Indonesia’s Emerging China Dependencies

As ASEAN’s only G20 member, a critical global mineral supply chain node, and occupying strategic maritime space, massive Indonesia is an especially consequential “fulcrum of order” in the Indo-Pacific and Global South. Like most ASEAN states, it remains committed to strategic autonomy while notably drifting toward China. However, Jakarta’s shift is especially consequential. “Free and active,” or bebas aktif, remains Indonesian foreign policy’s sincerely prized core. Yet beneath this high-level continuity, Beijing’s influence has rapidly grown, especially economically, overtaking the United States and key alternative partners like Japan and South Korea. Indonesia is not yet China-aligned, but the material bases for a “free and active” foreign policy are eroding. Jakarta’s preferred orientation requires not just intent but robust options. China’s role within Indonesia’s economy may become so indispensable and entrenched that Jakarta cannot meaningfully tell Beijing no, hollowing out free-and-active rhetoric. Indonesia’s high-priority, ambitious growth goals and mixed economic picture sharpen this dilemma. Given its strategic importance, a functionally China-aligned Indonesia would have profound regional consequences. Indonesia’s Distinct China Shift Within Southeast Asia, Indonesia’s China shift is distinct. The Anatomy of Choice Alignment Index shows that among major ASEAN states – Indonesia, Vietnam, Singapore, Philippines, Malaysia, Thailand – Jakarta moved furthest toward China relative to the United States from 1995 to 2024. The shift was overwhelmingly economically driven, with inbound investment flows decisively shifting in Beijing’s favor. Lowy’s Southeast Asia Influence Index adds Japan, South Korea, and Australia to the picture. With the possible exception of Malaysia, Indonesia’s overall and economic balance of influence is the most tilted toward China. An American-led allied bloc can elsewhere match Chinese influence, with Vietnam’s exports markets, Singapore’s financial and commercial relationships, or the Philippines security ties acting as potent “ballast” against Chinese predominance. Indonesia’s figures raise greater questions of multi-alignment’s continued plausibility. Beijing now decisively out-invests Seoul and Jakarta’s traditional economic partner, Tokyo. China’s economic influence extends beyond topline figures and highly visible infrastructure projects that earlier would have been won by Japanese competitors. In future-facing sectors such as electric vehicles (EVs), mineral processing, telecommunication infrastructure, and renewable energy, Chinese capital and firms are increasingly shaping the ecosystem and beating out American, Japanese, and Korean competitors. EVs and Growing Economic Dependencies The EV sector best exemplifies these “full-stack dependencies” within Indonesia, in which Chinese entities occupy the entire value chain of a critical sector, setting the tech standards, providing hardware and software, and financing. China is thereby positioned as the significant player in the Indonesian automotive sector’s future. Indonesia’s Presidential Regulation No.79 of 2023 was designed to accelerate battery EV adoption, and provide tax and import duty incentives for building domestic production facilities for the complete EV. Chinese automotive manufacturers were uniquely capable of and prepared to leverage those incentives as a strategic entry point to rapidly penetrate the domestic market. This policy-industrial nexus allowed Chinese brands to competitively price EV and related products against Japanese and Korean counterparts. Chinese firms could swiftly dominate consumer market share and reshape Indonesian market habits before their local assembly manufacturing facilities became fully operational. Japanese brands like Toyota had dominated through manufacturing, investment, and dealer networks built up over decades. While EV sales were a minor component of the total car market, Japanese dominance held there as well. Since Chinese entry, however, its brands overwhelmingly captured 2025 Indonesian EV wholesales, with BYD taking nearly 50 percent, even as EV sales surged to over 10 percent of the automotive market. Japan still leads the overall market, but its share in Indonesia and ASEAN overall has fallen, with Honda posting particularly severe drops. Essentially, China is beginning to displace Japan. This emerging Chinese dominance extends beyond downstream car sales. Recognizing Indonesia’s world-leading nickel reserves are vital to stainless steel and EV batteries, Chinese capital and firms like Tsingshan flowed heavily into the larger supply chain, supplying upstream extracting tools for raw ore and beyond. Unlike the European Union, China did not treat required domestic processing and refining as an obstacle. Instead, Chinese firms deployed the required complex high-pressure acid leaching (HPAL) technology, developed multi-billion dollar local suppliers, such as smelting operations within industrial parks, and now dominate the upstream and midstream sectors. China’s presence has again outmatched Indonesia’s alternative partners. After South Korea’s LG Energy Solution withdrew from the main position of a massive EV battery project last year, China’s Huayou stepped in as the replacement investor. China has thus capitalized upon regulatory openings to build a full-stack ecosystem within Indonesia, linking upstream battery raw material processing with downstream EV market dominance within an entrenched structural dependency. Critically, this