China poses bigger threat than Greece to Indonesia, Vice President says

News about the stock fallout is China is shown on a TV screen at the New York Stock Exchange on July 8.
News about the stock fallout is China is shown on a TV screen at the New York Stock Exchange on July 8.PHOTO: REUTERS

JAKARTA (BLOOMBERG) - China is a bigger risk to Indonesia's economy than the Greek crisis, threatening investment and demand in the Southeast Asian nation, Vice President Jusuf Kalla said as Chinese stocks crash and growth slows.

"For us the situation in China is more worrying," Mr Kalla said in an interview on Wednesday with Bloomberg Television Indonesia. "Chinese SOEs who until now are keen to invest, work with us, their values are going down. Automatically Chinese industries will also experience a slowdown," he said, referring to state-owned enterprises.

The view underscores the importance of China to a region that counts on the country to buy its commodities, and is turning to Chinese money for investment. Governments like Indonesia's will be compelled to spend more to stimulate growth, Kalla said, pledging to do so even if it means widening the budget deficit in the short term.

"You can't ignore the external weaknesses," he said. "By improving people's spending power, domestic consumption including government budgetary funds, I'm convinced that the second half will be better."

Asian stocks are sliding amid concern that China's equities rout will depress growth in the world's second-largest economy. The Chinese market meltdown has erased more than US$3 trillion of value.

Investors had hoped for faster spending from President Joko Widodo, a former furniture salesman elected last year on a platform to lift growth by building roads, power plants and ports. That has yet to happen, though data from the public works ministry show more than 90 per cent of planned projects have been tendered, with contracts signed for more than half of those.

"It will happen because the contracts have been tendered since April and May," Mr Kalla said. "Everything is in progress, at the public works ministry and at the transport ministry. Some projects are ongoing, but not as much as last year, that is certain." China could be a key ally in the government's infrastructure plans.

Mr Widodo wants to develop the country's ports and fishing industry to create a "global maritime axis," an ambition that complements President Xi Jinping's plan for a "Maritime Silk Road" trading route linking Asia to the Middle East and Europe.

Indonesia's central bank said late Wednesday that China's slowdown may damp the Southeast Asian nation's expansion, with each 1 percentage point decrease in China's growth seen equaling a 0.4-to-0.6 percentage point decline for Indonesia's.