Comparation of China and Japan: infrastructure investment to Indonesia under the government of President Joko Widodo (2000-s)

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FEDERAL STATE AUTONOMOUS EDUCATIONAL INSTITUTION OF HIGHER PROFESSIONAL EDUCATION

"National Research University"

Higher School of Economics

Faculty of World Economy and International Affairs

Educational program International Affairs

MAGISTER DISSERTATION

Field of study 41.04.05 International Relations

Educational program “International relations: European and Asian studies”

Comparation of China and Japan: Infrastructure Investment to Indonesia Under the Government of President Joko Widodo (2000-s)

Auliya Apriani

Advisor

Doctor of Science in World Economy

Prof. Ninel Seniuk

Moscow, 2017



Table of Contents

Introduction

1. Theoretical Framework of the Study

1.1 Liberalism as conceptual base for developing of a country's foreign investment policy

1.2 The main theoretical approaches to the description of the impact of infrastructure investment on economic development and global competitiveness of the country

2. China and Japan Infrastructure Investment as Bilateral Initiative

2.1 China's projects investment in Indonesia as bilateral initiative

2.1.1 Indonesia and China partnership under OBOR

2.1.2 Indonesia and China partnership under AIIB

2.2 Japan's projects investment in Indonesia as bilateral initiative

2.2.1 Indonesia and Japan partnership under IJEPA

2.2.2 Indonesia and Japan partnership under SSTC

3. Infrastructure Priorities for Indonesia's Economic Development Prospects - 2050

3.1 Comparative potential of Chinese and Japanese infrastructure FDI in light of Indonesia's current and perspective needs

3.2 Infrastructure investment in Indonesia: the practical perspective

Conclusion

References



Introduction

infrastructure investment indonesia chinese

Generally, politics could be defined as the activities of government, member of law-making organizations, or people who try to influence the way a country is governed.Dictionary, C. (n.d.). Retrieved from Cambridge Dictionary: https://dictionary.cambridge.org/dictionary/english/politics In order to implement these objectives, public policies needs to be determined which concern the arrangement and distribution, or allocation from the existed sources. The politics of development as a concept is needed to explain certain ways or strategies used in the context of development reaching their goals. Development is basically is the result of the political process carried out by the actors in it, or by government with other instruments such as institutions, political parties and community groups. The actors of political development not only come within the country but also from outside the country.Warjio. Politik Pembangunan: Paradox, teori, Aktor, dan Ideologi. Jakarta. PT Fajar Interpratama. 2016

Many countries in the world tend to carry out the development to increase economic growth. Indonesia through of all elements of the state also seeks to enhance the development of the country. One of the forms of development in a state is infrastructure. This is because availability of adequate infrastructure is the key to success in accelerating the development of a country, either concerning economic and social development. Infrastructure could be defined as Internal facilities of a country that make business activity possible, such as communication, transportation, and distribution networks, financial institutions and markets, and energy supply systems.Bussiness Dictionary. Economic Infrastructure. Retrieved from http://www.businessdictionary.com/definition/economic-infrastructure.html (accessed 05 11 2020)

Well development infrastructure in a state is reflecting the progress and stability of a prosperous state with a purpose to prosper the entire community. In every development lies the involvement and help from another state which could provide aids in financial investments or loans. Indonesia has done good cooperation with other states such as China and Japan in foreign investment to build infrastructure projects in Indonesia. Indonesian foreign policy follows the principle of “free and active” since the Indonesia became independent state in 1945. Until this era, Indonesian governments still adopted this principle in the diplomation practices.

Since win the election in 2014, Indonesia's seventh president, Joko Widodo (Jokowi) is really focus and determined in the infrastructure development. In his first year, Jokowi immediately rise the portion of infrastructure budget into 14,64 % from the state budget. In the previous period, President Susilo Bambang Yudhoyono only allocated 9,84 % of the state budget for infrastructure. Adam, Aulia. Relasi Jokowi dan Cina dalam 4 Tahun Terakhir. (22 10 2018). Retrieved from https://tirto.id/relasi-jokowi-dan-cina-dalam-4-tahun-terakhir-c8iE (Accessed 21 04 2020) Referring to data of Center for Indonesia Taxation Analysis (CITA), in 2018, the budget portion was increased into18,46 %.

Since late 1990 few new emerging countries have rebuilt its power and taking their places in the international system. World's politics and economy now depend on many actors in the international regime. In Asia, Japan and China have increasingly emerged as Asia's rising powers and both state competing the regional economic with their influence and dominance. Southeast Asia is one of the region which both countries implementing their missions. All of the Southeast Asian countries including Indonesia are developing countries which still need many foreign aids and investment especially in infrastructure sector to gain its national economy. With cooperating with China and Japan, it seemed like big opportunity to fulfill and develop the infrastructure midst.

In the other hand, the implementation of infrastructure investments in Indonesia also brings some challenge because it could lead to massive debt which brings the fall of the national sovereignty.

The object matter of the study is Chinese and Japanese experience in infrastructure investment from the Indonesia's needs for Infrastructure based economic development, whereas the subject is the international capital movement and its attraction into infrastructure based economic development of Indonesia.