playbook is not purely extractive, including institution building and human capital development via technology transfer, joint vocational training, and responsiveness to local concerns to generate local buy-in. EVs are not the only example of Chinese indispensability within Indonesia’s economy, as the telecommunications sector shows. Indonesia’s 5G networks rely heavily upon hardware from Chinese firms such as Huawei and ZTE to provide high-speed, wide coverage, and competitive pricing. This is creating a digital nervous system optimized for and maintained by Chinese technological standards and personnel, practicing local capacity building and training similar to the EV-related sectors, and part of a larger potential “smart city and digital governance” package. Once the core physical and digital infrastructure is thus specifically coded, substitution becomes prohibitively expensive, technically complex, politically unviable, and ultimately irreversible. Two broader advantages reinforce China’s framework. As should be evident, Chinese manufacturers can accept thinner margins and faster localization timelines than Japanese rivals. Further, much China-driven development occurs in outer islands such as Sulawesi and North Maluku, helping Jakarta’s longstanding goal across administrations to achieve development beyond Java, where Japanese-partnered efforts have been largely concentrated. The Permissive Drifting Environment Indonesia does maintain strong ties to the U.S. and its closest partners in other domains, especially security. But where Indonesia’s economic partnerships are trending toward concentration, in security Jakarta genuinely practices diversification. Indonesia’s military education, joint exercises like Super Garuda Shield, and recent agreements with the U.S., Japan, and Australia remain far more extensive than its security cooperation with China. But Beijing is increasingly entering the field via the new 2+2 ministerial dialogue, joint localized production plans, and significant deals for Chinese platforms – perhaps at the expense of American and Korean purchases. Jakarta also seems to have become more accommodating at times to Beijing’s preferences over regional flashpoints such as Taiwan and the South China Sea, suggesting real changes to the China-Indonesia security relationship. Further, Indonesia’s security diversification extends to other non-Western powers such as Russia and Turkiye. China is far from becoming Indonesia’s premier defense partner. But Jakarta arguably practices a “free and active” foreign policy more convincingly in security than in economics. Indeed, its defense partnerships have become so diverse as to render the country’s military effectiveness and readiness “mediocre.” This divergence in practice across domains may be because like its predecessor, the highly personalistic Prabowo administration often treats defense as a vehicle for economic and diplomatic goals. Security, then, does not seem to offer the United States or its allies a straightforward counterweight to China’s emerging economic preeminence. Further, Indonesian elite and public opinion may now be more permissive of Chinese alignment. Preference for an ASEAN-led order and strategic autonomy persists, but when asked to make a binary choice Indonesians have dramatically swung toward Beijing as trust in Washington has collapsed. Japan remains more trusted than China, but its advantage has narrowed. Real tensions in the North Natuna Sea have not generated the backlash against China seen in more frontline maritime states like the Philippines and Vietnam. “Choosing” China is not the preference, but opposition to an economic-driven “sleepwalk” into strategic alignment may be softening. Potential Mitigation Is a Tough Lift Indonesia is not fated to experience a gravitational pull into China’s orbit. Jakarta’s commitment to the “free and active” ideal endures. Chinese projects still draw local environmental, regulatory, and labor concerns, and often ugly historical suspicions of Chinese presence persist. Jakarta’s significant ties to the U.S. and its close partners are in some respects deepening. Most importantly, Japan retains its longstanding partnership via deeply entrenched bureaucratic and economic channels, and is pursuing many new initiatives – although some, such as nuclear energy and the sale of Mogami-class frigates, are far from confirmed. But it is Beijing’s initiatives that are clearly most driving future Indonesian development. Further, as the automotive market increasingly shows, China’s dominance in emerging domains can erode the established Japanese presence in certain fields, ultimately narrowing Jakarta’s options. For Washington, Tokyo, Seoul, and Canberra, offering truly competitive alternatives for Jakarta’s greatest priorities will be a tough lift. Chinese partnerships offer unique, immediate advantages to a government under tremendous pressure from its restive young population to deliver development and opportunity. And China’s outsized economic role may increasingly carry over into other domains. A historical reflection may be instructive. For much of the Suharto era, Indonesia still preached the “free and active” mantra but functionally aligned with the U.S.-led anti-communist camp – a gap between rhetoric and practice. Could Prabowo practice an inverted version of his father-in-law’s precedent? If so, the Japan-U.S. camp may eventually face a Jakarta-Beijing partnership with profound implications for energy supply chains, maritime access, and ASEAN-based regional institutions.