Arya News - Indonesia has seen foreign direct investment rise amid the “China plus one” shift as companies diversify beyond China to other countries as an alternative production base, giving Jakarta fresh momentum in developing domestic industry.
JAKARTA – As United States-China trade tensions and Washington’s sweeping new tariffs disrupt global supply chains, Indonesia has a window to position itself as a new destination for foreign investment in manufacturing and industry.
Indonesia has seen foreign direct investment rise amid the “China plus one” shift as companies diversify beyond China to other countries as an alternative production base, giving Jakarta fresh momentum in developing domestic industry.
“We are benefiting from the current geopolitical situation, particularly in capital-intensive industries and data centers,” Deputy Industry Minister Faisol Riza told The Jakarta Post on Aug. 13. “Many contracts are being signed even before new facilities are built.”
Indonesia has already become a relocation destination for Chinese companies for some time, Faisol said, describing the recent trend a direct benefit of the US-China trade war. The influx fit with the country’s downstream and industrialization push, he added.
Besides manufacturing, Chinese companies showed interest in dimethyl ether (DME) gasification and waste-to-energy projects, both projects managed by state asset fund Danantara. Chinese firms are participating in at least six of those projects.
Investment interest from India was also growing as they were seeking greater access to Indonesia’s domestic market. Similar with China, Indian firms also eyed Indonesia as an export base.
Mainland Chinese investment reached US$3.9 billion in the first half this year, more than double the $1.8 billion recorded in the same period last year, while investment from Hong Kong surged from $2.3 billion to $7.6 billion, according to Investment Coordinating Board (BKPM) data.
Combined investment from mainland China and Hong Kong reached $11.5 billion in the first half of 2026, nearly three times the $4.1 billion recorded a year earlier.
Sanny Iskandar, deputy chair for agrarian affairs and spatial planning at the Indonesian Chamber of Commerce and Industry (Kadin), told the Post on Aug. 13 that diversifying production bases could help global companies to mitigate losses if disruptions occurred at another production hub, a strategy many are pursuing today.
Access to raw materials and proximity to export markets are also key considerations, helping manufacturers lower operating costs when relocating or diversifying production bases, he added.
Wiraraja Madura Industrial Estate has sealed a partnership with China’s Guangdong (Fenyong) ASEAN Industrial Park on Aug. 10 to develop export-oriented manufacturing clusters in Madura, East Java, under the Two Countries Twin Parks framework. The planned factories will produce chocolate, mattresses, textiles, yarn and other labor-intensive goods.
The collaboration would “create greater opportunities for Chinese companies to expand into Indonesia,” said Akhmad Ma’ruf Maulana, chairman of the Indonesian Industrial Estate Association and president director of Wiraraja.
Batam, a free-trade zone in the Riau Islands just 30 minutes from Singapore, has also emerged as another major destination for Chinese investment, particularly in the technology sector. BP Batam recorded Rp 17.4 trillion ($974 million) in investment realization in the first quarter of 2026, double the figure recorded a year earlier.
In May, Indonesia attracted a $5 billion Chinese data-center project in Nongsa Park, backed by Chinese data-center giant Range Intelligent Computing Technology, which marked the firm’s first overseas expansion.
The island has also drawn US technology investment, with Oracle planning up to $6 billion in cloud region infrastructure and Nvidia. Singapore’s DayOne and Australian artificial intelligence firm Firmus Technologies also announced a 360-megawatt AI data center in June, expected to rank among the Asia-Pacific’s largest.
Indonesia’s investment policy “is not specifically targeting China,” said Krisna Gupta, a senior fellow at the Center for Indonesian Policy Studies (CIPS).
Chinese companies were “simply more active,” partly because they were seeking to diversify around United States tariffs, a trend that “does not necessarily amount to transshipment,” he told the Post on Aug. 18, referring to a practice in which a shipment is rerouted through another country before reaching its final destination to conceal its country of origin.
However, the same supply-chain shift opening the door to investment could also expose Indonesia to greater scrutiny from Washington.
Efforts to curb transshipment could instead disrupt international trade more broadly, hurting Indonesia and other US-dependent exporters while raising costs for US buyers reliant on global supply chains, Krisna said.
Apple Inc., whose products are assembled largely by Chinese manufacturing partners, had previously lobbied Washington for tariff relief while diversifying its supply chain beyond China. Its suppliers have also expanded production in Batam, where a local partner manufactures AirTag and AirPod components.
“I honestly can’t imagine yet how the US would operationalize this increased scrutiny on the ground,” Krisna said.
The concern gained renewed urgency after a White House report titled “The Great Transshipment Scam” published on Aug. 13, alleged Chinese-origin goods were being routed through lower-tariff jurisdictions before entering the US market under new national identities.
The 25-page report claimed the US loses “tens of billions of dollars” annually from illegal transshipment through more than 40 lower-tariff jurisdictions. It flagged Indonesia, alongside Vietnam, Malaysia and Thailand, as having the industrial scale, logistics capacity and China-linked supply chains to move large volumes of goods into US-bound trade.
The report identified a Bekasi-Batam corridor associated with China-linked transshipment of plastic boxes, cases, crates and packing articles.
“I do not think most others would agree [with the White House’s claims], but it does set up a potential challenge ahead for Indonesia,” said Deborah Elms, head of trade policy at Singapore-based Hinrich Foundation.
It remained unclear how the US would operationalize the increased scrutiny or what concrete measures could follow, Elms told the Post on Aug. 18, but the issue was already on the table during Indonesia’s negotiations with Washington.
The Indonesia-United States Agreement on Reciprocal Trade (ART) signed last February explicitly requires Indonesia to adopt and enforce measures against transshipment and other practices that evade or circumvent US duties, as well as enter into a duty-evasion cooperation agreement.