Indonesia made headlines in January 2025, becoming the first Southeast Asian country to join the BRICS+ club of emerging markets in which Beijing holds outsized influence. The move was the latest in a trajectory of growing economic interdependence between Indonesia and China. Beijing has invested large sums in Indonesia’s roads, power plants, and nickel factories over two decades. Who benefits from these investments, and what are the costs? In a new report launched today, AidData and our Indonesian partner, Foreign Policy Talks, decode the money, relationships, and outcomes from twenty years of China’s investments in Indonesia.
The report, Balancing Risk and Reward: Who benefits from China’s investments in Indonesia?, is timely, as President Prabowo Subianto actively balances Indonesia’s relationships with competing powers, China and the United States, as a hedge against economic uncertainty. It draws upon AidData’s industry-recognized expertise in using transparent, replicable methods to shed light on Beijing’s global economic footprint, along with Foreign Policy Talks’ strong local networks of experts to ground-truth how Chinese-financed development generates risks and rewards for local communities. The report leverages AidData’s Global Chinese Development Finance Dataset (2000-2021), supplemented by the research team to uncover provisional projects for 2022-2023, along with foreign direct investment (FDI) data from the fDi Markets platform maintained by the Financial Times (2010-2024).
The Indonesia-China partnership is a marriage of economic convenience. “Beijing has established a global brand by leveraging its state-directed development finance to fund critical infrastructure and attract market opportunities for Chinese firms and FDI. Indonesian political and business leaders are pragmatic, viewing Beijing as one of the few partners willing and able to mobilize capital at the scale required to deliver infrastructure-led growth. However, these investments are not costless and come with ample risks for local communities that require active due diligence.
Indonesia attracts substantially more Chinese capital than its Southeast Asian peers. Bryan Burgess, AidData Senior Policy Specialist and a report co-author, observes that China “dramatically outspent, or out-lent, competitors like Japan, Korea, Australia, and the U.S. in bankrolling Indonesia’s development between 2000 and 2023.” But he notes that, “Beijing operates more like a commercial lender-developer rather than a donor.” Over 90 percent of Beijing’s US$70 billion in state-led development finance to Indonesia during this time was issued as debt (loans and export credits with market-rate terms). Moreover, Beijing utilized these funds to crowd in an additional US$94.1 billion in private Chinese FDI to Indonesia from 2010 to 2024.
Critical infrastructure projects in energy (coal and hydropower), transport (high-speed rail), and critical minerals (nickel processing) account for the majority of both Chinese development finance and FDI dollars, according to the research. The report highlights how these projects demonstrate Beijing’s tendency to combine development finance and FDI to generate commercial returns while addressing domestic political priorities. In the Riau Islands, for example, the report highlights how a loan from the China Export-Import Bank helped construct a power plant, which then enabled Chinese companies to capitalize on the opportunity to construct an aluminum refinery nearby.
According to Nara Sritharan, Visiting Assistant Research Professor at AidData and a report co-author, “energy and transport projects are particularly risky propositions, with more delivery delays and exposure to environmental, social, and governance risks than other parts of Beijing’s portfolio.” Felix Patrick, an analyst at Foreign Policy Talks and a report co-author, uses the nickel industry to underscore the risk-reward trade-offs. “China wants access to nickel to fuel industries like electric vehicle (EV) manufacturing. Indonesia wants to transition from an exporter of raw materials to building its domestic capacity to process refined nickel,” said Patrick.
But Chinese companies now control three-quarters of Indonesia’s nickel refining capacity. While domestic production increased, the commodity price of nickel plummeted by almost half over the last three years. Despite its aspirations, Indonesia still accounts for just 0.4% of global EV battery production. Chinese-financed nickel projects, such as Indonesia’s Morowali Industrial Park, have also invited controversy for degrading the environment and harming the health and livelihoods of local communities.
