China slowdown? Indonesian exporters are not feeling it, yet

Despite the drop in exports to China, the Asian powerhouse remains Indonesia’s biggest export destination, accounting for 25.99 per cent of all outgoing shipments in August.

Deni Ghifari

Deni Ghifari

The Jakarta Post


September 18, 2023

JAKARTA – Despite China’s economy growing at a slower pace than expected this year, the country’s demand for Indonesian goods remains solid, though experts believe it is too soon to say whether that will last.

Statistics Indonesia (BPS) official Amalia Adininggar Widyasanti revealed that Indonesia’s non-oil and gas (NOG) exports to China amounted to US$5.38 billion in August, up 9.36 percent from July.

“Our exports to China remain solid. Granted, there is a potential Chinese economic slowdown, but in terms of demand, it’s still growing positively,” Amalia told reporters in Jakarta on Friday during the presentation of Indonesia’s latest trade data.

Meanwhile, Indonesia imported $5.19 billion worth of goods from China, 6.52 percent down from July.

Indonesia exported $22 billion worth of goods worldwide in August, while incoming shipments amounted to $18.88 billion. Both of those figures mark double-digit declines on the year, with exports plunging 21.21 percent since August 2022 and imports down 14.77 percent.

In contrast, when compared with the preceding month, Indonesian exports in August rose by a strong 5.47 percent, while imports dropped 3.53 percent.

As a result, the country’s trade surplus widened in August to $3.12 billion from July’s figure of $1.31 billion, more than double a Moody’s Analytics forecast of $1.5 billion.

August marks the 40th consecutive month that Indonesia’s trade balance shows a surplus.

Despite the drop in exports to China, the Asian powerhouse remains Indonesia’s biggest export destination, accounting for 25.99 percent of all outgoing shipments in August.

China’s share of imports to Indonesia is even larger at 31.99 percent of all incoming shipments.

Amalia revealed that palm oil and palm oil derivatives remain Indonesia’s main export products to China, but iron and steel were playing an increasingly large role thanks to Jakarta’s “downstream policy”, which has enabled Indonesia to produce and sell ferronickel and nickel pig iron, essential alloys used for steelmaking.

Given its standing as Indonesia’s largest trade partner, economists in Jakarta keep a watchful eye on China’s macroeconomic developments.

Read also: China cuts key interest rate to support economy

China has been experiencing an economic slowdown in recent months, many analysts say, arguing that the country’s year-on-year (yoy) gross domestic product (GDP) growth rate should be higher given that business activity last year was still severely constrained by COVID-19 containment measures.

While China’s GDP growth improved from 4.5 percent yoy in the first quarter of this year to 6.3 percent in the second, many had forecast a yoy rate above 7 percent.

One of the current challenges for China’s economy is high debt in the property sector, which fund manager and Rockefeller International chair Ruchir Sharma said could turn as calamitous as the United States real estate crisis of 2008.

In an article for the Financial Times published on Sept. 10, Sharma writes that, in the worst-case scenario, China may experience a “full-blown financial crisis” but that there is also a “case for a bounce back”, partly by virtue of the country’s “tech prowess”.

Disappointment in the world’s second-largest economy is also attributable to below-expectation consumer spending and a sluggish global economy, which in turn is weighing on demand for Chinese-manufactured goods.

Publicly listed Bank Permata chief economist Josua Pardede told The Jakarta Post that the steady demand from China was owed to the country’s still-expansive manufacturing purchasing manager’s index (PMI).

Data published by S&P Global on Sept. 5 showed China’s manufacturing PMI at 51.8 in August, reflecting general confidence in the country’s business conditions.

Read also: China factory output, retail sales beat forecasts in boost to recovery prospects

However, Josua said it was “still too soon” to say that China’s current economic challenges would not affect its trade with Indonesia.

“China’s persistent economic slowdown will affect Indonesia’s economy,” Josua said on Friday.

He elaborated that there were two ways it could affect Indonesia’s economy, firstly by pushing down demand for Indonesian goods, given that China is Indonesia’s largest export destination, and secondly by pulling down global commodity prices, given that China is the world’s largest consumer of many commodities.

Meanwhile, Bank Danamon economist Irman Faiz told the Post on Friday that the commodities buoying Indonesian exports to China were iron and steel as well as mineral fuels, all of which had increased in price.

“The main factor that lifted exports in August was value. There was a slowdown in volume,” Irman explained, pointing out that the economic slowdown of a trade partner normally affects volumes.

Therefore, Irman opined that China’s slowdown may still affect Indonesian exports, especially in the mining sector. He went on to say that demand might later grow along with the global economy, “but it is slowing down [for now]”.

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