Transforming Taiwan-Indonesia Ties In 21st Century: New Challenges – Analysis
The cordial relations between Taiwan and Indonesia are unique in many ways. Neither countries have diplomatic ties but economic ties have been blooming for more than five decades. The trajectory of relations between Taiwan and Indonesia can be described as a roller-caster ride because of Indonesia’s One-China Policy.
This paper touches broadly on the ups and downs in both countries’ relations. How best to transform the Taiwan –Indonesia ties in the 21st century? How to deal with regional hegemon China? What are the new challenges and opportunities in the wake of mega free trade regimes on one side and increasingly protectionist trends on the other? What are the new perspectives in building stronger ties between Taiwan and Indonesia? This paper addresses the above questions.
Historical Overview
Taiwan is officially called the Republic of China (ROC), which was established in 1912 under the leadership of Sun Yat-sen. From 1912 to 1949, both mainland China and Taiwan were one country. In 1949, when the communists established the People’s Republic of China (PRC) on the mainland, the national leadership of ROC retreated to Taiwan. (1)
During the period of 1912 to 1949, the ROC officially established diplomatic relations with Indonesia, which was ruled by the then Dutch colonial regime, and established several consul-general offices in various Indonesian cities.
Indonesia declared its independence on Aug. 17, 1945 and the relations between Indonesia and ROC, or Taiwan, took a new turn especially after the establishment of the PRC in 1949. The ROC was the first of the two Chinas to recognize Indonesia’s independence in the hope that the old relations would continue.
But Indonesia, like many countries in the world, decided to recognize the PRC and adopted the so-called One-China Policy. In April 1950, all the consul-general offices of the ROC were closed down.
Indonesia’s One-China Policy didn’t deter Indonesian businesspeople from establishing trade ties with Taiwan. Indonesia currently has the third-largest Chinese population after mainland China and Taiwan in the world. Between 5 and 7 percent of Indonesia’s 265-million population are ethnic Chinese. Many Chinese businesspeople and other Indonesian leaders have supported Taiwan and have lobbied for the recognition of Taiwan.
Although the Indonesian government has never agreed to recognize Taiwan as a sovereign state, it has allowed economic ties to flourish. The alleged coup attempt by Indonesian communists in 1965 prompted Jakarta to cut off diplomatic ties with Beijing from 1967 until 1990.
Taiwan saw a golden opportunity to woo Indonesia, to enhance bilateral relations and even establish diplomatic relations. Several Indonesians like Brig. Gen. Suhardiman, Be Sulindro Suwandi Hamid, Njoo Han Siang and Amran Zamsani established a trading company called PT Berdikari to trade with Taiwan and lobby the Indonesian government to enhance relations with Taiwan.
In 1967, these lobbyists, later joined by scholar Jusuf Wanandi, the founder of Indonesia’s Centre for Strategic and International Studies, urged the government to enhance ties with Taiwan in the absence of diplomatic ties with the PRC. They even invited a 14-member trade delegation to Indonesia. It was this delegation that offered a US$20 million loan to Indonesia in return for Jakarta’s withdrawal of support for PRC to enter the United Nations. (2) This loan never materialized simply because Indonesia stuck to its One-China Policy. Then Indonesian foreign minister Adam Malik made it clear that Indonesia would recognize the ROC only if the Taiwanese government moved its headquarters to Beijing.
So, during the period of 1967 to 1990, Indonesia stuck to its One-China Policy and never recognized Taiwan as an independent state. It did, however, open its doors to Taiwanese businesspeople and investors to conduct trade with Indonesia and invest in the archipelagic state.
Golden period (1967 to 1990)
In the absence of formal diplomatic ties with the PRC, the economic relations between Indonesia and Taiwan improved significantly. In recognition to the improved relations between the two countries, the Indonesian Chamber of Commerce was established in Taipei, Taiwan, in 1970 while Jakarta responded by establishing the Taiwan Chinese Chamber of Commerce in Jakarta in 1971.
