Infrastructure development opportunities for Chinese investment in Indonesia’s new capital city - China Working Group

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Rahmat Soemadipradja
Soemadipradja & Taher, Jakarta
rahmat_s@soemath.com

Aveninta Maria Rosalin
Soemadipradja & Taher, Jakarta
aveninta_maria@soemath.com
 

Introduction

The Indonesian government has announced a ten-year plan to relocate its capital city from Jakarta to East Kalimantan. This process, which is expected to cost $33bn, is anticipated to start in early 2021.

Although the government is still considering a number of funding arrangements, it is expected that 54 per cent of the cost would be funded via a public-private partnerships scheme and 26 per cent funded by state-owned companies with participation from private enterprise. Based on the National Medium Term Development Plan (RPJM) of 2020-2024 prepared by the Minister of National Development Planning, infrastructure development in the new capital city is expected to be completed by 2024.

Government’s efforts to increase foreign investment

To encourage foreign investment generally, and perhaps to participate in the development of the new capital city, the government has implemented several policies aimed at improving the ease of doing business in the country. For example, the government has introduced the Online Single Submission (OSS) system, an integrated electronic-based system to streamline the licensing process. To simplify the licensing process further, the government will integrate licensing services currently run by multiple agencies under the Capital Investment Coordinating Board (BKPM). In line with this effort, President Joko Widodo has instructed all ministers to rescind at least 40 ministerial regulations relating to licensing by the end of 2019.

The government is also planning to deregulate, streamline and simplify a large number of overlapping laws and regulation which are considered a restraint on foreign investment. In this context, the government is currently preparing an ‘Omnibus Law’ bill to integrate and make consistent matters currently addressed in various regulations. Overlapping provisions in approximately 74 laws will be reviewed, modified and integrated under two main laws: the Omnibus Law on Job Creation; and the Omnibus Law on Tax Provisions and Facilities to Strengthen the Economy. The bills are expected to be submitted to the House of Representatives in January 2020.

The proposed Omnibus Law would focus on simplifying licensing procedures, encouraging employment, empowering small and medium-sized businesses, simplifying land procurement and economic zone management.

Members of the general public are encouraged to provide input on the proposed Omnibus Law through the Joint Task Force established by the Ministry of Economic Coordinator.

Opportunities for Chinese investors

During the Belt and Road Forum 2019, the government invited Chinese investors to participate in the development of the new capital city. The Asian Infrastructure Investment Bank and the state-owned China Railways Construction Corporation have both expressed an interest in providing funding. A legal framework for investors’ protection has also been developed through multiple sectoral treaties signed by Indonesia and China.

Despite language barrier and differences in legal systems between the two countries, China appears to be well-placed to take advantage of the opportunity to participate in infrastructure development in the new capital city.

Conclusion

Despite some challenges, Indonesia’s effort to improve the ease of doing business coupled with the government’s commitment to see through regulatory reform in the backdrop of infrastructure development in the new capital city presents a unique and interesting opportunity for potential Chinese investors.