long and have four stations that pass through 13 different tunnels as well as a bridge. It will reduce the travel time between the two cities from three hours to around 40 minutes. 2,000 workers are being employed during construction and many will continue to work on the rail after operations begin.

The benefits from the rail are massive - giving workers new job opportunities not only on the rail, but also in cities that they may not have been able to access previously. Travel time reductions of almost 80% are unbelievable. To put that into perspective, Chicago, IL to Indianapolis, IN,  Portland, OR to Seattle, WA and Nashville to Memphis, TN are all three hour drives across the United States. Being able to travel that same distance in 80% less of the time would literally be life-changing for people. Whether it is for seeing family, exploration, or work, the time benefit is indisputable. 

The Manado-Bitung toll road is another transportation project that will improve travel time from 1.5-2 hours to about 30 minutes. As it is a road, the benefits will not be at all comparable to high speed rail, but it still cuts the time down by 66-75%. China provided the majority of the financing, $78 million, with 3% interest and a 5 year grace period to allow for the project to be completed. We have seen similar grace periods and low interest rates in our articles on Argentina and Kenya so far.

A massive project is the Kayan Hydropower Plant, which is still in the early phases and will take potentially 20 years due to its size. There are five hydroelectric dams proposed with a total energy capacity of 9,000 MW, or 9 GW. To put that in perspective, Indonesia had 72.8 GW capacity in 2020, so adding 9 would be a 12% increase.

As for the progress of the project, Khaerony, Director of Operations of PT Kayan Hydro Energy said on August 11th, 2022 that the construction of the road for the plant was about 30% complete. The upcoming plans are to complete the road within the next six months and continue construction of the dam once materials can be transported there.

Khaerony went on to talk about how citizens feel about the project, saying “In general, the support of local residents for the Kayan Dam construction is quite good.” The reason for the support, at least partially, would include access to new job opportunities and cheaper, more reliable energy. The project will cost almost $18 billion, which China is supplying the majority of, but what China is not doing the vast majority of is work. Local contractors and workers are intentionally being used on the project to support Indonesians. 

Additionally, China has helped fund the construction of two coal power plants in Indonesia. The first plant is the Pangkalan Susu power station, which China financed $373 million in 2014. This plant has an 840 MW capacity and provides about 16% of the peak power consumption of the North Sumatra region. Power outages and shortages have been alleviated and reduced since this plant was completed in Dec 2020.

The second plant is the Sumsel-8 plant, which China financed $1.26b. This plant will have two 660 MW coal units, bringing its total capacity to 1320 MW. Construction was supposed to be completed as of March 2022 where the plant will then enter a commissioning stage. 

To help Indonesia combat COVID-19, China donated 30,000 masks and is the largest medical equipment exporter to the country, which consists primarily of PCR and rapid test kits. Additionally, China has expressed support for many months to assist Indonesia with construction of a regional vaccine production center. President Xi Jinping met with Indonesian President Joko Widodo on July 26, 2022 and, among many other topics, re-iterated China’s support for the regional vaccine venter. As of July 2021, Indonesia was working with the WHO to make a deal to produce mRNA vaccines.

As with all of China’s BRI projects, the benefits to the people are vast and they serve an additional purpose of mitigating reliance on outside investments and products. Indonesia is able to produce much more of its own energy and has an improved transportation infrastructure, giving local citizens jobs both during construction and after completion as well as a better travel experience due to the high-speed rail. China and Indonesia have a long history of cooperation and the BRI is furthering the relations and reducing Indonesia’s reliance on outside goods, increasing domestic production, infrastructure, and capabilities.