The chronological framework The idea of economic cooperation on infrastructure investment was initially started when Joko Widodo won the election as Indonesian President since 2014- current time.

The aim of the study is to determine the effects of the implementation of infrastructure investments by China and Japan in Indonesia.

To achieve the aim, the research has the following objectives:

1. To substantiate the applicability of liberalism as the theoretical framework of the study regarding the implementation of infrastructure investment in Indonesia;

2. To outline the specific features of investments from both states as bilateral initiative which also implementing China's policy “One Belt One Road” and Japan International Cooperation Agency (JICA)

3. To compare the efficiency of the infrastructure investments by China and Japan in Indonesia

4. To suggest recommendation for increasing progress in the implementation of infrastructure investments in Indonesia

Research Question of the present study may be considered as what are the mechanisms of Chinese and Japanese FDI's influences on infrastructure of the developing countries, and what are the ways to liberalize their engagement while respecting Indonesia's national interests.

The hypothesis of the study is that the implementation of China and Japan infrastructure investment in Indonesia have bring a lot of progress in Indonesia's national economic growth. With massive infrastructure progresses that come from foreign investor such as China and Japan, it really helps Indonesia to develop its economic because of the better infrastructure. In the other hand, the infrastructure investment from China and Japan also brings the threats to Indonesia if the government cannot manage the loan and debt from their national budget. That is why Indonesia has to consider carefully the investment offer that came from each country. Regarding from the infrastructure sector, Japan has better offer and projects compared with China because they have more benefit that can be offered to Indonesian government.

The theoretical basis of the study uses the perspective of liberalism, which seeks to ехрlain the emergence of a society based on market relations. International trade as the tools to reach the national wealth was perfectly explained by Adam Smith and David Ricardo. Adam smith described that the behavior of liberalism and market is controlled by “Invisible hands” that the best way to gain wealth is allowing open economic competitions. In “laissez faire, laissez passer” (“let it be, leave it alone”) he advises to let the market pursue their goals by opening the competitions so each market have to enhance the quality of their products and distribute it to the free market.

This beliefs was continued by David Ricardo with his Theory of distribution. In his theory, he devided the national products into three social classes. He believed that these three classes could gain larger share of the total product. In his principle of comprehensive advantage, in order to produce more efficiently, nations should specialized the production of commodities and everything else should be imported.

Empirical Research Basis are wide and diverse. The author analyzed a wide range of the data from various sources. The primary sources for the research can be organized as follows:

1. Official Documents sources including multilateral and bilateral agreements such as Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road which released by National Department and Reform Comission Ministry of Foreign Affairs of China, Ministry of Foreign Affairs of Japan, Approved projects between parties (BRI projects), China's Arctic Policy by Belt and Road Portal, IPP Journal, Japan International Cooperation Agency Journal, Joint Statement between Republic of China and Republic of Indonesia, and World Bank documents

2. Official statements made by Indonesian experts according to the implementation of infrastructure investment in Indonesia, such as the political journals, opinion from the Law Firms, and official statement of Ministry of Public Works and Housing of Republic Indonesia, and National Secretary of Republic Indonesia, and Ministry of Industry of Republic Indonesia.

4. Statistic sources. Statistic on Trade, and economy from the Ministry of commerce the People's Republic of China, ASEAN statistics, World Bank, Bandeira & Tsiroplous, AIIB, Japan International Cooperation Agency, and MoFa Japan Fiscal year

5. News Material. Indonesian newspaper and bulletins such as Kompasiana, China go Abroad, CNBC Indonesia, Tirto Id, The Jakarta Post, Business Insider, and The Diplomat.

Literature review. The study conducted is based on a narrow spectrum of academic publication works as the topic has not been under a close consideration.

The Indonesian experts are: Aulia Adam, Firdayanti Aghnaita, Nur Ahmat Yuliantoro, Ignatious Baskara, Warjio, Kurniawan hari, Anastasia Arivianty, Jumadil Akhir. Their studies focus upon the implementation of infrastructure investments in Indonesia and partnership between Indonesia, China, and Japan regarding the foreign investment.

Other authors, who write in English, are: Das. D, Prof. Evgeny Kanaev, Deepak Nair, Watson A.M, Beniflah Mathilde, Alex Kaplan, Mashashi Nishihara, Richard Johnson, George Morensen, Jorgen Moller, Walter. A, Weitzman, M.L. Arrow, K.J, Kurz M, Ashauer, D.A, Barro, R.J, and Straub, S. Issues under consideration concentrate on Asian, Asia Pasific Regionalism, One Belt One Road initiatives, and maritime silk road, Liberalism, Infrastructure building, Investment, Japanese foreign investment plan.

Academic novelty of the research. The work has a comprehensive characteristic. The existing works only cover the individual aspects of the research, without building a comprehensive picture.

First, by using the perspective of liberalism as an analytical research tool. All the previous researches brought descriptive characters.

Second, the contemporary of the research covered the period from 2014 to the present.

