Although I don’t really like it, I cannot deny that Indonesia has been developing well in recent years.

The Southeast Asian financial crisis at the end of the last century caused it to “run naked” once, and then it continued to struggle like a tug of war for more than 20 years.

For a long time, Indonesia was considered the most promising developing country in Asia after China and India, but it has not been able to realize its potential. And now Indonesia’s economic performance is impressive. In the future, will it be the new engine of Southeast Asian economy?

01

As is well known, although Southeast Asia has been colonized for hundreds of years, there is not a single troublemaker in the circle of friends. The War of Independence lasted for decades, and several Southeast Asian small tyrants were also defeated.

In the 1940s, Indonesia fought against the Dutch for over a decade in search of independence, and the military gradually grew stronger through repeated struggles. In the early days of the founding of the country, Indonesia was like the village’s Erlengzi, poor and ruthless. They would grab whatever they saw and hit whoever refused. It was with this kind of determination that Indonesia conquered 1.91 million square kilometers of territory and brought together more than 17000 islands and 300 ethnic groups.

Before the 21st century, Indonesia followed the military led governance route with Southeast Asian characteristics, with a style of doing whatever it was. Although it also experienced a period of rapid economic growth, the 1998 financial crisis brought Indonesian people back to the forefront overnight.

In short, in the half century after Indonesia’s independence, most of the time it was either tormenting others or itself. The country was at a certain level of chaos, and its economic growth remained at 2% for a long time, engaging in a slow upward movement.

Ten years ago, Indonesia was also defined by Morgan Stanley as the “five fragile countries”, and the other four are South Africa, Brazil, Türkiye and India. These countries all have a common feature, that is, their economy is heavily dependent on foreign capital. Once foreign capital is withdrawn, the economy will be abandoned, and people generally do not trust their own currency. Once the international market is a bit turbulent, their own currency will fall like a laxative.

In 2007, Indonesia’s GDP was only 432.2 billion US dollars, ranking 21st in the world. In the same period, Brazil’s was 1.4 trillion US dollars, India’s P was 1.2 trillion US dollars, and Türkiye’s was 68 million US dollars. Only South Africa was slightly inferior to Indonesia, with an economic aggregate of about 33 million.

In 2008, Indonesia was hit by a global financial crisis again, and as a result, Indonesia was not spared. Not only did its stocks, bonds, and foreign exchange suffer three blows, but even its banks almost went bankrupt. Despite three presidents in three years, Indonesia’s economy did not improve. It was not until 2014 when Joko Widodo came to power that Indonesia’s economy barely recovered.

02

In the past eight years, the Indonesian government has built 16 airports, 18 ports, 38 dams, and nearly 2000 kilometers of highways, more than twice the total length built 40 years ago.

Moreover, as the largest country in Southeast Asia, Indonesia has a total population of about 270 million, second only to China, India, and the United States. Its land area exceeds 1.9 million square kilometers, and the distance from east to west is even farther than a round trip from Beijing to Urumqi.

Everyone should know that with more islands, there are more nearshore waters, and natural resources are relatively abundant. Indonesia ranks among the top in Southeast Asia in terms of oil, coal, natural gas, metal mines, and forest resources. Let’s take coal as an example. In 2021, Indonesia’s coal production exceeded 800 million tons, but they only consumed 165 million tons domestically, which is about 20%, and the rest was exported overseas.

If everyone only sees Indonesia as a resource exporting country, then simplify it.

In recent years, the electric vehicle industry has developed rapidly, and the demand for nickel metal has also skyrocketed. According to data from the United States Geological Survey, as of 2020, the global nickel reserves were approximately 94 million tons, with Indonesia alone having reserves of 21 million tons, ranking first in the world.

Since Widodo took office, the Indonesian government has repeatedly issued export bans on metal mineral raw materials, especially nickel ore, which is not allowed to sell a single ton. This has forced new energy battery manufacturers such as Tesla, Panasonic, and CATL to invest and build factories in Indonesia. Indonesia’s strategy of using upstream supply chains to force foreign companies to invest and build factories can be considered as maximizing resource utilization, not only driving local employment, but also creating a metallurgical industry chain worth nearly 20 billion US dollars annually.

In addition, Indonesia’s tourism industry and digital economy are also growing rapidly.

Before the COVID-19, more than 10 million foreigners traveled to Indonesia every year. Tourism accounted for 6% of Indonesia’s GDP, creating 13 million direct and indirect employment opportunities, equivalent to 10.3% of Indonesia’s total labor force.

