Recent signals point to relative stability in China-US economic and trade relations, bringing a more stable external environment that creates favourable conditions for Indonesia to attract foreign investment and expand exports. At the same time, however, fundamental shifts are underway in global trade rules and Indonesia’s domestic industrial policies. Chinese enterprises expanding manufacturing operations in Indonesia need to reassess their strategic paths.
I. The Underlying Logic of Global Trade Has Shifted
Global trade is evolving from simple commodity circulation toward full value-chain traceability. Since 2025, US Customs has rolled out an upgraded origin verification system, mandating inspection for every shipment from priority countries including Vietnam and Malaysia. Importers are required to submit three-tier supply chain traceability documentation, with the core criterion being whether goods undergo a “substantial transformation” in a third country.
The EU Carbon Border Adjustment Mechanism (CBAM) officially entered its substantive levy phase on 1 January 2026, covering six sectors such as steel, aluminium and cement. It plans to bring around 180 steel and aluminium-intensive downstream products under regulation starting in 2028. This means the scope for moving only final assembly to Southeast Asia and relying on revised certificates of origin to access European and US markets is steadily shrinking.
II. Indonesia’s Industrial Strategy: From Trade Facilitation to Full Value-Chain Establishment
Indonesia’s industrial upgrading aligns with the global trend toward trade compliance. The Indonesian government has set a downstream investment target of approximately 3,839.9 trillion Indonesian rupiah (around USD 214.5 billion) for 2025–2029. In the first half of 2026, realised downstream investment reached 300 trillion rupiah, representing a 6.9% year-on-year increase.
The Prabowo administration has designated 18 downstream projects as national priorities, covering the processing of strategic minerals including bauxite and nickel. Their total investment approaches 618 trillion rupiah, with phased commissioning expected throughout 2026. Policy incentives are tilting toward physical manufacturing projects that embed complete industrial chains. Simple assembly-only projects face growing difficulty accessing policy support.
III. Four Long-Term Value Investment Tracks
Full New Energy Value Chain
Indonesia holds the world’s largest nickel reserves, with prominent gaps across upstream battery smelting, precursors, cathode materials, battery components and battery recycling. A company with equity participation from EVE Energy has signed a framework agreement with Indonesian state-owned enterprise ANTAM to build an integrated project spanning mining, smelting, refining, precursors, battery production and recycling. Longpan Technology has also invested roughly USD 160 million in Indonesia for a production line with an annual capacity of 120,000 tonnes of lithium iron phosphate cathode material.
Essential Industrial Park Supporting Industries
As Indonesia scales up local production, demand continues to rise for machine tools, pumps and valves, automation equipment, warehousing and logistics. ASEAN is currently at a critical juncture for general equipment renewal and automation upgrading. Enterprises that set up local service warehouses and cultivate indigenous technical talent are better positioned to establish long-term local presence.
Green Industrial Services
Industrial water treatment, energy efficiency retrofits and distributed energy have shifted from optional upgrades to essential requirements for stable production and market access. Demand remains robust, especially within mining and manufacturing zones.
Deep Processing & Compliance Services
Refined and branded deep processing of agricultural products delivers higher added value. There is a massive shortage of producer services including certification and testing, carbon accounting and supply chain traceability — critical infrastructure to meet international compliance requirements such as CBAM.
IV. From Trade-Oriented Overseas Expansion to Rooted Industrial Investment
In H1 2026, total investment from China (including Hong Kong) into Indonesia reached USD 11.5 billion, accounting for 37.5% of Indonesia’s realised foreign direct investment and retaining its status as Indonesia’s largest source of foreign capital.
The overseas expansion model of Chinese enterprises is transforming. Early activity was dominated by standalone resource-focused firms. Today, more enterprises adopt coordinated industrial-chain expansion, securing nearby core supplier support within industrial parks. Investment share in consumer manufacturing sectors including new energy, home appliances and photovoltaics has risen markedly.
In the long run, genuine localisation means developing into manufacturing enterprises that generate employment and tax revenue for Indonesia, and compete globally leveraging local advantages. This is both a pragmatic response to evolving global trade rules and the core pathway for Chinese manufacturers to achieve sustainable development in Indonesia.
