Robert Go, Jakarta – From his small electronics kiosk in Jakarta's Glodok market, Mr Gunawan sells imported 21-inch Sony televisions for 4.1 million rupiah (S$780) each, but a similar set produced locally by Panasonic sells for nearly 4.4 million rupiah.

"It's obvious which television the customers prefer. Why buy something made here if well-known imported products are cheaper?" he said.

Goods from China and other Asian countries are being smuggled into Indonesian markets in huge numbers and are being sold cheaper than local products, creating a situation that could drive domestic manufacturers out of business, experts warn.

In Mr Gunawan's case, the Sony sets do not come with warranties or proper tax and custom fee documentation. He does not know where his suppliers got them. He explained: "I don't ask questions. I just take delivery and sell. I explain to buyers the local stuff is more expensive because of the warranty."

The problem is not only seen in electronics, where observers said as much as 30 per cent of imported goods sold here were smuggled into the country. Those making and selling toys, textiles, garments and shoes also complained about smuggled goods from China, Malaysia, Vietnam and even Singapore.

Counting all the different manufacturing sectors, experts estimate that as much as 50 per cent of imported products sold here enter the country illegally. And although local manufacturers – including foreign companies who have invested in factories to manufacture and sell here – have filed several official complaints with the authorities, little has been done by the government to curb smuggling.

Mr Lee Kang Hyun, general manager of marketing at Samsung Electronics Indonesia, said: "It's a very bad situation that affects many sectors. We have requested more stringent customs checks at entry ports, but the government has not acted on this."

Companies have even approached Trade and Industry Minister Rini Soewandi and President Megawati Sukarnoputri for help. But Mr Djimanto, secretary-general of the footwear association Aprisindo, said: "We are always told more controls would be imposed on import procedures soon, but we still haven't seen anything concrete."

Corruption could also play a role, with companies alleging that customs officials are in cahoots with smugglers and look the other way when illegal shipments come in.

Imported shoes, sandals and other types of footwear are often priced 10 per cent cheaper than their domestic competitors. The price structure, Mr Djimanto said, is forcing many small and medium Indonesian businesses into trouble.

He elaborated: "The big problem is for smaller manufacturers, who are very important in Indonesia's economy. If many of these companies go out of business, unemployment will rise drastically and the economy will be hit very hard."

The smuggling problem also affects the investment climate in Indonesia. With many foreign manufacturers already weighing labour problems, increased production costs and other risk factors, smuggled goods make investing in Indonesia an even riskier proposition.

Mr Lee said: "Why should we invest to make things here if we cannot also sell them here? The investment scene is sluggish right now partially because companies see little potential for domestic profits."