Chinese investors shift capital to Indonesia amid U.S. tariffs on China goods

Chinese investors are increasingly redirecting capital to Indonesia as a strategic move to circumvent high U.S. tariffs on Chinese goods. Investment from China and China Hong Kong into Indonesia surged 6.5% year-on-year to $8.2 billion in the first half of 2025. This shift is driven by the U.S. imposing a tariff of more than 30% on Chinese imports, while Indonesian goods face a 19% rate—making Indonesia a more cost-effective option for businesses seeking to maintain access to the U.S. market [1].

Industry insiders confirm a growing interest from Chinese companies. Gao Xiaoyu, founder of an industrial land consulting firm in Jakarta, reported a sharp rise in calls from Chinese enterprises looking to establish or expand operations in Indonesia to reduce their exposure to the U.S. tariff burden [2]. This trend is evident in the industrial real estate market, where demand has pushed up warehouse and property prices by 15% to 25% year-on-year in Q1 2025.

The appeal of Indonesia lies in its massive consumer base, young and skilled labor force, and relatively lower production costs. Mira Arifin, Indonesia’s country head at BoA, highlighted that the country’s demographic advantages and growing economy make it an attractive hub for foreign direct investment. Indonesia’s Q2 2025 GDP growth rate hit 5.12%, the fastest in nearly two years, reinforcing its appeal as a stable and expanding market [1]. Zhang Chao, a Chinese motorcycle headlight manufacturer, noted that establishing a “strong presence in Indonesia” could capture nearly 50% of the Southeast Asian market [1].

Despite the optimism, challenges persist. Indonesia’s bureaucracy, inadequate infrastructure, and lack of a complete industrial supply chain remain significant hurdles. Additionally, concerns over the quality of Chinese goods and potential over-dependence on Chinese investment in key sectors like nickel—where China controls 75% of Indonesia’s smelting operations—are being raised by domestic elites [1]. Meanwhile, territorial disputes in the Natuna Sea add a layer of geopolitical complexity to the bilateral economic relationship.

Indonesian President Prabowo Subianto has expressed interest in strengthening trade ties with China, but his recent visit to Washington signals a balancing act between Beijing and Washington. AidData’s Bryan Burgess noted that China has contributed more capital to Indonesia than Australia and the U.S. over the past two decades [1].

The broader global context of U.S. tariff policies is also shaping this investment shift. While the U.S. and China have extended a tariff pause for 90 days, uncertainties persist, particularly with President Donald Trump’s threats to double tariffs on Indian exports. These developments are prompting businesses worldwide to adjust supply chains and seek alternative production bases [3].

The U.S. Federal Reserve is closely monitoring the inflationary and economic implications of tariffs, with officials emphasizing the need for more data to assess their long-term impact [6]. Thyssenkrupp, a German conglomerate, has already revised its sales and investment forecasts due to disruptions caused by U.S. tariffs, highlighting the ripple effects of trade policy across global supply chains [7].

As businesses recalibrate to the evolving trade landscape, Indonesia is emerging as a key destination for Chinese capital seeking to hedge against U.S. tariff risks while tapping into a growing regional consumer market. However, the long-term success of these investments will depend on Indonesia’s ability to address regulatory and infrastructural bottlenecks and maintain a competitive edge in the region.