INVESTMENTS: Overseas Chinese and Indonesia
Far Eastern Economic Review
July 30, 1998

 Too Hot to Handle:
 Chinese investors cool on Indonesia
  * By Salil Tripathi in Singapore
    481 Words

The persecution of Indonesian-Chinese is reverberating far beyond the
archipelago, scaring off their ethnic-Chinese cousins from Taiwan, Hong
Kong, Malaysia and Singapore who have been among the country's biggest
foreign investors.
   Until about 1994, these businessmen would not have mattered so much,
for the biggest investors in Indonesia were Americans and Japanese. But
since 1995, Overseas Chinese have been leading investors in Indonesia.
Many are in small manufacturing projects, like textiles, but
collectively, they are substantial. And since the Chinese investors'
industries are labour-intensive, they he absorb Indonesia's labour
force, which grows at a rate of 2.2 million annually.
 Now, they are scrapping or postponing many of their projects in
Indonesia in the aftermath of the May riots. "There was always residual
fear about Indonesia among the ethnic Chinese in the region, and these
events confirm their worst fears," says Singapore-based Lim Say Boon of
Crosby Corporate Advisory, a regional investment bank.
   True, all foreign investors, not just ethnic Chinese, have plenty of
reason to avoid doing business in Indonesia these days. The inflation
rate may hit 80% this year and the economy will shrink by at least 20%.
Interest rates are hovering between 60%-65%, and yet confidence eludes
the currency. Friedrich Wu, vice-president of economic research at DBS
Bank in Singapore, says: "Investors will want to see that there are no
riots again before they put fixed assets in the country."
   The ethnic-based violence is an added disincentive for Overseas
Chinese investors, who are simmering with anger over the treatment of
their kin and the failure of the Indonesian authorities to prevent the
gang rapes and other atrocities. Yet many Overseas Chinese businessmen
who still have investments in the country fear reprisals if they
criticize the authorities publicly or explicitly say they are leaving
because of those earlier attacks.
   Those who can are beginning to pull out. Acer's Bobby Chang, the
Jakarta-based general manager for the Taiwanese personal-computer maker,
says some Taiwanese factories in Indonesia have already closed since the
attacks on Indonesian-Chinese. His own company had to drop plans for a
$10 million project when Glodok, the centre of Indonesia's electronics
trade, was reduced to ashes. "I knew then that the project could not be
revived," says Chang.
   For many investors, there are other opportunities in the region, like
Thailand or Vietnam. According to Howard Wang, an executive at the Core
Pacific group, a major Taiwan investment house, it's a prime time for
business expansion in the region but, he adds, any future decision on
his company's part to invest in Indonesia will depend on the treatment
of Indonesian-Chinese.
   Not everyone is pulling out. Indonesia is too important to consider
leaving, says William Fung, managing director of Li and Fung, the Hong
Kong-based trading group. "We are watching the situation closely as part
of our factory-base in Indonesia is Chinese-owned," he says. "Nobody can
afford to write off Indonesia."