Practical implication. The result of the research derived from the study of Comparation of Infrastructure Investment by China and Japan under the government of President Joko Widodo could be used as a reference for either the Embassy of the Republic of Indonesia or Asia Pasific institutions to enhance their economic coorperations especially in the field of investment with China and Japan. Indonesia is still considered as a developing country that needs China and Japan as the huge economic states that could give many opportunities to enhance their national economy. In order to reach national welfare, government has to be prepared and give more attentions to secure its national economy because irradically, these investment implementations with lack of consideration could lead to the dead of national economy.



1. Theoretical framework of the study

1.1 Liberalism as conceptual base for developing of a country's foreign investment policy

Liberalism as a theory in International Political Economy (IPE) is related to classical economics, where in power is put on merchants, markets and privatized enterprises while the governmental influence on economic growth is reduced Watson, A. M. (2004). An Introduction to International Politic Economy. London, 7-8: Continuum.. In the international relation, liberalism designates theories that stress the importance of international institution. Liberals argue that the universal condition of world politics is globalization. States are, and always have been, embedded in a domestic and transnational society, which creates incentives for economic, social and cultural interaction across borders. Liberal theory is distinctive in the nature of the variables it privileges. The liberal focus on variation in socially determined state preferences distinguishes liberal theory from other theoretical traditions: realism (focusing on variation in coercive power resources), institutionalism (focusing on information), and most non-rational approaches (focusing on patterns of beliefs about appropriate means-ends relationships).

Liberals look instead to conflicting state preferences derived from hostile nationalist or political ideologies, disputes over appropriable economic resources, or exploitation of unrepresented political constituencies. There are three specific variants of liberal theory which are defined by particular types of category which based on theory variation, and their impact on social behavior. Ideational liberal theories link state behavior to varied conceptions of desirable forms of cultural, political, socioeconomic order. Commercial liberal theories stress economic interdependence, including many variants of "endogenous policy theory." Republican liberal theories stress the role of domestic representative institutions, elites and leadership dynamics, and executive-legislative relations. Such theories were first conceived by prescient liberals such as Immanuel Kant, Adam Smith, John Stuart Mill, John Hobson, Woodrow Wilson, and John Maynard Keynes-writing well before the deep causes (independent variables) they stress (e.g. democratization, industrialization, nationalism, and welfare provision) were widespread.

Liberals defines social values as the set of preferences held by various individuals and groups in society concerning the proper scope and nature of legitimate state objectives. Foreign policy, in the ideational liberal view, is an effort to realize these views domestically. The concept of legitimacy on state behavior depends on pattern of interdependence among states. In the socio-economic regulation, modern liberal theories recognized that societal preferences concerning the appropriate nature and level of regulation impose legitimate limits on transnational markets. Domestic and international markets are embedded in local social compromises concerning the provision of regulatory public goods. Countries can cooperate to liberalized market on the level of conflict of views about social welfare, taxation, consumer protection, and many other domestic public goods.

The theory of economic liberalism comes as a result of the focus of the problem of economic regulation which is only centralized and dominating in European countries between the sixteenth and seventeenth centuries, which was carried out by mercantilists with theories and policies subordinating the economy to politics. This was pioneered by Adam Smith (1723-1790) who came to be known as the father of economic liberalism. He believes that markets tend to expand spontaneously in meeting human needs, and in this case the government must not interfere. In accordance with the theory of liberalism that believes in progress and mutual benefits, not only that Smith also added several other components in liberal thinking that are quite important, namely that the market is the main source of progress, cooperation, and prosperity. Whereas the participation of government and politics the opposite is not economical, setbacks and can cause conflict. Walter, A. W. (1996). "Adam Smith and the liberal tradition of international relations", review of international studies. 5-6.

Liberal economics is referred to as "The doctrine and set of principles in organizing and regulating economic growth and individual well-being". Liberal economy is based on the idea that if the economic market is left alone, then the market will run spontaneously based on its own mechanism or law. This law is considered inherent in the process of economic production and trade. This theory agrees with the opinion of David Ricardo (1777-1823) that free trade is a commercial activity that is carried out freely from national borders so that it will bring benefits to every individual who participates because free trade will produce specializations that can increase efficiency and result in increased productivity.

While Paul Samuelson has summarized his argument as follows: Richard Jackson, Georg Sшrensen, Jшrgen Mшller. Introduction to International Relations: Theories and Approaches. Great Britain: Oxford University Press, 2019

"whether one of the two regions will be more efficient in the production of each item than the other or not, if each specializes in production in that way each has a comparative advantage, trade will be mutually beneficial for both regions.”

So, the concept offered by liberals can be predicted that the state will benefit through specialization and global welfare will increase. Adam Smith is one of its well-known proponents. His ideas on liberal capitalism focus more on how behaviors and market competitions are controlled by the “invisible hand”, believing that merchants or individuals are reliable on their own in contributing greatly to economic improvement without the need for the intervention of the government. He argued that the best way to cultivate wealth is to allow unrestrained economic competition. In his book “The Wealth of Nation” which was published in 1776, his advice to government was “laissez faire, laissez passer” (“let it be, leave it alone”) Harry K. Givertz, R. D. (n.d.). Liberalism Politic. Retrieved from Encyclopedia Britannica: https://www.britannica.com/topic/liberalism/Legacy-and-prospects (accessed Retrieved 04 15, 2019). According to Smith, free trade benefits all parties because competition leads to the production of more and better goods at lower prices. Leaving individuals free to pursue their self-interest in an exchange economy based upon a division of labor will necessarily enhance the welfare of the group as a whole.

