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BRICs go into battle: China vs Indonesia

Round four: at the heart of Asia

For many, the idea of pitting China against Indonesia is a David vs Goliath-esque mismatch. China’s recent surge up the world order recently saw it overtake Japan to become the world’s second largest economy after the US. Indonesia, meanwhile, sits at around a lowly 16th position. However, the two rapidly growing Asian nations have much more in common than first meets the eye.

The dragon roars

China’s economic muscle is such that the country can no longer be referred to in speculative terms as the country of the future, but is rather a leading world power in its own right. The world economic order once took its cue from the US, but China increasingly dictates the state of play for both the developed and developing world.

The Asian dragon’s near miraculous growth over the past two decades (GDP has expanded by an average of around 10 per cent a year during this time) owes much to the rapid industrialisation which took place following the relaxation of financial and business regulations in the mid-1980s. Once able to harness its gigantic and low paid workforce, the country was able to take a rapid step from largely agricultural economy to major manufacturing power, effectively becoming a factory for the world.

While the rest of the world has seen economic growth slow to a trickle in the wake of the global financial crisis, China has for the most part remained at all guns blazing as the government has financed aggressive projects to overhaul the country’s infrastructure and promote growth in its poorer regions.

This relentless expansion has been met with some scepticism, however, with growing suspicion among observers that the government is fiddling its growth figures in order to keep the masses contented. Government officials have hinted that a minimum GDP growth of 8 per cent a year is needed to avoid major public unrest, a detail which illustrates the uneasy relationship between the state and an increasingly disgruntled proletariat. Recent protests by factory employees up and down the country attest to the growing resentment of underpaid workers in what is now the world’s second richest nation.

Indonesia does it

For what it lacks in population (though 245 million people is not to be sniffed at), Indonesia makes up for in natural resources. The country is the world’s largest exporter of thermal coal (the major source of energy production across Asia) and also boasts plentiful supplies of natural gas, palm oil, copper, nickel and gold.

The archipelago’s abundant resources and proximity to the powerhouses of China and India have allowed it to benefit from the booming economies of these two nations over the past 20 years. There are direct parallels between Indonesia’s growth and the Chinese economic miracle as the country’s transformation into a major exporting nation has paved the way for considerable economic development. In the space of a generation income per capita has doubled, leading to rapid urbanisation and an increasingly prominent middle class.

As in the case of China, however, the country’s Achilles heel remains its somewhat unsavoury political climate, which has limited its appeal for many investors. The country’s scattered geography and mixed heritage – Indonesia is made up of more than 18,600 islands as well as a range of ethnic groups – makes for some uneasy power struggles. The past few years have witnessed a succession of disputes between the government and breakaway regions such as East Timor, while, as the world’s most populous Muslim nation, Indonesia has also played host to a growing wave of Islamic fundamentalism.

Verdict: China stands firm

While Indonesia represents one of the most significant economic success stories of recent years, the country remains light years behind China in terms of its standing as a major economic power. One of the most telling inferences when comparing the two countries is the fact that much of Indonesia’s recent growth is a direct result of that of China, with the former in some senses little more than an opportunist benefactor from its neighbour’s success. While the archipelago may rightly be classed in the next wave of emerging markets, we’d rather put our faith in the old guard for the time being.