Recession

China is a superpower and the number 2 most influential country in the world, but now its economic condition is being discussed. The economic condition of this country is described as being on the brink of crisis. This is based on several factors, such as the Covid-19 pandemic and exacerbated by tensions in world geopolitics.

One proof of the economic downturn of the bamboo curtain country is the crisis in the property market. As we know, China applies a ponzi scheme in the development of their property business. This means developers are 'turning' the money they have received from property sales to build new properties. Since the Covid-19 pandemic has caused a decline in people's purchasing power, there is no source of income for developers. As a result, some of the properties that are being built are no longer working and are left unattended. This of course causes huge losses for the country's economy.

Then extreme weather also has an impact on China's industrial sector. A severe heatwave and drought hit the southwestern provinces of Sichuan and Chongqing in August 2022.

As a result, the demand for air conditioners has soared. The impact of this is an increase in the use of electricity, the majority of which depend on hydroelectric power. Factories such as iPhone, Foxconn, and Tesla were forced to cut working hours, some even closed completely.

Furthermore, many have questioned the influence of China's economic conditions with Indonesia, especially since Indonesia is currently establishing an 'intimate' trade relationship with the bamboo curtain country. China is the 3rd largest contributor to investors in Indonesia after Singapore with an investment value of US$ 1.4 billion. This number increased from the same period last year, which was US$ 1.1 billion.

Not only that, in the same year, China is still Indonesia's largest trading partner. The total trade between the two countries reached US$ 35.6 billion.

Bhima Yudhistira as Director of the Center of Economic and Law Studies (CELIOS) is of the opinion that this influence can occur, especially against the background of the close relationship in the economic sector between Indonesia and China. "Could the transmission line be faster," said Bhima, quoted from detikcom, Thursday, October 6, 2022.

China has a 30 percent share as the country of origin for imports and 20 percent as a destination for commodity exports from Indonesia, said Bhima. Furthermore, it is necessary to pay attention to the derivative impact of the economic recession experienced by the country.

Bhima highlighted the production activities of electric car factories in China. The decrease in purchasing power by consumers causes a decrease in the quantity of production. This affects the return of nickel raw materials from Indonesia.

"That could lead to a sharp decline in Indonesia's export receipts, the trade surplus could turn into a trade deficit," said Bhima.

Furthermore, the effect felt was the weakening of the rupiah exchange rate. According to him, logically, investors will postpone their investment plans and look for alternatives to assets that are much safer, adjusting to the situation and conditions in their home countries.

In the import sector, he said, particularly in the electronics and automotive assembly industries as well as construction projects that use raw materials from China.

“Domestic prices will increase, while from the consumer side, of course they are not ready, so what is likely to happen is a decrease in sales. Furthermore, business actors may not increase prices, but of course the quality of an item will be lowered,” he said.

The increase in interest rates is likely to occur again and is offset by the weakening of the rupiah exchange rate due to inflation driven by rising import costs. According to Bhima, Indonesia seems to feel the symptoms of an economic recession as a result of its main trading partner countries.

“It has been felt that the last week there has been a significant fluctuation in the Rupiah exchange rate. In addition, interest rates also experienced a fairly aggressive increase by the central bank. That's why it's starting to feel like inflation. The latest data is almost 6%, which is the highest since 2014," he said.

In contrast to countries located in Southeast Asia with a not-so-big domestic market, such as Thailand, Malaysia, and Vietnam. Moreover, small countries whose economic milestones are driven by the global economy, such as Singapore and Hong Kong.

Furthermore, Faisal also highlighted the conditions of integration or the relationship between the Indonesian economy and the external economy, which according to him is relatively small.

"Although it has been getting higher and higher, but when compared to other countries, it is relatively smaller. Compared to Malaysia, Thailand, the Philippines and Vietnam. We have cleaner relations with the global economy, including China. So this makes us relatively more resilient if compared to other countries," he added.

China is one of Indonesia's main export/import sources. The Central Statistics Agency as of August 2022 noted that the value of Indonesia's imports from China reached US$ 6.596 trillion or equivalent to Rp. 100.26 thousand trillion (exchange rate of Rp. 15,200). This amount covers almost 1/3 of the total value of Indonesia's imports.

Meanwhile, the value of Indonesia's exports to China in the same month reached US$ 6.398 trillion or equivalent to Rp 97.25 thousand trillion, which also reached almost 1/4 of the total value of Indonesia's exports that month.

Not only that, in a note quoted from detikcom last April, China was in the 3rd position for the largest foreign investment value, with a nominal value of US$ 1.4 billion or equivalent to Rp. 21.28 trillion. Its position is just below Hong Kong, which is in 2nd place, and Singapore in 1st place.