Reuters – Fri, Apr 29, 2011 9:56 PM MYT
JAKARTA, April 29 (Reuters) - Chinese Premier Wen Jiabao promised Indonesia $19 billion of investment credit on Friday as he sought to build trust and end wariness between the world's emerging power and one of the region's brightest hopes.
China is vying with the United States for influence in Indonesia and Southeast Asia in general, the site of strategic sea lanes and resources that it needs to power its economy.
Many people in the region see the United States as a bulwark against a dominant China.
Wen held a singsong with Indonesian students, met Indonesian President Susilo Bambang Yudhoyono and then announced $9 billion of soft and commercial loans for infrastructure development and another $10 billion of export credits.
He said China would also give a billion yuan ($154 million) for maritime cooperation.
Other Southeast Asian countries have clashed with China over rival claims over potentially oil- and gas-rich islands and reefs in the South China Sea, which is seen by China as its backyard.
Relations with China will be a dominant theme at a string of Southeast Asian regional meetings this year that Indonesia will chair.
"China and Indonesia are in key roles now, both have enormous market potential, so we need to combine the development strategy of the two countries and expand strengths to gain mutual benefits," said Wen, who described his meeting with Yudhoyono as friendly and honest.
Indonesia, the world's most populous Muslim country, wants $100 billion of private investment to overhaul its creaking transport network, rather than just increased trade , and China's commitments still lag the more than $50 billion pledged by Japan.
Industry Minister M.S. Hidayat described Wen's trip as a breakthrough that would lead to enough Chinese direct investment to overcome a widening trade deficit.
But the only manufacturing investments to emerge in the week of Wen's visit were $200 million in a cement plant by state investment firm SDIC and $200 million in an equipment plant by China's Sany Heavy Industry .
"This doesn't only happen in Indonesia, it's the same in other parts of the world. China doesn't want to invest abroad," said Hidayat, adding he was encouraging China to invest more.
Chinese firms have struggled to make headway in Indonesia, as domestic tycoons do not want to cede control of assets, whereas companies from Japan, South Korea and India are pouring billions into infrastructure and manufacturing.
Indonesian businessmen also worry about a flood of cheap Chinese imports. A trade gap has widened following a free trade agreement between China and the Association of South East Asian Nations that took effect last year and led to an influx of cheap Chinese products from oranges to toys.
"We can't rely on trade only because we are facing China's dominance that could disrupt our domestic businesses," Hidayat told Reuters.
INVESTMENT VS TRADE
Wen, on the first official Chinese visit in six years, is expected to aim with Yudhoyono to more than double bilateral trade to $80 billion by 2015, and is also signing other agreements on cooperation in foreign affairs and education.
Indonesia ran a trade surplus of $1.7 billion with China in 2006, but this turned in 2008 into a deficit, which expanded to $4.7 billion last year.
"The widening trade gap between us and China is worrying because our market is open to them, and we exported commodities their way, but they don't open their market to us," Hartarto Airlangga, chairman of the parliament's trade commission, told Reuters.
China is already Indonesia's largest trading partner, with bilateral trade at nearly $34 billion last year, but China's total investment in manufacturing is a meagre $170 million.
Both China and the United States are seeking to catch up on investment opportunities, eyeing the country's surging domestic consumer demand and position as a major exporter of resources such as coal, gas, tin and palm oil.
The country weathered the financial crisis well, helping it to become an emerging market investor darling. Its stock market hit a record on Thursday and its currency is at a seven-year high.
Indonesia's $2.5 billion dollar bond was nearly three times oversubscribed on Thursday, as U.S. investors snapped up an offering ahead of an expected upgrade to an investment grade sovereign rating in the next 18 months that would put Indonesia alongside BRIC nations such as China.
SOFT SELL
U.S.-Indonesia ties have improved, especially under President Barack Obama who lived in Jakarta as a boy. Obama visited in November and cited Indonesia as an example of democracy and pluralism for the rest of the Muslim world.
Wen may be more focused on allaying concern within Indonesia, which cracked down on communism in the 1960s, then saw deadly attacks on wealthy ethnic Chinese communities in the late 1990s after the fall of strongman Suharto.
Wen visited a Muslim university and sang a song with students studying Chinese literature.
"It's been a long time for me, and I sang it rather badly, but I sang it from the bottom of my heart," Wen, who learned the song when he was younger, told female students in headscarves through an interpreter, in a hall decked with red lanterns.
For Wen there was none of the "Obamamania" that accompanied the U.S. state visit, with media instead showing virtually uninterrupted coverage of the British royal wedding.
Wen still sought to show a softer side at the university, telling students he was too excited to sit down, and answering questions about how to understand China better, in a university next to the Al Azhar mosque, one of whose founders was a Muslim of Chinese descent.
While many prominent Indonesian businessmen are ethnic Chinese and Christian, Muslims make up about 90 percent of Indonesia's population, the world's fourth largest.
Some locals meeting Wen, such as 23-year-old Chinese literature student Dini Silviaty, who hid inside her house in 1998 for fear of rape or killing by mobs, said they now saw Indonesia as a safer place for people of Chinese descent.
But analysts said more work needed to be done, with China still suspicious of Indonesia following the pogroms.
"People ask are the Chinese still tortured there, are they still intimidated, so there is this worry," said Christine Susanna Tjhin, of Indonesia's Centre for Strategic and International Studies. ($1 = 6.502 Chinese renminbi) (Additional reporting by Aditya Suharmoko and Telly Nathalia; Editing by Robert Birsel).***
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