Indonesia’s sovereign wealth fund has won the backing of a Chinese state financial institution to boost Sino-Indonesian co-operation on infrastructure, energy and communications.
The Indonesia Investment Authority (INA) and The Export-Import Bank of China (CEXIM), which is under the remit of Beijing’s Ministry of Commerce, signals China’s intention to extend its soft power in Southeast Asia, investing across asset classes to support economic development. CEXIM has a 15% stake in the Silk Road Fund, which is also 65% owned by the People’s Bank of China (central bank) and 15% by the China Investment Corporation (CIC) with the remainder shared among China’s biggest banks.
CEXIM is looking to use the US$1 billion China-ASEAN Investment Cooperation Fund II (CAF II), launched by Premier Li Keqiang during the 2022 ASEAN summit, as its main vehicle for investments under this agreement. CAF II focuses on infrastructure and energy resources projects within the ASEAN region and is backed by significant players like China Gezhouba Group, China Road and Bridge Corp, and ESR Group.
Chen Bin, Vice President of CEXIM, remarked on this occasion,”Both parties are highly compatible in many fields such as new infrastructure and green development. We are willing to work with the INA to deepen cooperation and work together to make positive contributions to the implementation of Global Development Initiatives and the promotion of balanced, coordinated, and inclusive global development.”
INA has already forged alliances with Chinese investors, notably in the development of Indonesia’s electric vehicle value chain. Last November, INA announced an agreement with Contemporary Amperex Technology Company Ltd (CATL) and CMB International (CMBI), a subsidiary of China Merchant Bank, to create a US$2 billion EV Ecosystem Fund, focusing on the full value chain from Indonesia’s natural resources, particularly nickel, to the manufacturing of EV battery cells. CATL is a leading EV battery supplier to global auto majors.
CATL chairman Robin Zeng said the company will "help Indonesia" make "everything green" along the country's planned battery supply chain and intends to deploy "huge" renewable sources and an energy storage system to support energy-intensive smelting activities in Indonesia.
The challenge will be to maintain the decarbonization of the value chain, given the electricity demands of battery consumption and the requirements of the domestic EV fleet, given that currently 60% of Indonesia’s electricity generation comes from coal and environmental standards are widely criticized. Last December, the INA’s push for a green energy transition has won the backing of the Danish government’s Investment Fund for Developing Countries (IFU) with the signing of an Investment Framework Agreement (IFA) for up to US$500 million in co-investments in renewable energy, water, waste management, and other circular opportunities. IFU and INA have the ambition to provide risk capital to green and sustainable projects in the range of US$100 million, respectively, with co-investors making up the remainder.
Indonesia holds 22% of the world’s nickel reserves and is set to become a heavyweight in global nickel production, supplying around 50% of the world’s refined nickel by 2030, according to INA. The deal comes on the back of CATL’s announcement in April 2022 that it planned US$6 billion in joint investments with state-owned Indonesian nickel miner Aneka Tambang and IBC. In September 2022, QMB New Energy Materials - a joint venture between CATL, the Chinese stainless steel manufacturer Tsingshan Holding and Chinese battery recycler GEM – opened a battery material plant at a world-scale nickel processing complex controlled by Tsingshan in Central Sulawesi Province.
In April 2023, Stefanus Ade Hadiwidjaja, CIO of INA, said the EV fund is part of "thematic funds" that INA is looking to create with partners for investments across priority sectors, such as infrastructure, green energy transition, digital economy and health care, and potentially insurance and tourism.
The Indonesian Government has been marketing INA very aggressively since it began operations in 2021 with US$1 billion in capital. INA has raised around US$27 billion of investments. It is part of a new breed of “catalytic funds”, established with the aim of attracting foreign capital into the country (inbound), rather than investing national capital overseas (outbound). It has won backing from the Abu Dhabi Investment Authority (ADIA), Dubai’s DP World, Abu Dhabi sovereign fund ADQ’s Abu Dhabi Growth Fund, the Silk Road Fund, the US International Development Finance Corp., Canadian pension fund CDPQ and Dutch pension fund APG. Investments cover toll roads, telecommunication towers, health care, renewable energy and technology.
