China becomes one of major foreign investors in Indonesia’s new capital

Due to groundwater extraction and climate change, Indonesia’s capital Jakarta is overcrowded, polluted, prone to earthquakes and is often called the world’s fastest sinking city.

All this, plus the government’s interest in distributing opportunity and wealth more equitably among the country’s 1,700 islands, prompted President Joko Widodo in August 2019 to announce plans to move the capital from Java. on the island of Borneo and create a smart, “sustainable forest city” – Nusantara.

Since then, Indonesian authorities have envisioned foreign investors financing the $32 billion Nusantara project.

Now, months away from the planned unveiling of the first phase on August 17, a Chinese entity is emerging as one of the largest investors in the project, widely seen as Widodo’s legacy project, which is scheduled to be unveiled in August 2022 Construction started.

Singapore showed the greatest interest, followed by Japan. Malaysia and China tied for third place.

But submitting a letter of intent is only the first step in a time-consuming process. The 260,000-hectare (642,474-acre) design is expected to be completed by August 2045, the 100th anniversary of Indonesia’s independence from Dutch colonial rule.

Nusantara Capital Authority (NCA) uses investment forums and conferences in Beijing, Shanghai and Shenzhen to reach investors. Widodo said in October that Beijing would overtake Singapore within two years to become Indonesia’s largest foreign direct investor.

China has invested in smart cities like Nusantara elsewhere in Southeast Asia, including Malaysia, the Philippines, Thailand and Myanmar, according to a 2021 University of Kentucky study.

In Indonesia, Chinese investment usually flows into major infrastructure or industrial projects, such as the US$7.3 billion Jakarta-Bandung high-speed rail project and the Mentarang Induk Hydropower Project (MIHEP), which is affiliated to Chinese state-owned enterprise PowerChina. Powering the new capital of Xinyi Glass, a large Chinese glass and solar panel manufacturer, and its controversial $11.6 billion facility on Rempang Island.

Disputes over land ownership remain unresolved.

Andry Satrio Nugroho, an economist at the Indonesian Institute of Economic and Financial Development, warned in a telephone interview with VOA Indonesia that the government should be able to reassure investors that Nusan There are no similar land disputes in Tala.

The NCA said the government was working to involve Aboriginal and local people in the land acquisition and development process.

NCA Deputy Representative for Finance and Investment Agung Wicaksono said they had received 345 expressions of interest from potential investors.

At a sustainability conference hosted by Singapore’s Temasek Holdings in June 2023, Widodo presented 300 development plans worth US$2.6 billion to investors interested in building Nusantara. The Indonesian government offers incentives such as tax holidays to companies that invest at least US$647,000 in projects such as airports, toll roads, hospitals, shopping malls and hotels.

“Under the PPP [Private-Public Partnership] Under the plan, NCA is working with a Chinese consortium led by CITIC Holdings to build 60 residential buildings in the capital,” Wicaksono said.

CITIC Group is one of China’s largest conglomerates, with 58% of the shares held by CITIC Group. Mike Gallagher, a U.S. Republican congressman and chairman of the House Special Committee on the Communist Party of China, called CITIC Group “China’s largest, One of the most important party-controlled financial institutions.” Enterprise Group”.

Two Malaysian entities, Maxim and IJM, will also build residential properties in Nusantara, Indonesia Business Post reported.

Chinese interest also includes a proposal by China Railway Construction Corporation to develop Nusantara’s transport system, according to the state-run China Daily, which reported that “Chinese companies are already helping realize Widodo’s plans”.

According to a report in September, China Road and Bridge Corporation, China Communications Construction Indonesia and China Construction Engineering Corporation 8 are bidding for part of the toll road connecting the Balikpapan oil storage port to the new capital Penayan Basel North. . April 2023, report.

By law, Widodo cannot serve more than two five-year terms. His successor is expected to be Prabowo Subianto, the top vote-getter in last month’s election, who supports Nusantara’s move.

“Everything will be fine, don’t worry,” Widodo told potential investors at a conference in Singapore last year. “Your investment in Indonesia will continue to be safe and [there will be] Continuity of development in Nusantara Capital. ”