Historical Background

Relations between Indonesia and the People’s Republic of China (PRC) have alternated between great closeness and equally great antagonism. In 1950, five years after Sukarno declared the independence of the country and one year after the Netherlands finally gave up its colonial pretensions, Indonesia became the first Southeast Asian nation to establish official diplomatic relations with the PRC. This eagerness reflected the need to be recognised as a newly formed sovereign entity through the establishment of foreign relations with other countries. The bilateral relations further improved in the following year, as Sukarno successfully positioned himself as a leader of the non-aligned ‘Third World’ with China’s support, a process that culminated at the Bandung conference of 1955.

Political alignment notwithstanding, tensions were always lurking, especially in relation to the contentious status of the Chinese diaspora in the country, which historically had often been resented by the local population due to their perceived economic success and privilege. At the Bandung Conference of 1955, Chinese Prime Minister Zhou Enlai and his Indonesian counterpart signed the Sino-Indonesian Dual Nationality Treaty—which came into force only in early 1960, after repeated delays—that first clarified the status of Chinese Indonesians, mandating that they choose between Chinese and Indonesian nationality. On 14 May 1959, a new regulation from the Indonesian Ministry of Trade that forced all foreign nationals relocate their retail shops from rural to urban areas put the burgeoning bilateral relations to the test, with the status of Indonesian Chinese remaining unclear in spite of the recent Treaty. The regulation ended up affecting an estimated 300,000 ethnic Chinese. While threatening to call a trade boycott by the large and powerful Singaporean Chinese community and urging Indonesian overseas Chinese to resist the policy and the evictions, the PRC authorities inaugurated a repatriation policy that oversaw the return of roughly 119,000 Chinese. Considering the prominent role of the Chinese community in the local economy, the repatriation had high economic and social costs for Indonesia.

A period of reconciliation ensued as the two countries realised that their confrontation was harmful not only to their domestic situation, as the new returnees had difficulty integrating back into China, but to their shared goals of promoting similar socialist ideals in the international arena. Hence, Indonesia during the Sukarno presidency remained on good terms with the PRC, especially between 1963 and 1965, when anti-Chinese demonstrations broke out. Both governments took a unified stance to condemn these racial episodes, at times violent, which started in West Java and spread to East Sumatra. However, in 1965 everything changed. Following an abortive coup targeting military leaders on the night of 30 September 1965 in which the Indonesia Communist Party (PKI) was allegedly involved, sections of the Indonesian army led by then Major General Suharto ousted Sukarno and established a new regime. The PKI was promptly outlawed, and massacres took place all over the country, targeting especially leftists and Chinese Indonesians. An estimated half a million people lost their lives, including thousands of members of the Chinese diaspora. Under the so-called New Order, Suharto’s government adopted a series of discriminating laws targeting the Chinese community. In 1967, Jakarta unilaterally decided to suspend diplomatic relations with the PRC on the basis that China had meddled with the country’s affairs by supporting the PKI. The freezing of diplomatic relations lasted for 23 years. 

Relations resumed in August 1990 but only after 1998 did they begin to show significant improvement. This followed a shift in Indonesia’s domestic politics after May 1998, when Suharto resigned in the wake of massive popular demonstrations triggered by the repercussions of the Asian Financial Crisis. At the same time violent ethnic riots once again targeted the Chinese community in Indonesia because of their wealth. The rapprochement culminated with the start of the Wahid presidency in 1999, coinciding with an attitudinal shift in China’s foreign relations towards Southeast Asia, which scholars often call ‘good neighbour’ policy, ‘charm diplomacy’, or ‘charm offensive’. China’s new foreign policy approach was directed towards the whole of Asia, and particularly to Southeast Asia. In the case of Indonesia, it included providing economic support to address the consequences of the financial crisis, as well as relief after the tsunami in 2004. 

Paradoxically, the riots of May 1998 played a major role in boosting China’s image among the Indonesian political elites. Despite the international outcry and condemnation, the Chinese government’s attitude remained staunchly non-interventionist. As the Chinese ambassador in Jakarta declared at that time, the riots were ‘part of Indonesia’s domestic politics. Its resolution must come from the Indonesian government itself. The Chinese government must not act as if it could be the chef in somebody else’s kitchen.’ As Indonesia’s high-ranking officials started to release statements of friendship towards China, China announced its readiness to support Indonesia’s infrastructural development. Hence, under Susilo Bambang Yudhoyono’s (2004–14) and Joko Widodo’s (2014–) presidencies, China became an important partner to boost Indonesia’s economic growth through trade and foreign investment. 

