According to Franky Sibarani, Head of the Indonesia Investment Coordinating Board (BKPM), around 200 Chinese furniture companies have expressed their interest to relocate their factories to Indonesia because operational costs in China have been rising sharply in recent years, particularly wages. Moreover, rattan (an important material for furniture) is readily available in Indonesia. Sibarani said the changing structure of the Chinese economy (shifting from investment and export-driven to consumption) is why many Chinese manufacturing companies want to relocate their companies abroad.
For Indonesia this sounds like a good opportunity. Sibarani said the furniture sector is one of the priority sectors for the BKPM, the investment services agency of the Indonesian government, because it is categorized as a labor-intensive industry. Every furniture firm is expected to require around 500 workers for its operations. A simple calculation suggests that the relocation of 200 Chinese furniture producers would add 100,000 jobs to the Indonesian economy.
However, Sibarani's statements are also somewhat surprising. Earlier, Indonesia Investments reported that various existing furniture companies in Indonesia have already relocated - or are planning to relocate - to Vietnam or Myanmar due to Indonesia's high logistics costs, higher minimum wages and local workers' low productivity.
Regarding the furniture business Indonesia's main competitors are Vietnam, Myanmar and India.
BKPM targets USD $3.24 billion in Chinese investment realization (both directly and indirectly, for example through Singapore-based subsidiaries of Chinese companies) this year. This would imply a 50 percent (year-on-year) rise from USD $2.16 billion last year. Most of Chinese investment in Indonesia is indirectly through subsidiaries in other countries, particularly as Chinese authorities have limited the amount of money that an individual can move out of the country. Therefore, direct investment from China has in fact fallen 21 percent (y/y) to USD $628 million in 2015, while indirect investment rose 47 percent (y/y) to 1.53 billion in 2015.
Comparison of Minimum Wages in Asia:
Source: Bisnis Indonesia
Diplomatic relations between China and Indonesia came under some pressure a week ago after Indonesian authorities confiscated a Chinese fishing ship and arrested its crew on grounds of illegal fishing in the South China Sea (close to the Natuna Islands, an area claimed by Indonesia). Hours later, however, two armed Chinese coast guard ships arrived and demanded Indonesian authorities to let go of the Chinese fishing boat. To avoid further escalation Indonesian authorities agreed but the Chinese fishermen remained in Indonesian custody. Similar incidents have happened before between both nations and it is unlikely to disturb trade and investment relations between both countries.