Indonesia’s Economic Relationship with China Needs a Course Correction
Indonesia’s economic ties with China have grown significantly in recent years, yet this relationship increasingly appears one-sided and fraught with risks that threaten Indonesia’s sovereignty and long-term development. While China touts itself as a key economic partner, the reality is that Indonesia often ends up bearing the brunt of unfavorable trade imbalances, environmental degradation, and questionable debt arrangements.
A Lopsided Trade Relationship
China is Indonesia’s largest trading partner, but the trade deficit tells a different story. Indonesia exports primarily raw materials like coal and palm oil, while importing higher-value manufactured goods from China. This dynamic not only hinders Indonesia’s industrialization but also keeps its economy dependent on exporting finite natural resources.
Moreover, Chinese goods flooding Indonesian markets often undercut local businesses due to their lower prices, many of which are achieved through questionable labor practices and state subsidies. This unfair competition undermines Indonesia’s domestic industries and hampers the growth of its small and medium enterprises (SMEs), the backbone of its economy.
Debt Dependence and the Belt and Road Initiative
Indonesia’s participation in China’s Belt and Road Initiative (BRI) has led to major infrastructure investments, but these often come with strings attached. Many projects are financed through high-interest loans from Chinese banks, raising concerns about Indonesia falling into a debt trap. The Jakarta-Bandung high-speed rail project, a flagship BRI initiative, has faced cost overruns, delays, and questionable economic viability.
This growing financial dependence on China risks limiting Indonesia’s ability to negotiate terms or pursue independent economic policies. Similar patterns in other countries demonstrate the dangers of unchecked reliance on Chinese capital, with Sri Lanka’s Hambantota Port serving as a cautionary tale.
Environmental and Social Costs
Chinese investments in Indonesia frequently come at a high environmental and social price. Mining operations led by Chinese firms have caused significant deforestation, water pollution, and displacement of local communities, particularly in areas like Sulawesi and Kalimantan.
The nickel industry, a key sector for Indonesia’s electric vehicle ambitions, has been dominated by Chinese companies. While these projects generate revenue, they often prioritize extraction over sustainability, leaving long-term environmental damage that Indonesian communities must deal with.
The Need for Diversification
Indonesia’s overreliance on China hampers its ability to diversify economic partnerships and leverage its strategic position in Southeast Asia. Stronger ties with Japan, South Korea, the European Union, and even ASEAN neighbors could provide more balanced and mutually beneficial economic relationships.
Diversifying trade and investment sources would also reduce Indonesia’s vulnerability to political pressures from Beijing, such as those related to the South China Sea disputes or China’s expanding influence in the region.
A Call for Course Correction
Indonesia must rethink its economic relationship with China to ensure its long-term prosperity and independence. Greater scrutiny of Chinese investments, better trade policies to protect local industries, and a push for sustainable practices should be top priorities.
While engagement with China is inevitable, it should be conducted on terms that benefit Indonesia—not just Beijing. By pursuing a more balanced approach, Indonesia can secure its sovereignty, protect its resources, and build an economy that works for its people.
