A GEM OF THE BELT AND ROAD

By Wang Fang, Wang Fengjuan

The China-Indonesia Economic and Trade Cooperation Zone has become a draw for Chinese investors

A 37-kilometer drive northeast along the Jakarta-Bandung expressway from downtown Jakarta is Bekasi, home of the Greenland International Industrial Center (GIIC). With residents including Kawasan Industri Terpadu Indonesia China (KITIC), also known as China-Indonesia Economic and Trade Cooperation Zone, GIIC has been dubbed the “East Jakarta Corridor.”

Upon entering GIIC, we were impressed by the array of manufacturing facilities for modern corporations from China, Japan, South Korea and other countries, led by auto-parts plants of Shanghai General Motors Wuling (SGMW), Honda,Mitsubishi and Suzuki. KITIC is headquartered in the GIIC.

In 2007, China’s Ministry of Commerce approved an application from Guangxi State Farms Group regarding the establishment of KITIC to enhance economic and trade cooperation between China and ASEAN. Over the past decade,as China’s first overseas economic cooperation zone in Indonesia, KITIC started from nothing to become a major investment platform for Chinese enterprises.

Barren Land to Promising Oasis

“When we selected the site, this area was a bare plot of land without roads, electricity or running water,” recalled Zhu Dejin, assistant general manager of KITIC. “Today, infrastructure facilities are well-developed, creating favorable conditions for the development of resident enterprises.” Road construction began after the groundbreaking ceremony in 2010, and by 2013 first-phase infrastructure was completed.

Even after infrastructure facilities were established, very few businesses were willing to set up factories there in the early days, according to Zhu. “In general, outside enterprises lacked understanding of Indonesia, and internet reports on natural disasters such as volcanic eruptions and tsunamis further dissuaded investors,”he explained. “Fortunately, the Belt and Road Initiative (BRI) created rare opportunities. As the nation where the 21st Century Maritime Silk Road was first proposed, Indonesia was yanked into the spotlight of entrepreneurs. Through various channels, we invited businesspeople to come on fact- finding trips, which usually freed them from worries.”

Indonesia has the world’s fourth largest population and a booming consumer market.Driven by the BRI, China has become the largest source of foreign direct investment (FDI) in the country, suggesting huge cooperation potential between the two countries. “Thanks to joint efforts made by the governments of both countries as well as related authorities, an increasing number of entrepreneurs have shown interest in investing in Indonesia,” noted Zhu. “China’s BRI and Indonesia’s Global Maritime Fulcrum strategy profoundly align with each other, which has laid a solid foundation for in-depth cooperation between businesses on both sides.”

KITIC is a joint project between China’s Guangxi State Farms Group and Indonesia’s PT Sentrabumi Palapa Utama. Lucy, deputy general manager of KITIC and their chief Indonesian representative,revealed, “My father felt bullish about the future of Sino-Indonesian economic cooperation, so he decided to join this project as the Indonesian partner.” The prospects for KITIC have proved promising. In recent years, the brand in fluence of the cooperation zone has continuously improved thanks to new impetus from the BRI, bringing a steady stream of potential investors to investigate.

So far, nearly 50 Chinese and foreign companies including China XD Group, Hipad Intelligent Technology Ltd. under China Aerospace Science and Industry Corporation (CASIC), Nantong Kangqiao Axunge Co., Ltd., France-based Schlumberger (Fortune Global 500 company)and New Zealand-based Fonterra (world’s largest dairy exporter) have established subsidiaries in the KITIC. Entities of upstream and downstream sectors are gradually agglomerated around industrial chains such as auto parts, building materials and food processing. Registering a total investment of US$1 billion, the entities have greatly promoted economic and trade development in Indonesia and ASEAN.

With a designed area of 455 hectares, KITIC has planned construction in two phases. Covering 205 hectares, Phase I mainly consists of sectors such as automobile and motorcycle parts, food processing, warehousing and logistics, packaging and building materials. Phase II will be a 20-hectare comprehensive smart zone committed to technological innovation and environmental protection.

Magnet for Overseas Investment

“In 2005 when many economic development zones in China had already achieved success, the Ministry of Commerce began encouraging Chinese companies to invest abroad, as some developing countries began looking to China for assistance in constructing development zones,” illustrated Chen Feixia, general manager of KITIC. Under this context, the Ministry of Commerce approved 19 overseas economic and trade cooperation zones,KITIC among them.

Since its establishment, KITIC has received generous support from the Indonesian government, enjoying preferential policies in terms of infrastructure, customs inspection and quarantine, enterprise access and taxation.“After years of development, we have been gradually recognized by Indonesian government departments,” Chen added. “In March 2018, the Investment Coordinating Board of the Republic of Indonesia (BKPM) granted direct construction investment license, also known as KLIK, to KITIC,which enabled resident enterprises to obtain eight licensing products within three hours and begin construction before obtaining a building permit.Such preferential policies greatly shorten the time needed to start seeing a return on the investment.”

According to Lu Ming, vice president of the Academy of China Council for the Promotion of International Trade, overseas economic and trade cooperation zones provide new launchpads for Chinese companies to go global.