These two trade organizations played a significant role in enhancing the economic relations between the countries. The biggest turning point came in 1989, just one year before the reestablishment of diplomatic relations between Indonesia and China, when the Taiwan Chinese Chamber of Commerce changed its name into the Taipei Economic and Trade Office (TETO) in Indonesia, the de facto embassy of the ROC in Indonesia. The Indonesian government, through a Presidential Regulation, transformed the Indonesian Chamber of Commerce in Taipei into a non-government agency called the Indonesian Trade and Economic Office (KDEI) in 1994. (3)
The KDEI is the only non-government agency of Indonesia that is totally run by officials from the Trade Ministry, State Intelligence Agency and Immigration Department. Both TETO and the KDEI are de facto embassies of Taiwan and Indonesia, respectively.
One may wonder why all of Taiwan’s de facto embassies all over the world, including the one in the Philippines, are called Taipei Economic and Cultural Offices (TECOs) but in Indonesia, it is called TETO rather than TECO.
The Chinese culture is a sensitive issue in Indonesia. During the dictator Soeharto’s regime (1967 to 1998), millions of Chinese-Indonesians were denied basic human rights. They were not allowed to learn or speak the Chinese language. Chinese people were barred from celebrating their festivals and rituals. Chinese people faced huge discrimination in jobs and educational places. They could not get employment in government service, the military or police.
This dark period ended after the Reform movement in 1998. Currently Chinese-Indonesians face no discrimination and Chinese New Year is now a national holiday.
However, the Indonesian government objected to the name of TECO and that is why in Indonesia it is called TETO. To this day, the Chinese government, the PRC, has yet to receive permission to open a Chinese cultural center in Jakarta, whereas many countries like Japan, South Korea, Italy, France, Germany, India and Russia already have their cultural centers in Jakarta.
From ‘Go South’ to ‘New Southbound’
In the late 1980s, Taiwan’s president Lee Teng-hui (1988-2000), made efforts to enhance Taiwan’s profile in the international arena through economic diplomacy and enhancing people-to people contacts. (4) He was very successful in his efforts as can be seen by the number of TECOs now around the world.
“Go West” was the mantra for Taiwanese businesspeople for many decades. Taiwan had invested heavily in mainland China, but it became too dependent on China.
In an effort to take Taiwan’s profile to a higher level and reduce its dependency on China, president Lee introduced his ambitious “Go South” policy in 1994. Under this policy, Taiwanese businesspeople were encouraged to engage in more trade with Southeast Asian countries. Lee’s successor Chen Shui-bian (2000-2008) continued the spirit of the “Go South” policy. Only during the time of president Ma Yang-jeon (2008-2016), did Taiwan move closer toward China.
After the election of current President Tsai Ing-win in 2016, Taiwan not only went back to the “Go South” policy, but it also upgraded it into what it is called the “New Southbound Policy” (NSP) in 2016.
This policy was regarded as revolutionary, changing the entire nature of Taiwan’s foreign and economic relations with other Asian countries.
“The New Southbound Policy is a crucial part of Taiwan’s economic and trade strategy, which aims to redefine Taiwan’s important role in Asia’s development, identify a new direction and a new driving force for a new stage of economic development, and create future value,” the Taiwanese government said on its official New Southbound Policy website. (5)
Basically, the NSP’s main aim is to strengthen Taiwan’s relations with all 10 countries of the Association of Southeast Asian Nations (ASEAN), six states in South Asia (India, Pakistan, Bangladesh, Sri Lanka, Nepal and Bhutan), plus Australia and New Zealand.
“The policy is designed to leverage Taiwan’s cultural, educational, technological, agricultural, and economic assets to deepen its regional integration,” two scholars Rowman and Littlefield say in their latest ebook. (6)
Present state of Taiwan–Indonesia relations
The cordial relations between Taiwan and Indonesia have been growing by leaps and bounds. A lack of diplomatic relations has not apparently been a big problem although it is a major hurdle to upgrading ties.
Two-way trade has been growing significantly while investments have also reached a record high. People-to-people contacts have been on a positive trajectory.
The best proof of these increased relations was the opening of a second TETO office in Surabaya, East Java, in 2015. Last March, Indonesia organized its first-ever trade expo, called Indonesian Week, in Taipei while Taiwan also organized a big trade expo called Taiwan Expo 2018 in Jakarta.