Free trade and free competition would best promote a nation's economic growth. Smith saw that the community gets the benefit most when each of the members follow his or her own self- interest. In a free- enterprise system, individual make profit from producing goods that other people are willing to buy, and people spend money by buying goods that they needed or wanted the most. The apparent chaos of competitive buying and selling is transmuted into an orderly system of economic cooperation that can meet individuals' needs and increase their wealth. He also observed that this cooperative system occurs through the process of individual choice as opposed to central direction.

In order to analyze free -enterprise system, Smith introduced the labor theory of value and a theory of distribution which expanded by David Ricardo by the ideas of Principles of Political Economy and Taxation (1877). Nolen, J. L. (n.d.). Classical Economies. Encyclopedia Britannica. Retrieved from https://www.britannica.com/topic/classical-economics#ref220359 In his labor theory of value, Ricardo emphasized that the value of goods produced and sold under competitive conditions tends to be proportionate to the labor costs incurred in producing them. Ricardo was fully recognized, that over short periods price depends on supply and demand. This notion became central to classical economics, as did Ricardo's theory of distribution, which divided national product between three social classes: wages for laborers, profits for owners of capital, and rents for landlords. Taking the limited growth potential of any national economy as a given, Ricardo concluded that a particular social class could gain a larger share of the total product only at the expense of another. More significant were the effects of classical economic thought on free-trade doctrine. The most influential was Ricardo's principle of comparative advantage, which states that every nation should specialize in the production of those commodities it can produce most efficiently; everything else should be imported.

To find out how liberalism plays an important role in Japanese and Chinese investments, first, we have to know how the infrastructure projects in Indonesia involving both countries China and Japan. Frankly, The China and Japan as the most powerful countries in the Asia region have long been competing to get the infrastructure projects in Indonesia. The competitions between both of them have become fiercer in recent years, especially under the Jokowi presidency. However, the competition is certainly a very encouraging signal for Indonesia, which is currently boosting many projects in infrastructure. For Indonesia, more and more choices will open up the opportunities to guarantee the quantity and quality of projects Jones T. Liberalism and cultural policy in Indonesia. Soc Identities. 2007;13(4):441-458. doi:10.1080/13504630701459123.

President Joko Widodo has succeeded in becoming the second president with many planned projects. President Jokowi has cooperated with China and Japan as the main partners in the infrastructure projects. Many opposition were dislike the Jokowi's policy during his first and second periods. Many scathing criticisms directed at his presidency to various policies that are considered very liberal. Primarily, related to the policies that are sometimes considered as controversial including many policies in the economic field.

Rizal Ramli, an economist who is also a former coordinating minister for the economy in the era of President Abdurrahman had said that Jokowi's mindset in the economic sector revealed the face of a liberal economic ideology. Salim W, Negara SD. Infrastructure development under the jokowi administration progress, challenges and policies. J Southeast Asian Econ. 2018;35(3):386-401. doi:10.1355/ae35-3e It was expressed by looking at Jokowi's current government trends and economic policies. It was very clear to deem his policy as liberal for instance, leaving all economic sectors to market mechanisms such what Jokowi had done. Jokowi according to him is very liberal because the main consideration of Jokowi presidency is only about price. A good liberal measure is only about money. Though the Indonesian constitution is mutual assistance between the government and the community, and not just left to the market mechanism Pratomo, A.Y. Dipimpin Jokowi-JK, arah ekonomi Indonesia liberal?. 18 03 2015. Retrieved from https://www.merdeka.com/uang/dipimpin-jokowi-jk-arah-ekonomi-indonesia-liberal.html (accessed 05 11 2020).

The tendency of the Indonesian economy to lead to a liberal system was justified by the Coordinating Minister for Economy, Finance and Industry during the Megawati era, Mr. Kwik Kian Gie. He stated that Indonesian development inclined towards a gradual liberal economy, but in a very clear direction. The liberal economic system is also known as the market economy system. This economic system is fully regulated by market forces by giving complete freedom in all economic fields for every person or party to obtain profits. Usually, the liberal economic system is adopted by European countries and the United States. Booth, A. Indonesia - the economic perspectives. Friedrich Ebert Stiftung Analyse. Bonn. FES Library.2000

1.2 The main theoretical approaches to the description of the impact of infrastructure investment on economic development and global competitiveness of the country

There are many debates about how the role of political interference by the government. Earlier liberals mentioned laissez-faire, namely market freedom from all types of political boundaries and rules. However, the earlier liberals had realized that there was however a need for a legal framework that was politically shaped as the basis of the market. Laissez-faire does not mean the absence of any political arrangements; however, the state will only provide the minimum foundation needed by the market to function properly. This economic version of liberalism seeks to minimize excessive political interference. Liberal economists have from the beginning been aware that matters relating to these market issues do not always work in line with expectations regarding mutual efficiency and profit, which are often called market failures. Therefore, political regulations are deemed necessary to repair and prevent market failures.