In terms of digital economy, in 2021, Indonesia’s digital output reached about 70 billion US dollars, and its copycat Uber (Gojek) has successfully gone global, expanding its user base to Thailand, Vietnam, and the Philippines; Tokopedia, the e-commerce platform, has copied Amazon in the United States, Taobao in China, and Tmall in all kinds of financial services, from operation to electronic payment. It can be said that Tokopedia is a master of copying in the Internet circle.

Of course, those Internet giants can’t teach for free. Behind most of Indonesia’s Internet enterprises, there is constant care from foreign capital. For example, the copycat Uber mentioned above has been invested by major Chinese and American companies such as Paypal, Google, JD, Tencent, etc. since its inception. Now this enterprise has integrated with Indonesia’s e-commerce platform to establish a new group, GoTo Group, with a market value of more than 20 billion dollars. The output value of the entire group’s ecology can account for almost 2% of Indonesia’s national GDP.

According to the Southeast Asian Electronic Economy Data Report, it is expected that by 2025, Indonesia’s total digital economy output value will reach 146 billion US dollars, with an annual growth rate of nearly 20%. In the future, it is highly likely to penetrate other Southeast Asian countries, which is a market with a population of over 600 million and the next trend for domestic giants.

03

Finally, let’s talk about the cooperative relationship between China and Indonesia over the years.

According to data from the Chinese Ministry of Commerce, as of 2021, China has been Indonesia’s largest trading partner for nine consecutive years and the second largest source of foreign investment in Indonesia in the past two years. At present, Chinese companies’ investments in Indonesia include electricity, minerals, automobile manufacturing, digital industries, and the financial sector.

In particular, the Ya’an-Wan’an high-speed railway, with technology and capital invested by Chinese enterprises, is the first Chinese high-speed railway to go out of the country for the first time in a whole system, all elements and all production chain. It is also a landmark project of the “the Belt and Road”, which is equivalent to a hard core advertisement for China’s infrastructure and the first step of China’s integration of East and South Asia.

Overall, as a large country with a population of 262 million, Indonesia has abundant resources and a young labor force. Its advantages in Southeast Asia are very obvious, and it is only a matter of time before it can replace Vietnam.

And everyone should know that the international environment is becoming increasingly complex, and the economic relationship between China and Europe and America is likely to continue to cool down, so the Southeast Asian market is particularly important.

Nowadays, ASEAN has become China’s largest trading partner, and Indonesia’s significance to China as an important member of ASEAN is self-evident. If Indonesia can maintain long-term stability and economic growth, it is a good thing for the Indonesian people and Chinese enterprises, and even to some extent, it can replace India’s market value.

Setting aside historical grievances, Indonesia may become the largest economy in Southeast Asia.

In the first half of 2024, the global economic environment is not optimistic, and the GDP growth rates of developed countries are sluggish. Even India, a highly anticipated “super emerging market,” is starting to slow down, while Indonesia is quietly delivering an impressive performance report.
The economic growth rate in the first quarter is 5.11%, and the forecast for the second quarter is around 5%. It may remain stable between 5.1% and 5.2% for the whole year.
Although this number may seem insignificant, when compared, the average growth rate of the G20 is only 3%, let alone those developed countries deeply mired in recession.
In this situation, Indonesia appears particularly stable.

Even more surprising is its currency. Even in the face of the wave of interest rate hikes in the US dollar, its depreciation rate is still controlled at around 5%, which is quite rare in emerging market countries.
The monetary policy of the Indonesian central bank has played an indispensable role, with steady interest rate hikes and continuous inflow of foreign capital, which has given the rupee confidence.
Indonesia attracted $10.83 billion in foreign direct investment in the first half of this year, a year-on-year increase of 63%.
These funds have not only flowed into the mining and primary processing sectors as before, but have been directed towards the manufacturing, infrastructure, and digital economy sectors.
Especially the rise of the manufacturing industry is changing Indonesia’s previous single pattern of relying on resource exports.
Of course, Indonesia’s future is not a smooth road.
The complex domestic political ecology, infighting among interest groups, and the improvement of education level will all be challenges that Indonesia must face. Moreover, its labor productivity is far below the regional average level.
No matter how good the infrastructure is and how many young people there are, if these resources cannot be converted into productivity, it will ultimately be just a facade.
But it must be admitted that Indonesia is indeed undergoing a qualitative change.
From being synonymous with the “fragile five countries” to being regarded as one of the most stable economies in Southeast Asia today, Indonesia, as the new engine of the economy, will also be an important part of China’s layout in Southeast Asia.