Chinese investment in Indonesia: Outlook for 2024

Chinese investment in Indonesia spans key sectors such as manufacturing, transport infrastructure, renewable energy and EVs, strengthening bilateral ties. As Indonesia actively promotes projects to attract Chinese investors, the two countries are set to deepen cooperation and promote sustainable development and economic integration.

China’s role as a significant foreign investor in Indonesia has been steadily expanding, and 2024 is shaping up to be a pivotal year in this evolving relationship.

This article examines China’s current investments in Indonesia, the potential benefits and challenges they pose, and what this means for the future of Sino-Indonesia relations.

Chinese investment in Indonesia: key trends and sectors

Southeast Asia will receive about 50% of China’s regional investment in 2023, up 27% from the previous year, with Indonesia set to be the largest recipient of these funds, attracting about US$7.3 billion.

During a bilateral meeting at Merdeka Palace on September 8, 2023, Indonesian President Joko Widodo and Chinese Premier Li Qiang confirmed a new investment pledge of US$21.7 billion from China covering sectors such as e-commerce, industry, agriculture, fisheries, science and technology, and innovation.

The agreement builds on a U.S. $44.89 billion commitment made in July of the same year. In addition, the two countries agreed to facilitate financing for the China-Indonesia “Two-Country Twin Parks” initiative, further strengthening the two countries’ economic ties under the Belt and Road Initiative.

Manufacturing

The manufacturing sector is the main recipient of Chinese investment in Indonesia. Chinese foreign direct investment (FDI) has played a key role in supporting Indonesia’s dominance of the nickel market, with projects such as the Morowali Industrial Park in Central Sulawesi being heavily supported by Chinese investment.

Additionally, Chinese investors are rapidly entering Indonesia’s electric vehicle (EV) market, with companies such as Yadea and BYD setting up manufacturing facilities, contributing to Indonesia’s industrial capacity and infrastructure development in the downstream sector aimed at creating value-added products.

Transport Infrastructure

Chinese investment in Indonesia’s transport sector has made a significant contribution. Particularly noteworthy is the development of the Jakarta-Bandung high speed railway. This flagship project isLargely funded by China with an investment of $7.3 billion, the high-speed rail is a demonstration of strong cooperation under the Belt and Road Initiative. The high-speed rail, which began operations in October 2023, improved travel between Jakarta and Bandung, reducing travel time from more than three hours to around 40 minutes.

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During their meeting in September 2023, Premier Li Qiang and President Joko Widodo discussed several investments, with China pledging US$21.7 billion in various sectors, including transportation. On the same occasion, Premier Li stressed China’s readiness to cooperate in the success of the high-speed rail, signalling the strategic importance of transportation infrastructure in the deepening economic ties and bilateral relations.

Renewable Energy and EVs

Chinese investment in Indonesia’s renewable energy sector is crucial as the country advances its energy transition. Advances in technologies developed in China are essential for Indonesia to reach its ambitious goal of 100 percent renewable energy by 2025. Renewable energy sources to account for 34% of electricity generation by 2030.

Chinese investments in Indonesia’s renewable energy sector are varied and large in scale. At the 2023 Indonesia-China Business Forum in Beijing, 11 deals worth US$12.6 billion were signed, focusing primarily on electric vehicle batteries and clean energy projects. Additionally, in early 2023, China’s Xinyi Glass Holdings announced it would invest US$11.5 billion to build a quartz sand processing plant on Indonesia’s Rimpang island, which is crucial for solar panel production.

Additionally, Chinese EV manufacturer BYD opened a $1.3 billion factory in Indonesia in January 2024. With an annual production capacity of 150,000 units, the new facility will provide a major boost to Indonesia’s burgeoning EV industry.

Additionally, BYD launched three new EV models to the Indonesian market at the event in Jakarta – the BYD Seal, BYD Atto 3 and BYD Dolphin. Coordinating Minister for Economic Affairs Airlangga Hartarto welcomed the investment as a move to strengthen Indonesia’s competitiveness. Indonesia’s position in the global EV marketThe investment is also part of a broader trend driven by Indonesia’s vast nickel reserves, which are essential for EV battery production.

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Attracted by the expanding market potential and diverse investment opportunities, Chinese investors are increasingly drawn to Indonesia. But their enthusiasm often hits major obstacles, especially when navigating Indonesia’s complex regulatory environment. This regulatory labyrinth includes policies from both the central and local governments, which often leads to confusion and delays.

Domestic Indonesian companies have a relatively easy time understanding local investment requirements, including permits, land acquisition, and employment regulations. This familiarity puts foreign investors at a distinct disadvantage. Establishing effective communication channels is essential to provide comprehensive and accurate information and deepen partnerships between companies from both countries.

Energy, mining, financial services, automotive, healthcare and the green economy are sectors that are particularly attractive to Chinese investors. Given the growing interest in these sectors, focusing on investment propositions within these sectors will help us to more effectively attract and host Chinese capital.

To encourage these investments, the government is offering a range of incentives, including income tax reductions and comprehensive support throughout the investment process, including management of the exploration stage, consulting services, permit facilitation and stakeholder communication. These measures are intended to facilitate capital flows from China and boost investor confidence.

Outlook for 2024

China remains an important source of funding for Indonesia and plays a key role in the country’s foreign direct investment environment. As of 2024, the Indonesian government is actively promoting 81 projects across various business sectors to attract Chinese investors. These projects, included in the Regional Investment Potential List, span a range of sectors, including special economic zones, real estate, tourism, agro-industry, renewable energy, industry, infrastructure and industrial parks.

The total investment required for these projects across all 34 Indonesian provinces is approximately IDR 239 trillion (US$14.7 billion). This major investment push highlights Indonesia’s determination to strengthen economic ties with China. At a recent Indonesia-China investment promotion event, Deputy Minister for Investment Cooperation at the Ministry of Investment/Investment Coordinating Board, Riyatno, highlighted China’s continued and significant contributions to Indonesia’s investment environment.

The Indonesian government has highlighted 81 projects, providing additional investment opportunities in renewable energy, downstream natural resources, and the development of the Nusantara Capital Region (IKN). In the tourism sector, tourism destinations such as Lake Toba, Borobudur, Labuan Bajo, Mandalika, and Likupang are among the investment opportunities highlighted.

As efforts to promote investment and explore new opportunities continue, Indonesia and China are poised to deepen cooperation, promote sustainable development, and further enhance regional economic integration.