Some other liberal economists want to support a broader scope for politics or government to participate in market affairs. Such as John Stuart Mill, who is one of the liberal laissez-faire economies, but he is also quite critical in responding to drastic injustices regarding income, wealth, and power. Overall, the liberal economy is assuming that the market is a special area for people who operate according to their own economic laws. Because in the essence, the economic area of cooperation for a mutual benefit both between individuals, and between countries. Affairs P. Sympathetic Liberalism?: Recent Work on Adam Smith. 1998;28(2):139-164.

Adam Smith emphasized the meaning of liberalism refers to the nature of humans always pursuing their own interests in the sense of wanting to obtain the most optimal benefits from what they have. Therefore, regulations and regulations from the government are needed so that producers do not arbitrarily produce. He continued that the liberal economic system gave birth to inequality. The gap in life between the rich and poor is a clear example. Rich-poor inequality is evident in the liberal economic system. Liberal economic conditions will bring extraordinary inequality. Finally, only a handful of producers are left behind with huge capital. They are not only able to drive competitors from the market, but also employ labors with arbitrary salary and requirements.

The first model of the infrastructure influences on capital-labor productivity based on econometric model of production function for economic development was created by Martin L Weitzman. His intention was to incorporate as many activities on the non-agricultural administration economy as possible, consistent with the rule of excluding service outputs which are estimated legitimately as far as factor input (for example housing and education). He experimented with various price based, imputation of value, interest rates and found that the pace of development of output has declined after some time. Capital developed more consistently, and worker hours utilized increases inconsistently. Weitzman, M.L. Soviet postwar economic growth and capital labor substitution. American Economic Review, 1970, v.60, pp.679-692

In order to evaluate an investment impact on infrastructure based on economic development, the basic proportions on this assumption is based on theory of optimal growth. This model considers in which output is communicated by a neoclassical production capacity of the two homogeneous inputs which are capital and labor. The labor is expected to develop at a consistent relative rate, while the single commodity of economy can be utilized either to fulfill utilization wants or to add to the capital supply of the economy. Arrow, K.J, Kurz, M. Optimal growth with irreversible investment in a Ramsey model. Econometrics.1970.v.38,no.2, pp.331-344. Also, in this model the problem of optimal growth is created by expressing an useful utility over the flood of utilization and afterward scanning for the feasible consumption investment way that augments the utility functional. This maximization is limited by the state of innovation and by the accessibility of labor and capital. It is realized that if an administration's infrastructural speculation program is ideal, at that point the pace of profit for foundation investment should rise to the pace of profit for private capital. Otherwise it is beneficial to build interests in infrastructure regardless of whether this would bring about less interest in the private division.

Going to the theoretical impacts of foundation, Aschauer, for instance, proposes that open capital can have both an immediate impact on private output. The immediate impact emerges in light of the fact that adjustments in open capital stock modify the level of output by making private labor and capital information more or less productive. The backhanded impact emerges in light of the fact that an expansion in open capital stock will influence the peripheral results of work and private capital, which thusly impact the picked amounts of private information sources. If investment in road infrastructure is effectively assigned by governments based on money saving advantage contemplates, at that point we would anticipate that it should have a positive and critical effect on private creation. Ashauer, D.A. Does public capital crowd out private capital? Journal of Monetary Economics, 1989, v.24, pp.171-188

The principle component behind the convergent result about neoclassical development models is deminishing returns to reproducible capital. For this situation, poor nations with low ratios of capital and labor, have high negligible results of capital and will in general develop at high rate. Additionally, the constructive outcome on physical investment agrees with some theoretical result. He stressed the move from private investment into total investment without changing the interim for the variable needed, brought about similitude of total investment with private investment with smaller size in estimated coefficient on GDP. Barro, R.J. Economic growth in a cross sections of countries. Quarterly Journal of Economics, 1989, v.24, pp.171-188

Most verified model based on infrastructural investment into production function of the developing economies by the Wolrd Bank is the aspect on which relatively little theoretical insights are available is what happens in the process of development. Concerning sequencing of changes, is regularly alluded to as a significant issue in settings where the strategy to produce infrastructure investment include market based reform, for example, privatization, presentation of rivalry and innovations. Also, development model do not usually recognize the investment in various sub-divisions, characterizing rather than public capital as a conventional infrastructure good entering the production function. The proxies for infrastructure have either been some measure of public capital. In the developing countries, the official expenses of investment are regularly separated from their compelling worth, for the most part as a result of administrative wasteful aspects or institutional weaknesses. Infrastructure is frequently not a pure public good. To some extent as a result of its private division source, it is increasingly taking a private good nature and its services are being priced. The progression of administrations that collect.to private administrators like firms is in this way more applicable than the supply of infrastructure capital. Straub, S. Infrastructure and growth in developing countries: Recent advances and research challenges. The World Bank: Washington, DC, USA, 2008.

