economic slowdown in China affected trade in Indonesia and the rupee value. The archipelago could be set for another challenging year.
economic turmoil in China has created a ripple effect worldwide. Last year, Indonesia was one of the countries badly affected by China's woes, while prices of commodities and the weak demand from China contributed to an economic slowdown extended Indonesia.
With the situation in China still not showing signs of improvement, Indonesia is preparing for another difficult year ahead.
Experts said that, given the incredible Chinese growth levels for the last three decades, it was inevitable that things would start to decline. However, the slowdown in China last year was stronger than expected. In the first quarter, the country has reduced its annual growth target of 7 percent, marking the slowest growth in more than two decades.
The Economist explains that the changes in the labor, capital and China's productivity - the three factors that have driven its growth in recent years - are now the leading causes his struggle. As the population of working age in China and the realization of the investment seemed to have peaked in the course of the last five years. technological gap between China and other wealthy countries is also closer than it was in the past, implying that productivity growth will be lower too.
China is now seeing new problems, but also hard to switch to a new model of economic growth, which experts say should be based on innovation, domestic consumption, manufacturing top range, and services.
Therefore, China has experienced slower economic growth, weakened purchasing power, and lower activity in manufacturing and services. This request naturally also means a decrease in imports.
Just when the world hoped the new year would finally spell stability for China, issues came to a head in early 2016, when the problems of China triggered a global rout stock market. The composite benchmark Shanghai index dropped 7 percent in half an hour, prompting the trade to be suspended for the second time in a week.
A direct impact on trade and currency
China's economic slump has impacted for Indonesia, as the People's Republic is one of largest trading partners of the nation. The economic slowdown in China means the reduced import demand for Indonesian products.
on the ministry database of the Indonesia Trade, non-oil and gas exports to China fell by a . of $ 21.6 billion in 2011 to 16.5 $ billion in 2014. This trend continued in 2015. in the first ten months of 2015, Indonesia exported a . value of $ 11.0 billion of goods (excluding oil and gas) to China, down 20.3 percent of the value of exports to China in the same period a year earlier.
Trade of Indonesia also has an effect on the value of the national currency and the exchange rate. The exchange rate of the rupee is closely related to import-export activities.
exports decrease can cause a current account deficit of Indonesia, and thus affect both the supply and demand of the rupee against other currencies.
Last year, the exchange rate of the rupee, which has been floundering because of the prices of commodities, depreciated to a low of 17 years after China devalued the yuan to make Chinese exports more competitive.
The Chinese government is expected to continue weakening of the yuan to boost demand for Chinese products and help stabilize the economy. Although this may affect Indonesia in the short term it should prove beneficial in the long run because it would slowly help rejuvenate the purchasing power of the largest market overseas in the archipelago.
Not ready to seize the opportunity
The yuan demeaning has investors concerned. The recent global sell-off on the Chinese stock market shows confidence deteriorated to the Chinese economy.
Investors may seek to put their money elsewhere. This represents an opportunity for Indonesia, a growing economy ready for exponential growth, increase efforts to attract investment.
According to economic expert Ichsanuddin Noorsy, Indonesia began in 2016 with some serious problems of its own, and may not be in a healthier state than China.
Although Indonesia has taken important early steps to avoid a repeat of economic stutter last year, said Noorsy external global factors will be too powerful for the nation to fight. Indonesia, he said, will not be one of the "top investment destinations."
"We have not arrived at full speed in early 2016, but Indonesia is already facing the threat of a global economic recession. This is marked by the devaluation of the yuan, the oil price decline, which could reach below US $ 20 a barrel, and a correction of the World Bank on global economic growth of 3.3 percent to 2.9 percent, "said Noorsy Indonesia Expat .
the investment climate in Indonesia will also not be helped by constant political infighting in the country, as well as the recent terrorist attacks Jakarta.
Boosting trade through e-commerce
the government chose to be more optimistic about the situation. trade Minister Thomas Lembong said that while the Chinese economy is still weakening, recovery of the economies in Europe and the US would have a positive effect on trade in Indonesia.
Lembong recognizes that the sluggish economy China will continue to affect Indonesian exports. However, he argued that the losses can be made using e-commerce to penetrate new markets abroad.
"How can we take advantage of smartphones and social media revolution for trade? [To be] more towards progressive exterior and foster business opportunities in markets abroad, we should not be defensive and afraid, "Lembong recently told the press.
Making potential massive use of e-commerce in Indonesia would prove to be a smart move given the impressive growth of the sector in recent years.
e-commerce transactions in Indonesia reached US $ 12 billion in 2014, an increase of only US $ 8 billion in 2013. The official figure for 2015 has not been published yet, but a positive trend should continue. In 2016, the Indonesian e-commerce could be worth up to US $ 25 billion, according to a joint report issued by Indonesia E-Commerce Association, . Indonesia and international market research company Taylor Nelson Sofres.
What's next for China?
It may seem pessimistic for now, but China is doing what it takes to improve its economy, said Nigel Green, CEO and founder of deVere Group, an independent financial advisory organization .
According to Green, the depreciation of the yuan is not a sign of the disaster, but rather "a structured and necessary part of the transition of China from an economy driven by exports to a more consumer and service oriented. "
the yuan, he added, had increased considerably in recent years, which has been eroding China's competitiveness, and actually contributed to the slowdown in the country's export trade." the modest currency adjustment, "he said, will boost exports of the world's second largest economy, helping our international trading partners, and in the end to support the global economy.
China, he believes, is currently in a transition state, and the government is well prepared through this rough period. Once the transition period is over, the world can expect to see a more economically stable China.
"Indeed, I believe that economic growth is likely to increase this year, but it is far few months. The markets will eventually get used to China's transition, but in the meantime we can expect volatility waves on the markets, "says Green.