The following are the impacts brought by the recent influx of Chinese investors to Indonesia, summarized as follows:
Chinese investors flocking to Indonesia and their main impacts on finance and industry
1. Capital reallocation and economic growth drive
In response to the high tariffs imposed by the United States on Chinese exports (sometimes exceeding 30–50%), many Chinese companies and investors have shifted their capital to Indonesia to take advantage of the local lower 19% tariff rate while maintaining export capabilities to the US market.
In the first half of the year, foreign direct investment (FDI) from China and Hong Kong into Indonesia increased by 6.5% year-on-year, reaching 8.2 billion USD, with total FDI inflow at 26.56 billion USD.
2. Industrial structural transformation and real estate promotion
Chinese capital is heavily invested in Indonesia's manufacturing and industrial infrastructure, particularly in automotive (EV) and battery manufacturing. Relevant companies such as BYD, CATL, Wuling, and Foxconn have either established or expanded investments.
The demand for industrial real estate has surged, especially in East Jakarta, with inquiries for factories and warehouses rapidly increasing, driving an annual price increase of 15–25% in industrial real estate.
3. Strengthening international supply chains for key minerals
Indonesia's nickel smelting market has been dominated by Chinese enterprises, securing a core position in the global supply chain and becoming an important source of raw materials for the global electric vehicle and battery industry.
In addition, the Morowali Industrial Park is also a major strategic base for China in the cobalt and nickel sectors.
4. Challenges faced by financial markets and monetary aspects
Although capital inflows boost parts of the economy, certain periods may still see overall emerging markets decline in attractiveness due to a strong dollar. During 2024, due to rising US bond yields, Indonesia's stock and bond markets experienced significant capital outflows and depreciation of the Indonesian rupiah.
Investors have also expressed concerns about the Indonesian market, with capital once withdrawing from Indonesia and Thailand markets, shifting to more attractive markets like Chinese tech stocks.
5. Risks and governance concerns
While Chinese investment entering Indonesia drives growth, it also triggers social controversies such as corruption and environmental destruction. Some protests and policy questions focus on the mining and manufacturing sectors.
Industrial and infrastructure projects may also trigger regional interest disputes, such as land compensation, geopolitical risks, and involvement of local interest groups.
Experts point out that over-reliance on Chinese capital and market demand may imbalance Indonesia's bargaining power and policy dominance.
Summary overview
Projects Positive impacts Potential risks and challenges
Capital inflow and growth drive Strengthening industrial foundations, enhancing GDP, improving employment Increased reliance on foreign investment and external demand leads to soaring risks after capital desensitization.
Manufacturing and industrial expansion Introducing high value-added projects and new technologies to promote supply chain upgrades Real estate bubbles, infrastructure pressure, and strategic excessive concentration.
Mineral supply chain integration Controlling the core of the supply chain to enhance exports and foreign exchange income Centralization of resource control may weaken Indonesia's bargaining chips and future autonomy.
Financial markets Boosting economic performance and capital market vitality Global currency fluctuations and safe-haven capital flows causing market instability
Governance and social issues Improving investment levels brings short-term economic benefits to the locality Concerns about corruption, environmental destruction, and community conflicts may impact long-term sustainable development.