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The new Indonesian government has vigorously developed the shipbuilding industry, bringing new opportunities for Chinese enterprises

The new Indonesian government has vigorously developed the shipbuilding industry, bringing new opportunities for Chinese enterprises

(Summary description)In October this year, the Indonesian President, zonko herry, and its new government came to power, put forward to build a "sea highway" sea power idea and construction plan, by focusing on developing maritime connectivity, promote land, sea and air and communications and other infrastructure construction,


In October this year, the Indonesian President, zonko herry, and its new government came to power, put forward to build a "sea highway" sea power idea and construction plan, by focusing on developing maritime connectivity, promote land, sea and air and communications and other infrastructure construction, promote the development of the eastern regions outside the island of Java, reduce logistics cost, to achieve the annual target of 7% economic growth, To promote economic development and improve the living standards of the Indonesian people. As an important support for maritime transportation and connectivity, shipbuilding has become a priority area for the new Indonesian government to develop.

1. The development of shipping industry in Indonesia promotes the growth of demand for ships

With more than 17,500 islands, Indonesia is the world's largest archipelagic nation. The shipping industry has long been crucial to Indonesia's economy, which relies on ships for 90 per cent of the movement of goods. In recent years, Indonesia's rapid economic growth has led to a substantial increase in the demand for interisland transportation of energy resources such as coal, oil and gas, metal minerals, agricultural products and industrial and agricultural products, which has brought huge development opportunities for its inland maritime shipping industry. According to the statistics of the Indonesian Shipowners Association, in 2005, Indonesia had a total of 6,410 cargo ships with a total deadweight of about 5.67 million tons. In May 2005, President Yudhoyono issued a presidential regulation stipulating that all domestic sea cargo must be carried by domestic vessels, in order to accelerate the development of domestic shipbuilding industry. By 2012, Indonesia's cargo fleet had increased to 12,000 ships with a total deadweight of 19 million tons, nearly double the 2005 figure.

Despite the slowdown in the world economy and falling demand from China, Indonesia's inland shipping business has continued to grow as domestic demand remains strong. In 2013, Indonesian shipping companies added about 600 new ships, including tugboats, bulk carriers, Marine auxiliary ships and oil tankers, etc. By the end of 2013, the total number of ships had increased to about 13,000, and the cargo transport volume had also increased by 20% from 1 trillion tons in 2012 to 1.2 trillion tons. At the same time, as more than 40% of Indonesia's ships are older than 30 years, it is imperative to replace them. Indonesia has also been spending more on ships, reaching about $14 billion between 2005 and 2014. The Indonesian Ministry of Industry predicts that the country will need 4,000 vessels in the next 10 years.

II. Indonesia's shipbuilding industry develops slowly and is difficult to meet domestic demand

Although Indonesia's shipping industry is growing fast, its domestic shipbuilding industry is far from meeting its needs. Shipbuilding in Indonesia is expensive because of a weak steel industry and the lack of complete ancillary industries such as components and raw materials. Domestic shipbuilding costs about twice as much as imported ships, according to industry insiders, with orders coming mainly from state-owned companies, especially the national oil company. In addition, Indonesia shipbuilding industry investment also faces the following difficulties: First, high financing costs. The interest rate of Indonesian banking industry is high, while the investment cycle of shipbuilding industry is long and the risk is high. The Indonesian government has no credit preferential policy, so most of the banking industry is unwilling to invest in this industry. The second is tax. Indonesia exempts tariffs on imports of new ships, but levies a 15 per cent tax on imported building materials and components. There is also a 17.5% tax on the shipbuilding industry itself. Although the Indonesian government has a preferential policy of paying import duties on shipbuilding parts that cannot be produced domestically, the application procedures are complicated and only about 20% of them are actually used. The third is land. Because much of the land is privately owned, acquiring land for shipyards in Indonesia is difficult and expensive. Large shipyards now lease land controlled by state-owned port companies, making expansion difficult and costly.

Due to the above reasons, the development of shipbuilding industry in Indonesia has been slow and the technical capacity of domestic shipbuilders (including repair yards and shipyards) is relatively low. According to the statistics of the Indonesian Shipbuilding Association, there are about 250 shipyards (including repair shipyards) in Indonesia, mainly distributed in Batam of Riau Islands, Tangomas County of Lampung Province, Surabaya City of East Java Province, Namwang 'an County and Jakarta Province, etc. Most of these shipyards can only repair or build cargo ships of 500 to 1,000 tons. Only a few shipyards can repair or build vessels of less than 5,000 tons, and fewer than 20 shipyards and fewer than 10 new shipyards are capable of repairing vessels of more than 5,000-10,000 tons. Only one state-owned shipyard (Pt.Pal) has the capacity to build a 50,000-ton ship with a repair capacity of up to 150,000 DWT. With a global market share of 0.17 per cent in 2006, Indonesia is now ranked 18th in the global shipbuilding rankings, well behind Asian countries such as China (1st), South Korea (2nd) and Japan (3rd).