Trade and investment
Last year, the total trade between Taiwan and Indonesia, based on Taiwan’s trade data, surged to $8.09 billion, a 14.84 percent increase from $7.04 billion in 2016. Indonesia enjoyed a trade surplus of $1.70 billion as its exports to Taiwan jumped to $4. 89 billion in 2017, an impressive jump from $4.30 billion in 2016. Likewise, Taiwan’s exports to Indonesia also surged to $3.19 billion in 2017, a 16.27 percent increase from $2.74 billion in 2016.
Based on Indonesian statistics, Taiwan is Indonesia’s 11th biggest trading partner.
Indonesia mainly exports crude oil, gas, coal, rubber, coffee, furniture and textiles to Taiwan while it imports machinery, automotive spare parts, vehicles, electrical equipment, electronics and many other goods.
According to Indonesia’s Investment Coordinating Agency’s 2015 data, more than 2,000 Taiwanese companies operate in Indonesia and these companies provide around 1 million jobs to Indonesian people. Taiwanese companies as of 2015, had invested $17 billion in Indonesia. (7)
Last year alone, Indonesia received $397 million worth of foreign direct investment from Taiwan. Taiwan has been very active in developing several projects in Morotai Island, North Maluku, a special economic zone.
People-to-contacts
Indonesians constitute the majority of foreigners living in Taiwan. According to TETO in Indonesia, currently there are around 300,000 Indonesians living in Taiwan. The majority of these are female migrant workers who normally work as domestic servants and caregivers. Around 50,000 Indonesians are married to Taiwanese citizens and there are more than 5,000 Indonesian students studying in Taiwan.
These migrant workers have so far remitted almost $10 billion back home to Indonesia.
Taiwan is one of the major providers of tourists to Indonesia. Last year, 211,000 Taiwanese visited Indonesia, a slight increase from 209,000 in 2016.
Indonesia recently relaxed visa regulations for Taiwanese tourists, providing them with a 60-day visa.
Indonesia wants to establish close relations with Taiwan but officially it cannot do this. Both Taiwanese diplomats and Indonesian officials, however, know how to handle the One-China Policy.
For example, former president Chen visited Bali in 2005 and Batam in 2006 on the pretext of weather and refueling. Former vice president Annette Lu also visited Yogyakarta in 2002.
Taiwan offers numerous scholarships to Indonesian students to study in Taiwan. The TETO office has collaborated with many educational institutions such as the University of Indonesia, Binus University, Paramadina University and think-tanks like the Indonesian Institute of Science (LIPI) and Habibie Center through many activities. Indonesia Taiwan Dialogue and Taiwan-ASEAN Dialogue have been among the events organized by TETO to boost its soft-power image in Indonesia.
Opportunities and challenges
Under the New Southbound Policy, Indonesia, the Philippines and Vietnam are priority countries for Taiwan. Indonesia, which has Southeast Asia’s largest economy and is also a G20 member, can offer enormous opportunities for Taiwanese businesspeople.
The 265 million people of Indonesia, with rising incomes and a growing middle class, are a huge market for Taiwanese products. Indonesia, which has a $1 trillion economy with a steady 5 percent economic growth, is focused on building infrastructure across the country.
Indonesia needs around $150 billion of investment for infrastructure projects in the next three years.
Indonesia has enormous natural resources – you name it, it has it. But investing in Indonesia is not that easy because of its notorious regulations, taxation system and labor laws, these are major challenges for Taiwanese investors.
A lack of promotion about Taiwan and its products in Indonesia is also still a big problem.
Assertive China
With its growing economic weight and military might, China has been very assertive with its neighbors, especially Taiwan. In recent times, China has been putting enormous pressure, be it diplomatic, military and psychological, on Taiwan to toe its line on the One-China Policy.
In the economic field, China has been very aggressive in Southeast Asian markets. Thanks to the ASEAN-China Free Trade Area agreement, Chinese goods enjoy zero tariffs while Taiwanese goods have to fiercely compete with Chinese goods.
