Where China fits in Jokowi’s plan for Indonesia’s US$33 billion new capital city

(SCMP) – While President Joko Widodo’s plan to move the capital of Indonesia from Jakarta to East Kalimantan has its supporters and detractors, one thing is certain – the government is not going to bear the entire US$33 billion cost on its own. But how much investment will the project get from China?

According to East Kalimantan governor Isran Noor, Indonesia is open to foreign investments, including from Beijing, to help it build infrastructure in the new capital city, which will straddle an area of 180,000 hectares between the regencies of Kutai Kartanegara and Penajam Paser Utara.

However, he said, the deal must be balanced for both sides and provide employment for local workers.

“To me, Chinese investment is very important because we need it to build infrastructure and other facilities to fulfil the people’s needs,” Isran said. “But most importantly, we need to create a deal that puts no burden on the government’s shoulders.”

Funding for development in the new capital was set to rely more on deals with state-owned and private enterprises, either domestic or foreign, than on Indonesia’s own state coffers, the governor said.

East Kalimantan, a province in the middle of the archipelago, is home to 3.5 million people and an abundance of natural resources, including oil and gas, timber and oil palms.

It is also Indonesia’s largest coal producer, accounting for 62 per cent of national coal output last year, and the biggest contributor to the country’s GDP among the five provinces in Indonesian Borneo.

Besides its economic strength and strategic location, the president – known popularly as Jokowi – has also pointed out that the province is not susceptible to natural disasters such as earthquakes and volcanic eruptions, making it all the more ideal to house the capital of Southeast Asia’s biggest economy.

The next capital is designed to be an administrative hub like Malaysia’s Putrajaya or Australia’s Canberra, while Jakarta, a crowded and polluted metropolis that sinks some 20cm annually, will remain a business and financial centre.

News of the historic relocation was met with joy by many in the country, along with an array of criticisms. Besides its high price tag and the impact on Bornean wildlife and the environment, the accusation that the Jokowi administration’s decision was driven by China as part of its ambition to “rule the world” has been levied by some in the opposition, including Amien Rais.

Rais, a strident government critic, was once head of the People’s Consultative Assembly. He is also a close ally of Prabowo Subianto, whom Jokowi defeated in this year’s elections.

Isran, who provided a range of data to the central government about the province before the announcement, dismissed this claim.

“I don’t believe that [Indonesia] asked consideration from China, or other countries for that matter, on the new capital city. I think that’s a hoax,” Isran told This Week in Asia at his White House – so called due to its all-white facade – in the provincial capital Samarinda, a two-hour flight from Jakarta. “I provided the data on the land capability, land availability, as well as whether the relocation move would be welcome or rejected by the people of East Kalimantan … if they rejected it, we relayed their concerns to the central government. But overall, the people of East Kalimantan are proud and happy with the decision.”

Among those looking forward to the relocation is Mardianto, a motorcycle mechanic from Samboja in Kutai Kartanegara regency, a town reportedly close to where the new capital city will be built.

The 21-year-old went to Samarinda recently to visit his extended family, who had just moved there from the nearby island of Sulawesi in search of job opportunities potentially afforded by the relocation plan.

“I welcome the plan to move the capital to East Kalimantan because Jakarta is already crowded and polluted,” Mardianto said.

“I think the decision will improve our economy. The people in my village are very happy with the announcement. I hope that the government will fix the potholes there.”

READY TO INVEST

For its part, Chinese firms are eager to invest in East Kalimantan. State-owned China Railways Construction Corporation (CRCC) on September 2 told Luhut Pandjaitan, a senior Indonesian minister tasked with upping investments from China, that it was keen on helping the country build transport technology in the new capital.

At the same meeting, CRCC also told Luhut it was interested in the lucrative Jakarta-Surabaya semi-high-speed railway project, but Indonesia on September 25 officially awarded the 60 trillion rupiah (US$4.2 billion) project to long-time investor Japan.

Meanwhile, China Road and Bridge Corporation, China Communications Construction Engineering Indonesia and China Construction Eighth Engineering Division Corp have expressed their interest in joining the tender to build a tolled highway that would connect the port city of Balikpapan to Penajam Paser Utara.

