China Emerging as One of the Key Foreign Investors in Indonesia’s New Capital City
JAKARTA — Indonesia’s capital, Jakarta, is overcrowded, polluted, prone to earthquakes and often described as the world’s fastest sinking city, due to groundwater extraction and climate change.
All that, plus the government’s interest in distributing opportunity and wealth more equitably among the nation’s 1,700 islands, contributed to President Joko Widodo’s announcement in August 2019 of plans to move the capital from the island of Java to the island of Borneo and create a smart, “sustainable forest city” — Nusantara.
Since then, Indonesian authorities have envisioned foreign investors bankrolling Nusantara, a $32 billion project.
Now, months before the first phase is scheduled to be unveiled on August 17, Chinese entities are emerging as one of the biggest blocks of investors in what is widely seen as Widodo’s legacy project, where work began in August 2022.
Singapore has shown the most interest, followed by Japan. Malaysia and China are tied for third place.
But submission of letters of interest is just the first step in a time-consuming process. The 260,000-hectare (642,474 acre) design is due for completion in August 2045, Indonesia’s 100th anniversary of independence from Dutch colonial rule.
The Nusantara Capital Authority (NCA) has used investment forums and meetings in Beijing, Shanghai and Shenzhen to reach investors. In October, Widodo said Beijing is set to become the largest foreign direct investor in Indonesia within two years, surpassing Singapore.
China has already invested in smart cities like Nusantara elsewhere in Southeast Asia, including Malaysia, the Philippines, Thailand and Myanmar, according to a 2021 University of Kentucky study.
In Indonesia, Chinese investments have usually flowed into major infrastructure or industrial projects, such as the $7.3 billion Jakarta Bandung high-speed rail project, the Mentarang Induk Hydroelectric Project (MIHEP), which is affiliated with the Chinese state-owned enterprise PowerChina and will power the new capital and the controversial $11.6 billion facility on Rempang Island for Xinyi Glass, a giant Chinese-owned glass and solar panel manufacturer.
Disputes over who owns the land remain unresolved.
In a phone interview with VOA Indonesian, Andry Satrio Nugroho, an economist at Indonesia’s Institute for Development of Economics and Finance, warned that the government should be able to assure investors that there are no similar land disputes attached to Nusantara.
NCA has said the government is working to include Indigenous and local people in the land acquisition and development process.
Agung Wicaksono, NCA deputy for finance and investment, said they have received 345 letters of intent submitted by potential investors.
At a conference on sustainability hosted by Singapore's Temasek Holdings in June 2023, Widodo introduced 300 development packages worth $2.6 billion to investors interested in building Nusantara. The Indonesian government offered incentives such as tax holidays for companies investing at least $647,000 in projects like airports, toll roads, hospitals, shopping malls and hotels.
“Under the PPP [Private-Public Partnership] scheme, the NCA is advancing with a Chinese consortium led by CITIC Ltd. to construct 60 residential towers in the capital,” Wicaksono said.
CITIC Ltd., one of China's largest conglomerates, is 58% owned by CITIC Group, which U.S. Republican Representative Mike Gallagher, chairman of the House Select Committee on the Chinese Communist Party, called “one of China’s largest and most important Party-controlled financial conglomerates.”
Two Malaysian entities, Maxim and IJM, will also build residential property in Nusantara, according to the Indonesia Business Post.
Interest from China has also included a pitch from China Railways Construction Corporation to develop Nusantara's transportation system, according to the official China Daily, which reported that “Chinese enterprises have already been helping realize Widodo's plans.”
China Road and Bridge Corporation, China Communications Construction Indonesia, and China Construction Eighth Engineering Division Corporation are bidding for parts of the toll highway to link the Balikpapan oil storage port with Penajam Paser Utara, where the new capital will be built, according to a September 4 report.
By law, Widodo cannot serve more than his two five-year terms. His successor is expected to bePrabowo Subianto, the top vote-getter in last month’s election, who backs the Nusantara move.
“Everything will be fine, no need to worry,” Widodo told potential investors at a Singapore meeting last year. “Your investment in Indonesia will continue to be safe, and [there will be] continuity in the development of Nusantara capital city."