Chinese SOEs Have Difficulty Paying Off Debts, How Will It Affect Indonesia?

JAKARTA - China's State-Owned Enterprises (BUMN) is reportedly starting to struggle and fail to pay bonds worth 40 billion yuan or 6.1 billion US dollars. This figure is equivalent to IDR 564 trillion (exchange rate IDR 14,100). Defaults occurred between January and October 2020.

The debt problem of the state-owned company of the Bamboo Curtain Country will not only be a turmoil for the financial system that can destroy the country's economy. However, it also has the potential to slow down their recovery efforts from the impact of the pandemic.

This problem has become more complicated in recent weeks. Several large companies partnering with international companies began registering bankruptcy and defaulting on debt last month. Among them are Brilliance Auto Group, which partners with BMW, smartphone chip maker Tsinghua Unigroup, and Yongcheng Coal and Electricity.

This incident immediately made China's debt market shaken, causing bond prices to drop and interest rates to soar. The turmoil has even extended to the stock market. The share price of Chinese SOEs was battered.

This condition made investors start to worry. Especially if the Chinese Government can no longer help these companies survive. So that his position is increasingly vulnerable after defaulting on debt.

This Chinese BUMN has an important role in the financial system of the Bamboo Curtain country. Apart from contributing a third of China's GDP, this Chinese state-owned company controls half of the total credit circulating in China.

Based on data from the People's Bank of China and Huachuang Securities, 90 percent of Chinese government debt securities are also held by the state-owned company.

Executive Director of the Institute for Development Economics and Finance (INDEF) Tauhid Ahmad said that the current situation in China will not have a direct impact on the Indonesian economy.

"It does not go directly to us. The first round is how much the contribution of Chinese SOEs to the country's economy. If we have a small contribution from BUMN, how much is the value, it is inferior to cigarette companies. In China we don't know how much the contribution is," said Tauhid, when contacted by VOI.

According to Tauhid, China's economy is currently on a positive trend. Even until next year it is predicted to grow 8.1 to 8.8 percent. If China's economic conditions improve, Indonesia's exports will also improve.

"So if there are only one or two cases the impact will not be directly on us. But if you look at the whole Chinese economy, it will affect us or not," he said.

Tauhid said that what could directly affect the Indonesian economy was when the Chinese economy experienced a decline. This is because Indonesia is the largest exporter to China.

"If the SOEs have a problem, we have to see how much their contribution to the Chinese economy will be. Only then can we know the impact on Indonesia. But when the one experiencing problems is the Chinese economy, of course this will directly affect us," he explained.