Beijing also provided a 848.55 billion rupiah soft loan to the Indonesian government for the construction of a part of the Balikpapan-Samarinda tollway, the island’s first, which is to be opened later this month.

Both tollways will be connected to the new capital, making them a well-paying investment once Jakarta’s 2 million civil servants move to Borneo.

Chinese firms also run two gas and steam power plants in Kutai Kartanegara. Another Chinese company recently proposed to help manage and clean up the watershed of the Mahakam River, the country’s second-longest river, Isran said.

Chinese manufacturing giant Hongshi Cement is also planning to set up a US$2.1 billion factory in Kutai Kartanegara, which could potentially reap the benefits from the new capital’s massive infrastructure development drive.

However, a labour union at Semen Padang, Indonesia’s oldest cement manufacturer, in August reported Chinese cement makers to national anti-monopoly body KPPU over accusations of predatory pricing – selling their products as cheaply as possible amid the current cement oversupply.

“I expect that the development of the new capital city would be [a boon to] a new Chinese cement factory that would be established in East Kalimantan. Just imagine, we are sparing nearly 500 trillion rupiah for the new capital, so there’s a big possibility that the cement would be supplied by Hongshi factory,” Andre Rosiade, a newly installed House member from the opposition Great Indonesian Movement Party, said in September.

“The question is, would this cement factory be used [to serve] the nation’s interest or to facilitate Chinese investors in Indonesia?”

LOGISTICS CHALLENGES

Just as in other parts of Indonesia, operating a large-scale business in East Kalimantan is not without its challenges. The province still lacks the proper infrastructure to support industry, resulting in high logistics costs for many companies there.

“We need to revamp the infrastructure in industrial areas, such as roads that connect cities to regencies [to reduce these costs],” said Slamet Brotosiswoyo, chairman of the local branch of the Indonesian Employers Association.
“In the future, we hope that foreign investors in East Kalimantan would invest in developing industries, not only sucking up [the province’s] natural resources.”

All the economic benefits East Kalimantan was set to enjoy from the relocation plan would eventually trickle down to its neighbouring provinces, Slamet added, raising the possibility of a trans-Kalimantan road.

An influx of overseas investment could also increase the number of foreign workers in East Kalimantan, legal and illegal. In 2016, 23 illegal foreign workers, mostly Chinese who worked in the Muara Jawa steam plant, were deported from Indonesia after a raid. Hundreds of illegal Chinese workers reportedly hid in the nearby hills after hearing of the raid.

In 2017, there were 1,698 foreign workers in the province, an increase of more than 500 per cent over the preceding decade.

East Kalimantan was last year ranked third on the list of Indonesian provinces with the most foreign workers, after Southeast Sulawesi and Central Sulawesi, according to Indonesia’s ombudsman.

“There is a concern about the potentially increasing number of foreign workers in East Kalimantan after the capital moves here, because they could threaten local workers’ job opportunities,” said Sukarjo, chairman of FSP Kahutindo, a union for timber and forestry labourers in the province. “If a company must employ foreign workers, they must be legal and meet all the requirements set by the laws.”

The union expects labour agencies to launch skills-enhancing programmes for local workers as “competition among labourers would be tight” once the capital is relocated.

Not all residents of East Kalimantan are happy with Jokowi’s decision. Imam Suhadha from Tenggarong, for example, is worried about the increase in Indonesia’s foreign debt to fund the relocation, as well as the potentially higher cost of living in the province.

“I think there are more losses than benefits from the decision. The government will have to sell national assets and borrow money to fund the construction of the new capital,” said the 21-year-old, an administrator at a coal mining company. “With the capital moving here, I also fear that prices of goods and health care would skyrocket and poor people wouldn’t be able to afford them.”

As for governor Isran – whose first term ends in 2023, a year before the first wave of civil servants migrating from Jakarta to East Kalimantan is expected to start – the capital relocation must go on, no matter what.

“This plan must be realised, I have told [President Jokowi] that there is no other choice than moving to East Kalimantan in 2024,” Isran said.

“I am optimistic that the new capital would be better than Putrajaya. We are combining the good parts of Putrajaya, Canberra, [Kazakhstan’s] Nur-Sultan, and other new capitals … The result of this combination can only mean that Indonesia’s new capital will be superior.”