tl;dr
Chinese investors are increasingly targeting Indonesia to boost investments and avoid U.S. tariffs. Streamlined agreements have made it easier for Chinese firms to establish operations, leading to a surge in interest and inquiries. Following trade dynamics where U.S. tariffs on Indonesian imports ar...
Chinese investors are increasingly eyeing Indonesia as a strategic destination to boost investments while circumventing the impact of U.S. tariffs introduced during the Trump administration. Mira Arifin, Bank of America’s Indonesia head, highlighted streamlined agreements that facilitate Chinese businesses setting up operations in Indonesia. An influx of interest from Chinese firms has been reported by key industry players such as Gao Xiaoyu, founder of PT Yard Zeal, whose consulting firm has been highly active with daily meetings, and Abednego Purnomo from Suryacipta Swadaya, noting a surge in inquiries through multiple communication channels.
This surge follows the U.S.-Indonesia trade deal and the tariff dynamics where the U.S. imposes a 19% tariff on Indonesian imports, while China faces over 30% tariffs. Indonesia, as Southeast Asia’s largest economy with a young, talented workforce, is becoming an attractive hub for Chinese investment aiming to mitigate tariff impacts and gain regional market share. Zhang Chao, from a Chinese motorcycle headlight manufacturer, anticipates capturing close to half of Southeast Asia’s market through establishing a strong base in Indonesia.
Investment flows have mirrored this trend, with China and Hong Kong’s influx rising by 6.5% year-on-year to $8.2 billion in the first half of 2025. Overall foreign direct investment in Indonesia grew to $26.56 billion, prompting optimistic forecasts for continued growth in the second half of the year. Industrial land demand is intense, with companies eager for ready-to-use facilities to kickstart operations swiftly. Cost advantages are significant as well, with profit margins far exceeding those in China for many manufacturers, although challenges such as bureaucratic delays, infrastructure deficits, and regulatory hurdles persist.
Beyond the economic metrics, Indonesia’s unique value proposition lies in its massive domestic market, which experts like Marco Förster from Dezan Shira & Associates emphasize adds a crucial edge over regional competitors. The real estate market in West Java is particularly affected, with warehouse and facility prices jumping 15% to 25% year-on-year due to the strong demand from diverse Chinese firms spanning textiles, electric vehicles, and toys. Household consumption’s rise to over half of GDP also underpins this economic momentum.
However, this rapid integration raises concerns among Indonesia’s political and economic elites about the volume and quality of Chinese products flooding the market, plus potential overdependence on Chinese capital in critical sectors such as nickel processing, where Indonesia holds 63% of global supply but China controls most smelting operations. Geopolitical tensions, including disputes in the Natuna Sea, further complicate Indonesia’s delicate balancing act between fostering trade ties with China and maintaining strategic relations with the U.S.
President Prabowo Subianto’s visits to China and the U.S. underscore Indonesia’s intent to navigate this complex landscape by building strong partnerships with both powers. Historical data from AidData highlights China’s capital contributions surpassing those of Australia and the U.S. over the past twenty years, reinforcing China’s pivotal role in Indonesia’s investment ecosystem and economic development trajectory.