BRI Status

In October 2013, President Xi Jinping announced the plan for the 21st Century Maritime Silk Road during a speech at the Indonesian Parliament. This became one of the two main routes envisioned under the then nascent Belt and Road Initiative (BRI). The decision to first announce this plan in Indonesia illustrates the country’s strategic and economic significance to China and renewed previous efforts by both countries to promote bilateral economic cooperation. President Xi’s speech demonstrated a skillful leveraging of the ‘charm offensive’ initiated by his predecessors, citing mutual help in times of need, such as during earthquakes and tsunamis, as a testimony of ‘the sincere friendship between the Chinese and Indonesian peoples’. 

The year 2013 was particularly fruitful for bilateral relations. The two countries issued the Future Direction of China-Indonesia Comprehensive Strategic Partnership, a landmark document. The strategic partnership comprises five key areas of cooperation: 1) Politics, defence, and security; 2) Economy and development; 3) Sea, aerospace, science and technology; 4) Society and culture; 5) International and regional cooperation. Within this framework, cooperation agreements were signed in the economic, trade, financial, fishery, outer space exploration, meteorology, and tourism fields.

After coming into office in October 2014, President Widodo stepped up bilateral cooperation. In November 2014, Indonesia signed the Memorandum of Understanding (MoU) to join the Asia Infrastructure Investment Bank (AIIB), of which the country became officially a member in 2016. Indonesia is the tenth largest shareholder with a contribution of 3,360.7 million USD and has taken up one of the five vice-president seats. Also in November 2014, 12 MoUs between Indonesian and Chinese companies were signed at the Asia-Pacific Economic Cooperation (APEC) Summit. These included investments in manufacturing, steel processing, and energy for a total amount exceeding 1 billion USD. At the 2015 Boao Forum for Asia Annual Conference, leaders of the two countries signed the Joint Statement on Strengthening Comprehensive Strategic Partnership between the PRC and the Republic of Indonesia. In May 2017, President Widodo and President Xi met again at the Belt and Road Forum, and in August, Chinese and Indonesian officials held the third high-level economic dialogue to further deepen their cooperation. 

Current Economic Relations

Trade: Since 2013, China has surpassed Japan as Indonesia’s largest trading partner. In 2018, Indonesia imported 24.3% of its goods from China, mostly electronics equipment and ferroalloys, while China accounted for 14.3% of the country’s total exports, mostly commodities such as coal, lignite, natural gas, copper, nickel, and palm oil. In recent years, the Indonesian government resorted to export bans of raw mineral goods such as nickel, to shift investments away from mining to mineral processing and towards a more value-added export structure. Chinese contractors entered the Indonesian market in the early 2000s, especially under the 10,000MW Fast Track Programme through which the Indonesian government sought to add 10,000 megawatts of electricity to the country by enticing domestic and foreign firms to build new power plants. Since the launch of the BRI, Chinese energy firms have not only further expanded their presence in the energy sector, but have also joined local companies in the building of key transport and business infrastructure, such as roads, bridges, railways, and industrial parks.

Investment: Chinese foreign direct investment (FDI) in Indonesia has increased almost sixteen-fold between 2013 and 2019, according to data from the Indonesian Investment Coordinating Board (BKPM). Chinese statistics show a less dramatic, but still impressive three-fold increase in the same period (such disparities between host countries and official Chinese investment figures are not uncommon as the two sides often use different methodologies and criteria for data collection). According to the BKPM, in 2019, Chinese investment in Indonesia reached 4.74 billion USD, surpassing investment from Japan for the first time. Chinese data, however, shows only a 2.22-billion-USD-FDI flow in Indonesia in the same year. Singapore is Indonesia’s leading source of FDI, but the city is mainly used to reroute investments from other countries, especially China and other Southeast Asian nations, and from Indonesia itself. Chinese investment since 2013 has largely flowed into metal and mineral manufacturing, as well as coal power plants, but after 2015, investment in new sectors such as fintech, cloud computing, and tourism has also started to materialise.

