The impact and prospects of trade between South Sumatera and China

Abstract

Trade relations between South Sumatera and China began as far back as 800 AD, during the period of the Sriwijaya Kingdom, known as South Sumatera’s ancient city. To this day, South Sumatera has continued that trade relationship, even during the years when relations between Indonesia and China had been restricted by the Indonesian government for political reasons.

Globalization and the thrust toward decentralization are pushing South Sumatera to improve its international trade performance in a bid to increase provincial revenue. Statistics show an increase of as much as 67 percent in South Sumatera’s exports for the period 2002-2004. China’s contribution to that increase is 35.8 percent in 2002, rising to 42.9 percent in 2004. The major commodities being exported to China are rubber, plywood, crude kernel palm oil, and refined bleached deodorized (RBD) stearin. South Sumatera’s imports from China during the same period also show an increase of about 28 percent.

This paper analyses the impact and prospects of South Sumateran trade with China. It is hoped that the increasing export to China would stimulate local economic activities, such as increasing the number of various commodities, labor absorption, and local and foreign investment, to boost the province’s economic growth and improve revenue. On the other hand, the increase in importation from China can be a threat to local industries in South Sumatera in terms of the amount of production and labor absorption.

JEL classification: F14, F59