Amid heightened U.S. tariffs on Chinese exports, Chinese companies are increasingly shifting investments to Indonesia, avoiding trade pressures from Washington while boosting Indonesia’s GDP beyond expectations.

From August 2, the United States imposed new import tariffs, with exports from ASEAN countries facing rates of around 19-20%. For Indonesia, a 19% U.S. tariff is significantly lower than the more than 30% applied to Chinese goods. This gap has prompted many Chinese manufacturers to shift production and investment to Indonesia to sidestep tariffs, maintain competitiveness in the U.S. market, and tap into the country’s domestic consumption potential.

Besides, Indonesia holds a central position as Southeast Asia’s largest economy, serving as a key regional connector. With a domestic market of over 280 million people comprising a young workforce and competitive labor costs, the country offers favorable conditions for rapid business expansion. Industry analysts note that “If you can establish a strong business presence in Indonesia, you’ve essentially captured half of the Southeast Asian market.”, making it an attractive destination amid global supply chain realignment.

Recognising these advantages, Chinese firms have ramped up investment in Indonesia. Net profit margins of 20-30% are attainable compared with just 3% in China, offering compelling financial incentives and reducing reliance on the mainland for Chinese companies. Bilateral trade relations have also deepened following a state-level meeting between Indonesian President Prabowo Subianto and Chinese President Xi Jinping in Beijing on November 9 last year.

In the first half of 2025, Chinese direct investment in Indonesia rose 6,5% year-on-year to $8,2B, out of a total $26,56B in FDI. Demand for industrial land and factories in populous provinces has surged, pushing industrial real estate and warehouse prices up by 15-25% - the sharpest rise in 2 decades. Indonesia’s economy has responded strongly, with second-quarter GDP reaching 5,12%, the highest in 2 years, and further accelerations expected in the latter half of the year. 

Challenges remain, including deficient infrastructure, bureaucratic red tape, lack of a complete industrial supply chain, and concerns over populist fiscal prudence under President Prabowo. However, analysts believe these issues are unlikely to significantly deter the ongoing wave of Chinese investment into Indonesia.