When measuring how President Jokowi shaped the direction of the country's foreign infrastructure investment which tends to the market mechanism where the quality and affordable principle will be chosen by the government. With these principles, Jokowi's administration through the Ministry of Public Housing (PUPR) continues to collaborate with various parties related to infrastructure development. For the example, the current Chairperson of the Japan - Indonesia Association- Fukuda frequently visit Indonesia to come to the Office of the Ministry of PUPR, after he met with President Joko Widodo at the Merdeka Palace in Jakarta to discuss the project in 2019. BKPM Indonesia. Mengejar Investasi Negeri Tirai Bambu. Retrieved from https://www3.bkpm.go.id/id/publikasi/detail/berita/mengejar-investasi-negeri-tirai-bambu (accessed 05 11 2020)

PUPR Minister Basuki Hadimuljono said that the meeting with Chairperson of the Japan - Indonesia Association was to strengthen the relationship between the Government of Indonesia and the Government of Japan, also discussed the steps of cooperation in the field of investment in several infrastructure developments in Indonesia. There are a number of things discussed, such as the Jakarta - Surabaya corridor rapid train improvement project. The PUPR Ministry itself is responsible for making the flyover and road map of japan investment on infrastructure in Indonesia. Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation. Patimban Port Access Road to be Completed on April 2020. Cabinet Secretariat of The Republic of Indonesia. Retrieved from https://setkab.go.id/en/patimban-port-access-road-to-be-completed-on-april-2020/ (accessed 05 11 2020)

In addition, Japan is also expected to be able to support the investment of access toll roads in Cikopo-Palimanan (Cipali) to Patimban Port in Subang Regency, West Java. The investment cost of the 40 km toll road was estimated to reach IDR. 5.35 trillion. On this occasion, the Japanese Government also offered a grant in the form of laboratory equipment for the Polytechnic Public Works in Semarang, helping solve the problem of flooding in Jakarta because of its experience in handling flooding in the country.

Indonesia under Jokowi's presidency also participated with a lot of economic organization and institution. His decision to become the membership of AIIB to achieve the national interest, which in this case is to help accelerate the country in infrastructure sector is one of the liberalist trait. According to the Indonesian economics expert, it has been considered that the Indonesian economy has been in a liberal direction for a long time even before the presidency of Jokowi.



2. China and Japan Infrastructure Investment as Bilateral Initiative

Indonesia under the leadership President Jokowi has a mission to increase the development from the first year of his reign. In realizing his mission, some special efforts and strategies are needed to be taken in order to reach the goals. In this case, Jokowi was stressing that there is urgency from foreign investment that can be used to stimulate the acceleration process of the development in various fields.

With a variety of natural resources and massive human source potential make Indonesia as a target from foreign investors all over the world. Based on survey data from World Population Review, Indonesia is the fourth most populous country in the world with total population around 272 million inhabitants. Review, World Population. Indonesia Population. n.d. https://worldpopulationreview.com/countries/indonesia-population/ (accessed 04 22, 2020). That massive amount of population could be a massive market. In addition, Indonesia's geostrategic condition, which is located in Malacca Strait makes Indonesia as the fastest trading route from the Indian Ocean to the Pasific Ocean. Because of these factors, foreign investment policies become the important element which is used as a strategy to stimulate inward investment to Indonesia.

2.1 China's projects investment in Indonesia as bilateral initiative

2.1.1 Indonesia and China partnership under OBOR

The expansion of infrastructure development that needs big investments and President Jokowi has sought to build the nation into a maritime major power. This encourages Indonesia to make some cooperation with China through China's One Belt One Road (OBOR) policy. Prior to the appearance of BRI in 2017 as part of China foreign policy, the Chinese government has initiated similar initiative, namely the “One Belt One Road (OBOR) Strategy”. It was mentioned for the first time on President Xi Jinping's speeches during his state visits to Kazakhstan and Indonesia in September and October 2013. Abroad, China Go. A role for UK Companies in developing China's new initiative. n.d. http://www.chinagoabroad.com/en/article/a-role-for-uk-companies-in-developing-china-s-new-initiative (accessed 204 2020).

As outlined by the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MoFA) and the Ministry of Commerce (MoFCOM) of the People's Republic of China, with the authorization from the State Council of China, OBOR Strategy was classified into two paths, which are the “Silk Road Economic Belt” and the “21^st Century Maritime Silk Road”. China, The State Council The People's Republic in. Chronology of China's Belt and Road Initiative. 03 28, 2015. http://english.www.gov.cn/news/top_news/2015/04/20/content_281475092566326.htm (accessed 04 23, 2022). These paths determined the model of China's international economic cooperation with other countries in Asia, Europe and Africa continents. Under OBOR, China aimed to improve its connectivity across land and sea with various States, and to promote its economic development and integration through the movement of goods, services, information and people, as well as cultural exchange. NDRC, MoFA and MoFCOM. Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road. March http//en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html, 2015.

Unfortunately, the creation of OBOR strategy is objected by certain stakeholders because the presence of OBOR as a “strategy”, rather than as an “initiative”, does not resonate the element of inclusiveness for the outside world. Rolland, N. and Carson, B., “Jaw-Jaw: The Geo-Economic Challenge of China's Belt and Road Initiative”, War on the Rocks, (2019) <https://warontherocks.com/2019/03/jaw-jaw-the-geo-economic-challenge-of-chinas-belt-and-road-initiative/>. Thereby, this strategy was dismantled in 2016 and being rebranded as the Belt and Road Initiative (BRI).