In 2013, Indonesia had a ship production capacity of about 900,000 DWT and a ship repair capacity of about 12 million DWT. In addition, Indonesia relies on imports for more than 70% of Marine parts and raw materials, including various engines, large propellers, Marine communication equipment and cables, steel plates and glass.

At present, there is no restriction on foreign investment in the shipbuilding industry in Indonesia. Foreign investors are allowed to invest solely in the shipbuilding industry, and they are welcome to invest in the manufacture of large ships with the class of 20,000 tons or above. Currently, only two South Korean companies have invested in shipbuilding in Indonesia, with a total investment of $40m in 2013. Chinese companies have yet to make substantial investments in the sector. According to the Indonesian Shipbuilding Association, the cost of building a shipyard for 70,000 heavy-duty ships in Indonesia is 350-500 billion rupiah ($30-43 million).

III. The new Indonesian government has vigorously developed the shipbuilding industry, bringing new opportunities for Chinese enterprises.

The backward shipbuilding industry in Indonesia is also one of the important reasons for the high logistics cost in Indonesia. For many years, Indonesia's logistics cost accounts for about 25.3% of GDP, ranking 53rd in the world, which seriously restricts the global competitiveness of Indonesia. Therefore, Indonesia has always taken the development of its shipbuilding industry as an important starting point to solve the bottleneck of its transportation and logistics. With the new government in office and the maritime power strategy proposed, Indonesia will further step up efforts to develop Marine economy such as shipbuilding. Indonesia's Coordinating Minister for Marine Affairs, Indryoyono Susilo, said the government is developing fiscal, tax and non-fiscal incentives to boost the country's shipbuilding industry. Among them, fiscal and tax policies include reducing value-added tax of shipbuilding industry, speeding up the refund of import tax on Marine equipment and spare parts, and implementing different tax policies for new and old ships. Non-fiscal and tax policies include speeding up the leasing of land owned by state-owned enterprises by shipyards and providing ship design for shipyards. Indonesia's Ministry of Industry will focus on three measures to support the development of the shipbuilding industry, said Bangka Susando, director-general of the high-tech development department of the Ministry of Industry. One is to provide VAT exemption for some imported Marine spare parts to reduce the production cost of domestic shipbuilders and improve their competitiveness. The second is to classify shipbuilding as an infrastructure industry and implement a lower preferential tax rate. The third is to develop specialized shipbuilding industrial zones and provide preferential tax policies to attract domestic and foreign investment. Through the above policies and measures, investment in Indonesia's shipbuilding industry is expected to exceed 30 trillion rupiah (about 2.5 billion US dollars) next year.

According to the 2010 -- 2025 Indonesia Shipbuilding Industry Development Roadmap prepared by the Ministry of Industry in 2009, Indonesia's domestic shipbuilding industry cluster will be able to produce all types of ships with a maximum of 200,000 DWT by 2020, with a repair capacity of 200,000 DWT by 2025 and a maximum shipbuilding capacity of 300,000 DWT by 2025. The medium-term target is to produce 85,000-ton ships and repair 150,000 ton ships by 2015. The Indonesian Government will enhance the design and engineering support capacity of domestic vessels through the development of a National Ship Design and Engineering Centre. At the same time, the domestic industrial raw materials and accessories such as auxiliary industries, and shipbuilding industry human resources skills will also be upgraded.

At present, China has surpassed South Korea to become the world's largest shipbuilding country, and a large amount of domestic capacity urgently needs to be transferred abroad. Indonesia's vigorous development of its shipbuilding industry has provided a rare opportunity for the transfer of Chinese shipbuilding capacity to Indonesia, as well as new opportunities for the export of Chinese complete sets of equipment and Chinese standards to Indonesia. In recent years, the friendly relations between China and Indonesia have been developing continuously and the strategic mutual trust has been increasing continuously, which has provided a good environment for Chinese shipbuilding enterprises to enter Indonesia. China's shipbuilding industry is in the leading position in the world, with overall advantages in technology, capital and cost. China's shipbuilding industry has also been highly recognized by Indonesia and other countries, which makes Chinese shipbuilding enterprises have comprehensive competitiveness to enter the Indonesian market in an all-round way. The proposal of Indonesia's maritime power strategy and the successive introduction of various preferential policies and supporting measures have reduced the risks of Chinese and other foreign enterprises' investment in Indonesia's shipbuilding industry, and also provided policy guarantee for Chinese enterprises' entry into the Indonesian market. (This article is our original article, reprint please indicate the source)

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