Given the risks involved, the research team sought to shed light on who funds, implements, and benefits from Chinese development finance projects in Indonesia. “Without more transparent information, the Indonesian public and its leaders can’t accurately measure the trade-offs of Chinese investments in our country,” said Han Kyeol Kim, an analyst at Foreign Policy Talks and a co-author of the report. Strikingly, the report underscores how much Chinese development finance is a global enterprise. The report outlines a network of relationships across Asia, Europe, and North America, with 273 unique financiers and co-financiers who collaborate to raise capital and distribute risk (some institutions play both roles).
“What once involved a small number of Chinese policy banks and state-owned enterprises has mushroomed into an extensive and disparate network of actors with varying reputations for transparency, execution, and outcomes,” explained Divya Mathew, AidData Senior Policy Specialist and a report co-author. Beijing’s projects are not just made-in-China: Indonesian firms are often implementers or participate in joint ventures and special purpose vehicles. Yet the research team finds that US$30 billion (over 40 percent of China’s total development portfolio) relied on 14 Chinese implementers with higher levels of risk exposure or prior sanctions by the World Bank and Asian Development Bank for questionable business practices.
The choice of implementer can influence the likelihood that projects encounter cost overruns, experience delivery delays, or generate harmful byproducts for local communities. The report profiles the Jakarta–Bandung High-Speed Rail (HSR, or “Whoosh”) as a poignant example of rosy promises of faster timelines and cheaper construction costs that did not live up to expectations. Beijing positioned Chinese developers to outcompete an offer from Japan, promising faster implementation and more generous financing terms than usual. However, the Chinese-backed project was delivered four years behind schedule, US$1.2 billion over budget, and required Indonesia to take on additional loans at a higher interest rate.
Who benefits from these investments? Indonesian state-owned enterprises were recipients of large and frequent infusions of Beijing’s development finance dollars, but so too were powerful private sector conglomerates in Indonesia. Populous regions like Java and Sumatra captured the lion’s share of Beijing’s development finance in absolute terms (see figure below). Still, the report notes that resource-rich West Papua and Central Sulawesi attracted noticeably more of Beijing’s per capita spending.
Chinese development projects in Indonesia by province, 2000-2023
Indonesia stands at a crossroads in its development trajectory. It has made incredible strides in reducing poverty while growing its economy. President Prabowo is optimistic that Indonesia could achieve an annual growth rate of 8 percent. But the country’s democratic institutions may be weakening. This may reflect a prioritization, as roughly four-fifths of Indonesians participating in the Asian Barometer Survey have said that economic development is more important than democracy since the mid-2000s. “It is noticeable that as Indonesia’s democracy weakens, its engagement with China deepens, and the public prioritizes economic over democratic development,” said Jonathan A. Solis, AidData Research Scientist and a co-author of the report.
Nevertheless, Beijing’s ability to convert money into favorability and influence may be easier said than done. The research team finds that public approval of Chinese leadership, as measured by the Gallup World Poll, has declined since 2008 (see figure below), even as Indonesia has seen larger inflows of Beijing’s development finance and Chinese FDI. Instead, the report suggests that Indonesians may be more inclined to attribute the economic benefits of infrastructure-led growth to domestic politicians, who enjoyed relatively high approval ratings during the same period. Interviews with local experts also emphasize that growing unease over their country’s reliance on Chinese investment in critical industries could neutralize appreciation for Beijing’s financial support. This is likely unhelped by the persistent impression that Chinese financing may help catalyze local economic growth, but at the cost of environmental harm.
Read the Balancing Risk and Reward report on aiddata.org to learn more about what China is funding where, and to what effect, in Indonesia. Later this year, AidData and Foreign Policy Talks will release a second, related report that analyzes China’s preferred narratives surrounding its investments in Indonesia and how it amplifies these messages through state-run media and partnerships with domestic media outlets. The research team will also hold a series of workshops in Indonesia, sharing their findings and a forthcoming dashboard that will enable the public to explore specific details of Chinese development projects in Indonesia in a transparent and accessible way.
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