To fully decipher the meaning of BRI as the revival of the ancient Silk Road with the new requirements of today, it is worth to understand President Xi Jinping's statement addressed at the 19^th National Congress of the Communist Party of China, where he declared that:

“China will actively promote international co-operation through the Belt and Road Initiative. In doing so, we hope to achieve policy, infrastructure, trade, financial, and people-to-people connectivity and thus build a new platform for international co-operation to create new drivers of shared development.” Xi, J., Secure a Decisive Victory in Building a Moderately Prosperous Society in all Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era, Delivered at the 19^th National Congress of the Communist Party of China, (18 Oct., 2017) p.61.

This statement confirmed the shifting of Chinese foreign policy from OBOR to BRI. Essentially, both of these initiatives carry the ancient Silk Road spirit in pursuing the mutual benefits and complementary gains to all participating countries on an equal footing. They also placed the improvement of policy, infrastructure, trade, financial, and people-to-people connectivity as their foremost priorities. Such vague priorities extend to the implementation of FTA along the routes of BRI itself. OECD, “China's Belt and Road Initiative in the Global Trade, Investment and Finance Landscape”, in OECD, OECD Business and Finance Outlook 2018, (Paris: OECD Publishing, 2018) p.10 [OECD `China's Belt'].

The aims of BRI were also clarified in the Outline made by the NDRC, MoFA and MoFCOM of China. In that document, it was stated that the aims of the BRI are to:

“Promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tiered and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries.” Supra note 4.

In the view of the Organisation for Economic Co-operation and Development (OECD), such aims were nonetheless influenced by certain motivations. OECD has identified seven motivations of China for initiating the BRI, which are: OECD `China's Belt', Op.Cit., p.13-17.

1. Advancing regional economic cooperation, including by building a diversified financing system and a multi-tiered capital market, through infrastructure connectivity (connectivity);

2. Maintaining an open world economic system (openness);

3. Pursuing innovative-driven development and intensifying cooperation in digital sector (innovation);

4. Achieving the 2030 Sustainable Development Goals (SDGs);

5. Building a modern energy system and pursuing agricultural cooperation (energy and food security);

6. Reducing economic inequality in western provinces of China by balancing regional development; and

7. Improving efficiency on China's economic growth.

Adopting similar approach from its predecessor, BRI's attempt to advance China's international economic cooperation with other countries is divided into various ways. As illustrated in Figure 1 below, these ways are in the following:

1. The Silk Road Economic Belt;

2. The 21^st Century Maritime Silk Road; and

3. The Polar Silk Road.

According to the official data released by the Chinese authority, in March 2019 alone, more than 125 countries around the globe have collaborated with China under this initiative, World Bank, Belt and Road Economics: Opportunities and Risks of Transport Corridors, (Washington DC: World Bank Group, 2019) p.xi [World Bank]. including 54 countries from Latin America and landlocked countries in Africa that are not located along the BRI corridors, and 71 others are the participating economies across the corridors.



Figure 1 Map of the Belt and Road Initiative (BRI) of China

Source: https://www.beltroad-initiative.com/belt-and-road/

In land based area, China developed the “Silk Road Economic Belt” into certain corridors due to the geo-position of these corridors with the historical path of Silk Road. In that respect, Chapter 51, Section 2 of the 13^th Five-Year Plan for Economic and Social Development of the People's Republic of China (2016-2020) has stipulated that these economic cooperation corridors consist of six corridors, namely:

1. China-Mongolia-Russia Economic Corridor (CMREC);

2. China-Central Asia-West Asia Economic Corridor (CCWAEC);

3. China-Indochina Peninsula Economic Corridor (CICPEC);

4. New Eurasian Continental Bridge Economic Corridor (NELBEC);

5. China-Pakistan Economic Corridor (CPEC); and

6. Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC). At the 2^nd Belt and Road Forum in April 2019, this corridor was referred as the China-Myanmar Economic Corridor (CMEC).

With these six economic corridors, China is now capable to boost its economical capabilities by engaging with 60 countries, as compiled in the following table.