A lack of diplomatic relations and agreements on various issues are also be a big problem for Taiwanese investors when competing with Chinese investments. China has been putting a lot of pressure on Indonesia to cut or reduce several activities of TETO, outside economic and trade areas.
China always strongly protests whenever TETO uses the name Republic of China.
Taiwan and Indonesia must explore the possibilities of signing protection of investment agreements and avoidance of double taxation.
On the political side, the influence of the United States in Asia is on the decline while China is filling the gap.
Mega FTAs
Taiwan is likely to face serious problems from the mega free trade agreements like ACFTA, the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
With these mega FTAs, Taiwanese products may become less competitive. That is why Taiwan must invest more in manufacturing its products in countries like Indonesia and the Philippines.
Taiwan must find a way to sign as many free trade agreements as possible with New Southbound Policy countries.
Increasing protectionism
United States President Donald Trump’s so-called “America First” protectionist policy will affect all countries, including Taiwan. It is a major backward step. Trump’s trade war will lead to a chaotic situation in global trade.
Taiwan has to prepare for the consequences of protectionism and take steps to focus more on New Southbound Policy countries.
Globalization and free trade are vital for many countries like Taiwan.
Taiwan is currently sitting on a huge $450 billion of foreign exchange reserves.
Indonesia must relax its investment rules and provide special facilities or treatment for Taiwanese investors. With this, both Indonesia and Taiwan can benefit from the negative impacts of protectionism.
Conclusion
We are living in the 21st century. Once a dominant power, the United States is declining while the new superpower China is rising fast. The time-tested relations between Taiwan and Indonesia are adjusting themselves to the fast-changing global economic dynamics.
The two countries have enormous potential which, when tapped in the right way, will benefit both countries.
There are many opportunities that can boost both countries’ economic development. The present trade of around $8 billion does not reflect their real potential.
China is the biggest economic and security threat to both countries. With the absence of a dominant power, China has emerged as a global power. It will be a daunting task for both Taiwan and Indonesia to deal with an assertive China.
Being a small state of just 24 million people, Taiwan must enhance economic links with the New Southbound Policy countries. However, the One-China Policy will be a big hurdle for the enhancement of economic links between Indonesia and Taiwan.
There is a need for a massive campaign to raise awareness in New Southbound Policy countries.
Indonesia and Taiwan should sign important agreements to smooth trade and investment and cooperation in various sectors.
Another major threat is the increasing trend of protectionism among many developed economies.
The government of Indonesia must relax investment laws and trade regulations in order to attract more Taiwanese investment.
The New Southbound Policy is the right policy in the right direction.
Footnotes
1. Since 1949, both the ROC and the PRC have existed as two sovereign countries but China claims Taiwan is a renegade province and must be united with the mainland, Taiwan claims it is a sovereign democratic republic with a fully fledged government.
2. Setiono, Benny G. “Tianghoa Dalam Pusaran Politik. Mengungkap fakta sejar tersembunyi Orang Tionghoa di Indonesia”, Jakarta: IKASA (2003), Page 1001. https://books.google.co.id/books?id=CH0p3zHladEC&pg=PA1001&lpg=PA1001&dq=PT+Berdikari+Taiwan+1967.
3. See http://www.kdei-taipei.org/index.php/2014-08-11-03-58-09/sejarah-singkat
4. Paramita Ningrum and Johanes Herlijanto, “Economic Diplomacy, Soft Power, and Taiwan’s relations with Indonesia,” Contemporary Chinese Political Economy and Strategic Relations: An International Journal, Vol. 2, No.3 Dec. 2016, Pp 1177-78
5. See https://www.roc-taiwan.org/bn_en/post/644.html
6. Rowman &Littlefield, ebook, The New Southbound Policy: Deepening Taiwan’s Regional Integration, CSIS, Jan. 9. 2018 See link https://www.csis.org/analysis/new-southbound-policy
7 “Delegation promotes New Southbound Policy in Indonesia,” Taiwan Today dated Dec. 20, 2016. See link https://nspp.mofa.gov.tw/nsppe/news.php?unit=379&post=106528.
