Can Chinese capital and technologies jumpstart economic development in Borneo?

Imagine this: at North Kalimantan's Kayan River, the water from upstream flows through and spins turbines, activating generators to produce electricity; the water continues flowing down, passing through four more stations, spinning more turbines and producing more electricity. This is a likely scenario in perhaps the next ten years.

The shifting of Indonesia's capital to East Kalimantan - the mooted "Nusantara" - does not only mean the setting up of a new city. It also represents the country's determination to pursue a more geographically balanced development trajectory across the "outer" islands. Amongst other things, it is envisaged that the Kayan hydropower project will power the new capital and the planned "green industrial park" on the east coast of Kalimantan, dovetailing with Indonesia's ambition to leapfrog to an advanced economy.

Like other large-scale hydropower plants in the ASEAN region, the Kayan project is powered by technology from China, specifically the Power Construction Corporation of China (Power China). While at present there is not much Chinese direct involvement in building Indonesia's new capital - reasons cited include uncertainties in financial viability and sensitivity towards anti-Chinese sentiment - the Kayan project's contribution to Nusantara shows that China's presence, albeit indirect, is still strong, both in the upstream and downstream sectors.

For that matter, in Bengalon district, about 160 km north of the planned Nusantara metropolis, China's Zhejiang Hongshi Cement Group has recently started the construction of a cement plant with an annual capacity of 10 million tonnes. Given the proximity, it is evident that the cement plant is to cater for the construction of the new capital.

Meanwhile, several China-backed large-scale steel projects have also been proposed across Indonesia, with one already operating and another under construction. These projects will boost the country's capability to complete mega construction projects like those in Nusantara.

The 9,000 MW Kayan hydropower project may become a game changer, transforming Kalimantan into a regional powerhouse. In addition to fulfilling demand from Nusantara, the project will attract power-intensive industries to the said green industrial park in Tanah Kuning, North Kalimantan. A key component is the processing of mineral ores from other islands, such as the nickel-cobalt mines in North Maluku and South Sulawesi, run by China's Ningbo Lygend and Tsingshan respectively.

The ambition does not stop here - Indonesia also wants to produce high-end products like batteries for electric vehicles, solar panels and industrial silicone. The basic idea is to create a regional value chain using the Renewable Energy Based Industry Development (REBID) concept, taking advantage of the hydropower potential in Kalimantan and the nation's natural resources such as nickel and cobalt from Sulawesi and Maluku. Interestingly, both components in the chain are championed by Chinese companies, and investors from China are also said to be highly interested to participate in the said green industrial park.

While Indonesia has been actively inviting foreign investors to fuel the nation's Nusantara-Kalimantan ambitions, it may have encountered challenges in securing money and technology. The latest round of uncertainties ranges from inflationary pressures to the seemingly drawn-out conflict in eastern Europe. Such development, while daunting, opens up avenues for companies that are nimble enough to navigate the terrain.

One of the most likely parties to enter the fray are Chinese business groups.

First, China's cohort of construction and engineering firms has suffered from overcapacity and domestic business slowdown as a result of the deceleration of the Chinese economy following years of rapid growth. Expanding to countries with a huge demand for capital and expertise like Indonesia is one way out.

Second, as Beijing has to uphold its environmental commitments (such as its late 2021 pledge to end support for new coal power plants overseas), investing in renewable energy-related industries has become more attractive, albeit controversies remain for sectors like hydropower and mining.

While Japanese and Korean firms are just as eager to tap Indonesia's infrastructure demands, they seem to be relatively quiet in this part of the archipelago.

Although President Joko Widodo (Jokowi) has repeatedly invited Japanese firms to participate in his grand plan for Kalimantan, there are no clear signs of their participation in either infrastructure building in Kalimantan or the REBID value chain.

Jokowi's recent visit to Seoul, however, has yielded good results - the two countries revised the agreement to collaborate in the new capital development, with construction and water supply specifically mentioned.

One other interesting observation is Malaysia's involvement in this part of Indonesia via the Bornean state of Sarawak. Sarawak Energy, the state-owned electric utility company, is partnering with an Indonesian conglomerate to develop a 1,375 MW hydroelectricity plant in Mentarang, North Kalimantan. The plant carries the same functions as the Kayan project despite being smaller in scale and is expected to be completed before 2030.

Sarawak is famous for its hydropower dams, especially the Bakun Dam, which covers a land area equivalent to the size of Singapore. China's state-owned companies have been closely involved in developing hydropower in Sarawak since the early 2000s when Sinohydro took over the construction of Bakun Dam from an Australian developer. To date, the state has a total hydropower capacity of more than 4,600MW.

There is no track record showing that Sarawak Energy is able to carry out the project independently, given that all of the state's dams have been built by overseas developers. It is not disclosed if Chinese companies will somehow be involved in the Mentarang project, but there is a possibility given the close relationship between Sarawak Energy and its Chinese counterparts.

The activity of Sarawak Energy in North Kalimantan reflects the state's general direction in pursuing regional collaborations with other Bornean states. Sarawak Energy claimed that its participation in the Mentarang project intends to extend 'Sarawak's successful hydro-industrialisation model to pursue economic growth'. Since 2016, Sarawak has been exporting electricity to West Kalimantan.

China's linkages here - via hydropower - provide an interesting angle by which its influences on Bornean development dynamics are evident. Along with Indonesia's capital relocation to Kalimantan, the push for a more interconnected Borneo, starting from the power grid for energy security and probably followed by road connectivity, may further strengthen China's presence as a technology provider and financier in Borneo.

Some analysts argue that such a situation could be risky for Indonesia and Malaysia, as their sovereignty might be compromised. However, many think otherwise, probably including President Jokowi, as letting China's capital and technologies in could be the only chance to jumpstart economic development in seemingly high-risk high-reward places like Kalimantan.

Development activities in borderlands like North Kalimantan may also open new doors for more cross-border collaborations between Indonesia and Malaysia. The Asian Development Bank (ADB) has been active in this part of Southeast Asia since the 1990s, acting as "the regional development adviser" of the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) to boost the socio-economic development in these borderlands, though the progress has been relatively slow.

The rapid inflows of China's money and technologies in the region, just like the unstoppable flows that fiercely spin the turbine along the Bornean rivers, may effectively redefine the "power" dynamics of the island and reshape the geopolitical landscape alongside the shift of power from Jakarta to Kalimantan.

Related: Jokowi's plan for Indonesia's new capital: Who benefits? | Will China invest in Indonesia's new capital 'Nusantara'? | Indonesians welcome Chinese investment but fear influx of new Chinese migrants | In Indonesia, Chinese financing for coal-fired power plants grows faster than that for renewables | Indonesia: Why China-funded companies are targeted by the anti-Jokowi camp