China Investment Corp (CIC) may invest up to $25 billion in Indonesia, a minister of Southeast Asia's biggest economy said, a move that will help the fund secure resources in a country hungry for foreign financing.
China's $300 billion sovereign fund is initially ploughing $2 billion into coal, electricity and port projects in the world's largest exporter of coal for power plants, Indonesia's state enterprises minister Mustafa Abubakar said, although he gave no timeframe for the investments.
Indonesia also has abundant palm oil, copper and timber - resources in strong demand in China, which has stepped up investments in resource assets from Australia to Canada to fuel its growth. "Such investment in Indonesia would help China secure more resources in Southeast Asia and benefit from increasing trade in the region, serving China's national interest," said Zhang Haochuan, analyst at fund consultancy Z-Ben Advisors.
Abubakar told reporters that CIC had said it was interested in investing in three Indonesian state firms - coal miner PT Tambang Batubara Bukit Asam, state electricity firm PLN, and state port operator Pelindo. "CIC will form a joint venture and for the first batch it will invest $2 billion, but the ceiling (for their investment) could be up to $25 billion," said Abubakar, adding the agreement may not be finalised this year.
Ekoputro Adijayanto, adviser to the minister, said that Abubakar's comments were based on April meetings with CIC. CIC spokeswoman Wang Shuilin could not be immediately reached for comment. "It's a huge amount of money. The question is where is the money going? It's still unclear what projects are feasible," said Harry Su, head of research at PT Bahana Securities.
"It remains to be seen whether this is true or not. I mean commitment is completely different to implementation in Indonesia," Su added. Bukit Asam's CEO Sukrisno said he had no knowledge of the CIC plan. "If they want to invest they could do it by giving us loans for several of our projects," he told Reuters.
Bukit Asam shares slipped 2.7 percent on Tuesday, in line with a fall in the benchmark index as investors were jittery about inflation. Investors have poured into Indonesian markets in the past year, driving its stock market to a record high this month, but the country has struggled to attract foreign direct investment (FDI) for years because of endemic corruption, red tape, poor infrastructure, and tough labour laws.
Economists say the country needs increased long-term FDI to make its finances more stable and to help it obtain an investment-grade credit rating, which would put it alongside BRIC nations such as Brazil and spur further institutional investment.
CIC invested $58 billion overseas last year, after sitting on a large cash pile in 2008, and a lot of its investments were in sectors where Indonesia is strong, such as natural resources and agriculture. It had 28.4 percent of its diversified equity portfolio in Asia-Pacific at the end of 2009, according to its annual report. The fund has already invested in Indonesia's biggest coal company, Bumi Resources.