Aid: China is one of the largest aid donors to Indonesia. The flow of aid started after the 1997 financial crisis, as part of China’s ‘charm offensive’ in Southeast Asia during those years and continued after the country was hit by a series of earthquakes and tsunamis in the first two decades of the new millennium, up until recent years. A Chinese charter flight was among the first to enter Palu, Central Sulawesi, to deliver humanitarian aid after the small town was struck by a magnitude 7.4 earthquake and a subsequent tsunami in September 2018. After the BRI was launched, a significant amount of aid also targeted the educational sector, providing opportunities for Indonesian students to study in China. In 2020/2021, Indonesia also received donations of medical supplies amid the COVID-19 pandemic and purchased 3 million vaccine doses from China, as part of China’s diplomacy to showcase its contribution to the global public good.

Key Controversies in Bilateral Relations

Chinese illegal labour: With more than a million people turning 15 years of age (the legal age of employment) every year, there is an ingrained sensitivity to prioritise hiring local workers in Indonesia. This has led to some of the strictest regulations within the Association of Southeast Asian Nations (ASEAN) regarding the hiring of foreign labour. While these rules have kept unemployment rates relatively contained over the past few years (official data record an employment rate of around 4-5%), they have also created frictions with Chinese companies. The author’s field research in 2018 found that many Chinese investors complained about difficulties to comply with numerous bureaucratic delays to obtain work permits while trying to bring technical experts to the country in a timely manner to fulfill project implementation schedules. Soon after the launch of the BRI, a rumour that the initiative intended to flood the Indonesian market with cheap Chinese workers started to spread. 

When activities at the Indonesia Morowali Industrial Park (IMIP) on the island of Sulawesi took off in 2016, media reports claimed there were thousands of illegal workers from China in the area, but later only about 20 people were found without proper permits on the whole island. However, there were also concerns regarding preferential treatment Chinese workers received in the IMIP’s smelter plant. These fomented the fear of Chinese workers stealing jobs from Indonesians, which likely comes in part from the deeply rooted anti-China sentiment and distrust described earlier in this profile. These feelings are easily exploited by nationalist politicians, as in the case of General Prabowo, who unsuccessfully ran against Widodo in the 2019 general elections, and by local media during the pandemic. The recent Omnibus Law, which seeks to relax the strict employment laws for foreign workers, has in fact attracted plenty of opposition, and rallies and vigilantism to targeting undocumented Chinese workers have been common over the past few years.

South China Sea and fisheries: Although the two countries have had conflicting claims over the maritime administration of waters surrounding the Natuna Islands, until recent years Indonesia was among the few countries in the ASEAN that was not involved in major disputes regarding China’s nine-dash line in the South China Sea. Things began to get heated in the early 2010s. In 2010, Indonesia sent a first formal letter to the United Nations (UN) noting that, while the country is a non-claimant in the South China Sea dispute, the ‘nine-dotted-lines-map’ lacks international legal basis and is tantamount to upsetting the UN Convention on the Law of the Sea (UNCLOS) of 1982. Although in 2015 China acknowledged that the full sovereignty of the Natuna Islands belonged to Indonesia, the surrounding waters remain contested. 

Chinese fishing vessels that are at times accompanied by Chinese coastguards are often caught in the vicinity of, or even trespassing, the boundaries of the exclusive economic zone (EEZ) of Indonesia, which extends 200 nautical miles from its shore. As this area holds the largest untapped natural gas deposits in the country, this has led to many heated confrontations between the two countries over the years. After one such confrontation in 2019, the Indonesian government immediately summoned the Chinese ambassador to issue a diplomatic protest, and deployed ten naval ships and four F-16 fighters to protect the area, which led to a standoff that lasted until the first week of 2020.  Also in May 2019, under the fierce leadership of fisheries minister Susi Pudjiastuti, 51 confiscated fishing vessels, some Chinese among them, were sunk in an assertive move against illegal poaching. Recent questions related to maltreatment and sea burial of Indonesian fishermen on Chinese vessels are also exacerbating these disputes. In 2020, as these new tensions escalated, Indonesia sent a new official diplomatic communication to the office of the UN Secretary-General, reiterating this claim. It also cited the ruling of the International Court of the Hague on 12 July 2016 in the case related to the Spratley Islands that pitted China against the Philippines (which ruled in favour of the latter), claiming that ‘any historic rights that the People’s Republic of China may have had to the living and non-living resources were superseded by the limits of the maritime zones provided for by UNCLOS 1982’.

