How Indonesia Is Outshining Neighbors to Become China’s Top Investment Destination

Indonesia, long seen by Chinese companies as a secondary option for expansion, is now becoming a top-tier destination. This shift is not just about avoiding U.S. tariffs, but also a strategic move to tap into Indonesia’s burgeoning domestic market. As Chinese manufacturers face escalating trade tensions with the U.S., Indonesia’s dual appeal as both a manufacturing hub and a massive consumer market is driving a new wave of investment.

Era for Chinese Investment

For years, Chinese companies seeking to diversify their operations to Southeast Asia primarily looked at countries like Vietnam and Thailand. However, a new U.S.-Indonesia trade deal, which sets tariffs at a more favorable 19%—significantly lower than China’s 30%+ rate—has changed the game. This has led to a flurry of activity, with consulting firms and industrial parks reporting unprecedented demand from Chinese firms.

The appeal of Indonesia is two-fold. First, it offers a way to bypass U.S. tariffs, allowing Chinese companies to continue selling their goods to the American market at a competitive price. Second, and perhaps more importantly, Indonesia’s vast population and growing economy present a huge opportunity in its own right. With over half of Southeast Asia’s market share, setting up a strong presence in Indonesia is seen as a way to capture a significant consumer base, particularly in sectors like electric vehicles and electronics.

The Challenges Ahead

Despite the clear opportunities, Chinese investors face several hurdles. They are encountering fierce competition for industrial land, leading to sharp increases in real estate prices—up to 25% in some areas. There are also broader challenges, including a complex regulatory environment, bureaucratic red tape, and a lack of a fully developed industrial supply chain comparable to China’s.

Adding to the complexity are the domestic policies of President Prabowo Subianto. While his administration champions ties with China, his populist initiatives, such as a free meals program, have raised concerns among some foreign investors about fiscal prudence.

The influx of Chinese capital is a significant win for Indonesia’s economy, which grew at a faster-than-expected 5.12% in the second quarter of 2025. It also signals a new chapter in the country’s economic relationship with China, one where both nations are looking to mutually benefit from shifting global trade dynamics.