Indonesia’s Economic Transformation Offers Opportunities for Chinese Companies (AI Translation)

【周刊提前读】近看印尼经济转型与中企机遇

Summary:

In late May 2025, Chinese Premier Li Qiang visited Jakarta, Indonesia, highlighting the strengthening bilateral ties between China and Indonesia, both key members of the G20 and BRICS. By 2024, their bilateral trade reached $147.8 billion, up 6.1% year-on-year, with China maintaining its position as Indonesia’s largest trading partner for 12 consecutive years[para. 1]. This deepening relationship occurs as global trade and industrial patterns are rapidly shifting, and Indonesia's geography plays a crucial role: it spans Asia and Oceania, with over 17,000 islands and significant maritime presence, making it both a physical and economic crossroads[para. 2].

Indonesia, historically reliant on fossil fuels—coal alone accounts for about 40% of its primary energy, with renewables only at 13%—is one of the world’s top greenhouse gas emitters. The rise in sea level from climate change poses significant risks to the archipelago. Indonesia has committed to net-zero emissions by 2060, aims to phase out coal-fired plants by 2040, and may bring forward its net-zero target to 2050[para. 3][para. 4]. Indonesia’s mineral wealth, especially in nickel, has drawn substantial foreign investment, primarily for downstream processing and the development of industries like electric vehicle (EV) batteries[para. 5].

While Indonesia targets an 8% economic growth rate by 2029 and rapid electrification, it faces a dilemma: new metal processing plants predominantly use coal-fired captive power plants, complicating its energy transition goals. Energy and industrial sectors are a mainstay of Sino-Indonesian cooperation, with large projects in progress, including the study of green industrial parks and further upgrades to the Jakarta-Surabaya high-speed rail[para. 6][para. 7]. Indonesia aspires to achieve over 70% renewable energy by 2060, considering nuclear, hydropower, and geothermal as part of its strategy[para. 8].

President Prabowo Subianto, who assumed office in October 2024, remains committed to transforming Indonesia into a developed economy by 2045 (“Golden Indonesia 2045”), focusing on industrialization and green economy initiatives. Indonesia attracted $8.1 billion in direct investment from China in 2024, ranking it second after Singapore. Industrial policies enforce downstream processing of minerals like nickel, establishing robust battery and EV supply chains. The goal is 140 GWh battery capacity and 600,000 EVs produced domestically by 2030[para. 9][para. 10][para. 11][para. 12].

However, challenges persist. The IMF predicts Indonesia’s 2025 growth at 4.7% due to global interest rate hikes and rising U.S. tariffs. The U.S. remains Indonesia’s largest trade surplus source at $16.8 billion in 2024, yet protectionist policies threaten this dynamic[para. 13][para. 14][para. 15]. Indonesia actively seeks more Chinese investment, and a cooperation framework between Indonesian and Chinese sovereign wealth funds was established to jointly support sectors like EVs and battery manufacturing[para. 16][para. 17].

Chinese companies are heavily investing in Indonesia’s energy, mining, and infrastructure, playing pivotal roles in shifting from raw material exports to local industrialization. Notable examples include GEM and Huayou Cobalt’s comprehensive nickel-battery projects, and landmark infrastructure like the Jakarta-Bandung high-speed rail—the first high-speed rail in Indonesia. China Energy and PowerChina are also pioneering green energy projects, such as floating solar and large hydropower plants[para. 18][para. 19][para. 20][para. 21].

Despite progress, Indonesia’s “green transition” faces significant obstacles: its industrial expansion remains tied to coal, risking export barriers under EU green standards and undermining decarbonization targets. Renewable deployment is hampered by grid limitations, land tenure complexity, insufficient wind resources, and lack of skilled local talent. Financing green projects is costly due to currency and credit risks. Global uncertainties—such as fluctuating U.S. energy policy—add further complexities to Indonesia’s green transition and ability to meet international climate commitments[para. 22][para. 23][para. 24][para. 25].

Indonesia’s updated power plan (2025–2034) calls for 69.5 GW new capacity (76% from renewables, storage), nuclear pilot projects, and a massive expansion of grid infrastructure. Overall, China-Indonesia cooperation is seen as a stabilizing force amid fraught geopolitical realities, positioning Indonesia as a major player in the global green industry transformation[para. 26][para. 27].