Environmental concerns related to mining and coal power plants: In recent years, Chinese companies have replaced US and other foreign investors in Indonesia’s mining sector. This has led to various concerns from local environmental groups, which have documented a degradation of coastal areas, reduction of fish stock, and water contamination in the vicinity of Chinese-invested plants. Recent news sounded the alarm over how the international drive for electric vehicles, as well as the new push for using nickel as opposed to cobalt, will sustain investments in Indonesia’s nickel mines, mostly in biodiversity rich areas such as Sulawesi and Maluku, causing more environmental impacts. Furthermore, because of their considerable investment in the manufacturing of nickel, some Chinese-invested projects such as the IMIP are able to demand much cheaper prices for mineral commodities, thus pushing small local suppliers to cut down on environmental and social standards and go into restricted areas to look for supplies. In addition, a recent NGO report has explicated legal loopholes available to miners to evade compliance with restoration policies after the exploitation of a mine is completed.

Chinese companies and financiers have also expanded their presence in energy production, becoming some of the largest investors in coal power plants. A recent study has demonstrated that these investors are building new coal power plants not only to supply the national grids, but also to support the booming heavy metal manufacturing industry. Local and international NGO coalitions have flagged a number of environmental and social concerns related to coal power plants, which often undermine the food security of low-income communities. One example is the Celukan Bawang plant in Bali, which was built near the planned marine reserve of Lovina that hosts protected and endangered species like dolphins.

Monopoly pricing of mineral commodities: After the launch of the BRI in 2013, investment in smelters has skyrocketed in Indonesia. Among these investors, the IMIP consortium emerged as the largest buyer of nickel in the country. In 2014, Indonesia banned the export of unprocessed minerals in a bid to spur investments in smelter plants, especially from Chinese companies. At this time, the IMIP consortium among other large Chinese investors such as Virtue Dragon, established its position as the leading buyer of nickel in the country, at the centre of a large network of small mineral producers that would have otherwise lost much of their profits due to the export bans. Thanks to its unique position, the consortium was able to demand lower prices than that of the Shanghai Index, the reference index for metals, or those mandated by the Indonesian government, pushing other big smelters to buy nickel at the same low rate. In turn, Tsingshan, the leading partner in IMIP’s consortium, is exporting its stainless steel at much cheaper prices than its competitors within Asia. As a result, China issued a warning that they would enact anti-dumping duties and later introduced preliminary tariffs against Indonesian steel, and other firms in Asia and even Europe seemed equally pressured by IMIP’s competition. Meanwhile, pressure is also building on small mining firms in Indonesia, which are being choked off by having to sell at such low prices, with consequent cuts to environmental and social safeguards.

Key Sources

English-language Media:

English-language media outlets in Indonesia include The Jakarta Post, Jakarta Globe, The Bali Times, and International Bali Post.

Reports and Scholarly Articles:

• Brackman, Arnold C., 1965. The Malay World and China: Partner or Barrier. London: McGraw Hill Book Company.
• Bertrand, Jacques., 2004. Nationalism and Ethnic Conflict in Indonesia. Cambridge: Cambridge University Press.
• Camba, Alvin, Angela Tritto, and Mary Silaban. 2020. ‘From the Postwar Era to Intensified Chinese Intervention: Variegated Extractive Regimes in the Philippines and Indonesia.’ The Extractive Industries and Society 7, no. 3: 1054–65.
• Kurlantzick, Joshua. 2006. ‘China’s Charm Offensive in Southeast Asia.’ Current History 105, no. 692: 270.
• Sukma, Rizal, 1999. Indonesia and China: The Politics of a Troubled Relationship. London and New York, NY: Routledge. 
• Sukma, Rizal, 2009. ‘Indonesia-China Relations: The Politics of Reengagement.’ In Living with China, edited by Shiping Tang, Mingjiang Li, Amitav Acharya, 89–106. New York, NY: Palgrave Macmillan.
• Suryadinata, Leo, 1990. ‘Indonesia-China Relations: A Recent Breakthrough.’ Asian Survey 30, no. 7: 682–96.
• Tritto, Angela and Albert Park. 2020. ‘Belt and Road in Indonesia.’ HKUST-UOB Series Belt and Road in ASEAN. Link. 
• Tritto, Angela. 2021. ‘China’s Maritime Silk Road: From Perceptions to Realities in Indonesia’s Coal Power Sector.’ Energy Strategy Reviews, 34, March. Link. 
• Zha, Daojiong. 2000. ‘China and the May 1998 Riots of Indonesia: Exploring the Issues.’ The Pacific Review 13, no. 4: 557–75.

Cover Photo: Soekarno Bridge, North Sulawesi, by Christian Gloor (CC).