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US Strikes A Deal With Indonesia To Relocate Its Companies From China?

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Indonesia has gained from the US-China trade war that has been continuing since last year and dangerously aggravated in the last few months with US President Donald Trump issuing threats to cut “all ties” with China. 

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At a time when the global economy is seeing its darkest hours, the bilateral ties between the two biggest global economic leaders have worsened especially after the outbreak of COVOD-19.

Due to the mounting pressure of the trade war, major companies are relocating from China to other South Asian nations. Indonesia is in talks with the US over possible relocation of such companies.

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“It is clearing up 4,000 hectares of land in Central Java to accommodate US companies planning to relocate from China in the wake of the coronavirus pandemic and an escalating trade war,” a top official said.

“President Jokowi spoke with President Trump. Because he is fighting with China, he wants to relocate his industry (in China), I was asked by the president to speak later with President Trump’s aides,” said Luhut Panjaitan, Indonesia’s coordinating minister for maritime affairs and investment.

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Even though Indonesia ranks higher than rival Vietnam in the United Nation’s Competitive Industrial Performance Index, however, the Foreign Direct Investment in Indonesia is low, with just 1.8% of the country’s gross domestic product in 2018.

Indonesia is facing competition from Vietnam, Malaysia and Cambodia. “Businesses are moving out of China, but are not coming to Indonesia because Indonesia’s neighbours are more welcoming,” said the World Bank.

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Out of the 33 companies that relocated from China last year till October, 23 moved to Vietnam while the rest relocated to Malaysia, Thailand and Cambodia.

“In Vietnam, the government can provide you with the land and guarantee a lot of things to be expedited,” said Yulius Yulius, managing director and senior partner at Boston Consulting Group’s Jakarta office. US tech giants Microsoft and Google have decided to relocate production from China to Vietnam and Thailand.

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With the number of Covid-19 cases spurring, Indonesia saw 25,773 confirmed cases from 9,771 in the month of May, while Vietnam saw a small rise to 328 cases from 270 over the same period with no deaths reported from Coronavirus.

“At the end of the day, if infections are happening in the factory… that will have a big impact. [Countries] need to also communicate and have a plan on how to deal not only with the current situation but how to prepare for a potential next wave or the next type of virus that will happen,” Yulius said.

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He further added that the pandemic is likely to have investors examining the government’s readiness and response when assessing relocation options.

Indonesian President Joko Widodo had proposed a change to the country’s rigid labour laws but the outbreak of the Covid-19 had put the deliberations in the parliament to rest.

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“The president’s vision of improving human capital and simplifying permits and regulation must be realized, [and be] more than just a plan and promises,” said Sanny Iskandar, chairman of the Indonesia Industrial Estate Association. “The promised economic reform packages ended up unclear, and that’s disappointing to the investors as well as businessmen,” he added.

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