Opportunities and challenges parallel, the Indonesian market is still the main battlefield for Chinese enterprises in Southeast Asia

Indonesia (hereinafter referred to as Indonesia) is the most populous country in Southeast Asia, with a huge demographic dividend and natural resources, and the manufacturing, construction and mining industries closely related to construction machinery are important pillar industries in Indonesia. In recent years, the Indonesian government has attached importance to improving the investment environment and attracting foreign investment, which has promoted the demand for construction machinery in various industries in the country.

01, Indonesia construction machinery market development

From 2020 to 2021, under the background of slow global economic recovery and repeated impact of the novel coronavirus epidemic, Indonesia's economic growth is also facing certain pressure, so the Indonesian government has proposed a plan to strengthen infrastructure to drive economic growth. With the continuous acceleration of the domestic infrastructure construction process, the development trend of Indonesia's construction machinery market is gradually improving. According to the report data of the Indonesian survey agency, in the first quarter of 2022, Indonesia's construction machinery production reached 2113 units, an increase of 49.1% compared with 2021, of which the hydraulic excavator production is the most, accounting for more than 85% of Indonesia's total construction machinery production, mainly used in mining, construction of these two basic industries.

02, Indonesia construction machinery market outlook

In recent years, Indonesia's investment in infrastructure construction and mining development has continued to increase, which provides a huge market space for the construction machinery industry. Indonesia's rich mineral resources have attracted the investment of many mining companies, which has further promoted the development of the construction machinery market. Indonesia's coal reserves are about 58 billion tons, with proven reserves of 19.3 billion tons, of which 5.4 billion tons are commercially recoverable reserves. At the same time, Indonesia has huge natural gas reserves, about 123,589 trillion cubic meters (equivalent to 20.6 billion barrels of oil), of which 24,230 trillion cubic meters have been proved. Western India is dominated by laterite-type bauxite, and identified bauxite reserves are 1 billion tons, ranking sixth in the world, accounting for about 3.57% of the global total reserves. Indonesia's confirmed nickel reserves are 4.5 million tons, ranking seventh in the world, accounting for about 5.77% of global reserves. Indonesia's coal production in 2023 is 765.81 million tons, an increase of about 12% year-on-year, and Indonesia has set a production target of 710 million tons in 2024, which indicates that the demand for mining equipment in Indonesia remains strong in 2024.

03, Indonesia market construction machinery competition pattern

In 2022, China's export of construction machinery to six Southeast Asian countries reached 8.499 billion US dollars, an increase of 30.2%; Affected by the RMB exchange rate and the high base in 2022, the export value from the first quarter to the third quarter of 2023 was 5.661 billion US dollars, an increase of 1.4%. Indonesia is the largest exporter of Chinese construction machinery in Southeast Asia, and the export amount of Chinese construction machinery to Indonesia in 2023 was $2306.95 million, down 15% year-on-year. From January to March 2024, the export amount of China's construction machinery to Indonesia was 501.41 million US dollars, down 26.2% year-on-year. The share of the total export market is 4.18%.

China's export amount of construction machinery to six Southeast Asian countries (Data source: China Construction Machinery Industry Association)

04, the development of Chinese construction machinery enterprises in the Indonesian market

In recent years, the Indonesian market has become one of the fastest growing overseas markets for China's construction machinery exports, with a demand of about 18,000 units in 2022, accounting for 55% of the demand in the entire Southeast Asia region. Indonesia is the largest market of Chinese construction machinery enterprises in Southeast Asia, which is regarded as the "second local market" by Liugong. Liugong's products came to the Indonesian market through the import and export company as early as 1997, and Liugong's products officially entered the Indonesian market in 2006. Since the first "XCMG" roller sold to Indonesia in 1995, there have been rotary drilling, horizontal directional drilling, tunnel boring machine and other basic engineering and earthmoving class, lifting class, mining class machinery, concrete, fire protection, road equipment and other types of machinery applied in Indonesia nationwide construction sites. Shantui entered the Indonesian market as early as 2000, and the Indonesian market is one of the main markets it continues to explore. Chinese construction machinery enterprises active in the Indonesian market are also Sanhe Intelligent, Zoomlion, etc. Chinese enterprises are gradually expanding their market share in Indonesia through localized management strategies, improving product quality and service, and improving business quality.

Indonesia construction machinery related industrial chain is not sound, local enterprises supporting limited capacity, which increases the uncertainty and service costs in the production and supply process of enterprises. Land in Indonesia is private, the government has limited power in land acquisition, and the land required by government agencies needs to be requisitioned after consultation with the right holder, which increases the land cost and land acquisition difficulty for enterprises to build factories in Indonesia. The Indonesian government strictly restricts the introduction of foreign workers, and the use of foreign workers requires the Indonesian Ministry of Labor to apply for labor certificates and pay foreign labor taxes, which increases the cost of employing enterprises. At the same time, by exporting labor from home to Indonesia, individual wages will multiply. In addition, there is a certain gap between local people and Chinese people in the efficiency and responsibility of individual labor force, and workers' strikes occur from time to time, which are destabilizing factors.

Therefore, in the process of going to sea, Chinese enterprises should be prepared to deal with various potential risks and challenges.