Table 1

Participating Economies of BRI based on its Corridors

No.	Country	Corridor	No.	Country	Corridor
1.	Afghanistan	CPEC	31.	Malaysia	CICPEC
2.	Albania	CCWAEC	32.	Moldova	CCWAEC
3.	Armenia	CCWAEC	33.	Mongolia	CMREC
4.	Azerbaijan	CCWAEC	34.	Montenegro	CCWAEC
5.	Bangladesh	BCIMEC	35.	Myanmar	BCIMEC
6.	Bahrain	CPEC	36.	Nepal	BCIMEC
7.	Belarus	CMREC	37.	Oman	CPEC
8.	Bhutan	BCIMEC	38.	Pakistan	CPEC
9.	Bosnia & Herzegovina	CCWAEC	39.	Palestine	CCWAEC
10.	Brunei Darussalam	CICPEC	40.	Poland	NELBEC
11.	Bulgaria	CCWAEC	41.	Qatar	CPEC
12.	Cambodia	CICPEC	42.	Romania	CCWAEC
13.	Croatia	CCWAEC	43.	Russian Federation	CMREC
14.	Czech Republic	NELBEC	44.	Saudi Arabia	CPEC
15.	Estonia	CMREC	45.	Serbia	CCWAEC
16.	Georgia	CCWAEC	46.	Singapore	CICPEC
17.	Hungary	NELBEC	47.	Slovak Rep.	NELBEC
18.	India	BCIMEC	48.	Slovenia	NELBEC
19.	Iran	CCWAEC	49.	Sri Lanka	BCIMEC
20.	Iraq	CCWAEC	50.	Syria	CCWAEC
21.	Israel	CCWAEC	51.	Tajikistan	CCWAEC
22.	Jordan	CCWAEC	52.	Thailand	CICPEC
23.	Kazakhstan	NELBEC	53.	Timor Leste	CICPEC
24.	Kuwait	CPEC	54.	Turkey	CCWAEC
25.	Kyrgyzstan	CCWAEC	55.	Turkmenistan	CCWAEC
26.	Lao PDR	CICPEC	56.	Ukraine	NELBEC
27.	Latvia	CMREC	57.	UAE	CPEC
28.	Lebanon	CCWAEC	58.	Uzbekistan	CCWAEC
29.	Lithuania	CMREC	59.	Viet Nam	CICPEC
30.	FYR Macedonia	CCWAEC	60.	Yemen	CPEC

Source: Redacted from various sources

Meanwhile in maritime path, the 21^st Century Maritime Silk Road was present as the continuation of the similar road proposed by President Xi in his speech to the Indonesian Parliament in October 2013. Wu J., “Xi in call for building of new `maritime silk road'”, China Daily, (2013) http://usa.chinadaily.com.cn/china/2013-10/04/content_17008940.htm. This road connects China with certain States, such as, Djibouti, Egypt, Ethiopia, Greece, Indonesia, Kenya, Maldives, Morocco, Philippines, South Sudan and Tanzania via South China Sea, Strait of Malacca, Indian Ocean, Gulf of Bengal, Arabian Sea, Persian Gulf and the Red Sea.

Moreover, the Chinese and Russian governments have also agreed to formulate the “Ice Silk Road” under CMREC. Suokas, J., “China, Russia to build `Ice Silk Road' along Northern Sea Route”, GB Times, (2017) https://gbtimes.com/china-russia-build-ice-silk-road-along-northern-sea-route. This road was later amended in January 2018 as the “Polar Silk Road”. The Chinese government wishes to build this road through the development of the Arctic shipping routes. State Council, “China's Arctic Policy”, White Paper, (1^st ed., 2018) Part IV, Sec. 3(1) https://eng.yidaiyilu.gov.cn/zchj/qwfb/46076.htm.

It was estimated that China has invested large amount of money under BRI, which enraging from US$1 trillion to US$8 trillion. Hillman, Jonathan E., “How Big is China's Belt and Road?”, CSIS, (2018) https://www. csis.org/analysis/how-big-chinas-belt-and-road. This is consistent with the discovery of the World Bank, which estimated Chinese investment on BRI is worth US$ 575 billion. World Bank, Op.Cit., p.37. Currently, energy sector was the largest BRI investments that reaching up to 46%, Bandeira, L., and Tsiropoulos, V., “A Framework to Assess Debt Sustainability and Fiscal Risks under the Belt and Road Initiative”, World Bank, Policy Research Working Paper 8891, (2019). which is equal to US$ 264.5 billion. Then, it was followed by transportation (25%) and chemical engineering (13%) industries as another top priorities of Chinese investments on BRI. Ibid. These percentages represent US$ 143.75 billion for transportation industry and US$ 74.75 billion for chemical engineering. To fully understand about the allocation of BRI investments, Figure 2 below provides its clear explanation.



Figure 2 Percentage Shares of the BRI Investments (Industry)

Source: Bandeira & Tsiropoulos, (2019)

Furthermore, in regional landscape, the World Bank has identified the East Asia and Pacific region as the region that received the largest amount of Chinese outward investments up to 34% out of US$ 575 billion or equal to US$ 195.5 billion. Ibid. In second place is the European and Central Asian region. They have received US$ 184 billion, which amounted to 32% of total Chinese investments. The details of Chinese BRI investments based on region have been provided in Figure 3 below



Figure 3 Percentage Shares of the BRI Investments (Region)

Source: Bandeira & Tsiropoulos, (2019)

To fully fund all projects of BRI, diverse funding channels from various institutional mechanisms will be crucial for the success of BRI per se. Such channels encompass BRI bonds, private capital investment and public-private partnerships (PPP) and State-Owned Enterprise (SOE) investment. Among these channels, the author has identified three primary institutions that financing all BRI projects, namely:

1. Banks;

2. State owned funds; and

3. International financing institutions

4. With respect to the first institution, the author classified it into two typologies of bank that contribute to the realization of BRI projects. The first type is the “Policy Banks”. The State Council of China established Policy Banks in 1994, aiming to develop and oversee the policy operations of China's state-owned professional banks. Moreover, their establishment was also intended to promote exports of mechanical and electrical products. Currently, there are two policy banks in China that supported BRI agenda. They are the Agricultural Development Bank of China (ADBC) and the Export-Import Bank of China (CHEXIM).

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