Slowing economic growth, weakening purchasing power and declining activity in China’s manufacturing and services sector (the latter being the largest contributor to the country’s gross domestic product) go hand in hand with falling demand for imports. Based on data from Indonesia’s Trade Ministry, Indonesia’s non-oil & gas exports to China declined from a total value of USD $21.6 billion in 2011 to USD $16.5 billion in 2014.

This trend continued into 2015. In the first ten months of 2015 Indonesia exported a total of USD $11.0 billion (non-oil & gas) to China, down 20.3 percent from the export value to China in the same period one year earlier.

Meanwhile, imports from China into Indonesia continued to grow giving rise to a continuously widening trade deficit with the world’s second-largest economy. Data from Indonesia’s Trade Ministry show that in 2010 Indonesia imported (non-oil & gas) a total of USD $19.7 billion from China. The value of imports grew to USD $30.5 billion in 2014.

Concern about China’s economy and the low global oil price (caused by sluggish global growth and the oil supply glut due to persistent high output in the USA and OPEC member countries) are also behind the low commodity prices. As Indonesia’s export performance is highly dependent on the export of (raw) commodities – such as coal and crude palm oil – Indonesia immediately feels the effects of lower commodity prices. Weak export performance of partly responsible for Indonesia’s slowing economic growth (a trend that started in 2011 and is expected to continue up to 2015).

As demand abroad for Indonesian exports is curtailed, Indonesia’s manufacturing industry is affected as well. According to the latest survey from Nikkei, Indonesia’s manufacturing sector contracted for the 15th straight month in December 2015.

Indonesia’s Main Commodity Exports to China:







2010 2011 2012 2013 2014 Jan-Oct
2015
Crude Palm Oil
(in million USD)
1,866.5 2,109.5 2,600.0 1,794.1 1,789.8 1,568.2
Coffee
(in million USD)
5.5 7.2 26.7 21.6 13.4 21.9
Textile & Textile Products
(in million USD)
300.9 388.4 448.2 573.1 614.3 561.0
Rubber & Rubber Products
(in million USD)
1,416.1 2,006.9 1,736.0 1,550.9 803.1 431.7
Cocoa
(in million USD)
45.8 92.5 57.2 32.1 50.8 58.1

Source: Indonesian Trade Ministry

Indonesia-China Trade Balance (non-oil & gas):





2010 2011 2012 2013 2014 Jan-Oct
2015
Export to China
(in USD billion)
14.1 21.6 20.9 21.3 16.5 11.0
Import from China
(in USD billion)
19.7 25.5 29.0 29.6 30.5 23.9
Trade Balance
(in USD billion)
-5.6 -3.9 -8.1 -8.3 -14.0 -12.8

Source: Indonesian Trade Ministry

There also remain spill-over risks from the weak performance of Chinese stocks and yuan. On Monday (04/01), China’s Shanghai Composite Index fell nearly 7 percent due to weak macroeconomic data of China and geopolitical trouble between Saudi Arabia and Iran. Panic selling in China drags down the performance of stocks worldwide. Those (listed) companies that depend on Chinese orders feel the pressure (this particularly involves mining companies as China is the largest buyer of Indonesian mining products).

Moreover, China may further devalue its yuan in order to boost the country’s export performance (hence boosting the nation’s economic growth). This would imply that other Asian nations need to weaken their currencies in order to safeguard the competitiveness of their export products. A weak rupiah causes problems for those Indonesian companies that need to import raw materials (in US dollars) for their output.



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