A panoramic view of Kawasan Industri Terpadu Indonesia China (KITIC).

During Chinese Premier Li Keqiang’s visit to Indonesia last May, a 70-member Chinese business delegation made an investigative tour of KITIC,at which entrepreneurs showed acute interest in investing in the Southeast Asian country. “They speci fically inquired about Indonesia’s investment policies, land prices and taxation, and expressed hope to better understand the investment climate of Indonesia and seek cooperation opportunities in KITIC,” said Liu Yunqing, deputy director of the Business Department of KITIC, adding that since he relocated there less than a year ago, he has welcomed three to five businesses every week exploring expansion opportunities.

Early Achievements

A striking logo reading “YoyiC” on a milkywalled building in the cooperation zone is particularly attention-grabbing. The factory was set up by China Mengniu Dairy (Group) Co., Ltd,a leading Chinese dairy firm. Mengniu began exploring the Indonesian market in December 2017. “Market penetration of yogurt in Indonesia remains low—it’s only 5 percent of the country’s beverage market compared to 60 percent in China,”explained He Zhihong, director of Mengniu’s Overseas Department. “Southeast Asian countries are mostly developing countries, and as their citizens’ consumption expenditures increase and consumption habits improve, demand for yogurt will increase.” He revealed that as the Indonesian market matures, Mengniu will look to enter other Southeast Asian countries.

Alongside the huge market potential of Indonesia, a business-friendly environment is another factor in Mengniu’s decision to invest in KITIC. Today, KITIC has established a standardized service system to provide resident companies with one-stop services in investment licensing,examination and approval procedures, local government coordination and management of employer-employee relations.

Inside KITIC, PT XD Sakti Indonesia, invested by China XD Group, a backbone enterprise in China’s power transmission and transformation industry,has become a household name to locals. Launched in March 2017, the company’s considerable production capacity not only satis fies Indonesia’s increased demand for electricity but has also blazed a new trail for Chinese enterprises to play a role in Indonesia’s power industry, making the company the largest transformer manufacturer in Indonesia and even Southeast Asia.

Zhu Dejin told China Report ASEAN that by leveraging the resource and market advantages of both China and Indonesia, construction plans for KITIC will focus on an organic docking between Phase I and Phase II to ensure the zone serves as a major platform for Chinese companies to invest and operate in Indonesia.

“KITIC has already built a safe, efficient investment platform for Chinese companies, and along with the expansion of China’s international capacity cooperation and Phase II construction,the population of Chinese-funded enterprises in the zone is expected to continue soaring,” Chen Feixia added.

Indonesian employees of KITIC at work.

In recent years, KITIC has already reaped early fruits, generating both economic and social bene fits. Despite robust momentum, its development still faces risks and challenges.

“Chinese companies don’t always succeed in going global without a hitch—they often encounter massive difficulties and find severe setbacks to overcome,” illustrated Zhu Dejin. “Investing and building factories in a foreign country entails unavoidable risk, difficulties and uncertainties in local financing and insurance.” He suggested Chinese government authorities intensify policy communication with host countries to reinforce top-level design while encouraging domestic financing, insurance, legal consulting and other service sectors to go global to better service the KITIC and its resident companies.

Expansion and Upgrade

As the primary developer of KITIC, Guangxi State Farms Group has taken advantage of Chinese experience in constructing industrial parks to promote upgrades of the cooperation zone,aiming to make it a comprehensive experimental platform for Sino-Indonesian cooperation in trade,technology and environmental protection.

“If Phase I is the kindling, Phase II is a bon fire,”Chen Feixia illustrated. “Phase I focuses on fields such as automobile assembly, infrastructure building materials, warehousing and logistics,and printing and packaging, while Phase II will aim at a smart sci-tech park that mainly consists of innovative and eco-friendly enterprises.” Next,she said, the cooperation zone will use recovered capital and experience from Phase I to expand in fluence of Phase II and attract even more investors.

While facilitating international capacity cooperation, KITIC also works to bring bene fits to the local community. So far, it has contributed US$400 billion to local taxation and provided more than 3,000 jobs for residents from surrounding villages, which has improved their lives and brought them a sense of gain.

“I’m very happy to work with Chinese companies,” stressed KITIC translator Adhi Pratama. “The work environment is friendly,and the salary is relatively high. I like this place.”Now, more than two-thirds of employees in the cooperation zone are Indonesian nationals.

Additionally, KITIC has established a rural development training center for locals and donated 600,000 yuan (US$87,504) in money and gifts including computers and sewing machines to peripheral villages to promote local economic and social development.

Along with advancement of the BRI, China’s overseas economic and trade cooperation zones have seen leapfrog development and become the top choices for Chinese companies looking to invest abroad. Statistics from China’s Ministry of Commerce show that as of September 2018,Chinese investment entities had established 113 economic cooperation zones in 46 countries, 56 of which are located along the Belt and Road. With accumulated investment of more than US$30 billion, these cooperation zones are home to nearly 4,000 companies in total, which have contributed US$3 billion to tax revenues of host countries and created 300,000 jobs for local communities.