Indonesia–China Economic Relations in the Twenty-First Century: Opportunities and Challenges

This chapter aims to highlight the opportunities and challenges of Indonesia–China relations in the twenty-first century. Departing from the Cold War hostility, post-Suharto Indonesia has significantly strengthened its ties with China not only in the economic arena but also in the political and security arena. Looking at the evolution of economic relations, this chapter highlights that the growing ties with China have brought expanding opportunities for Indonesia, particularly in the form of China's investment, while at the same time exposing Indonesian manufacturers to greater economic competition. With particular attention to the implementation of the ACFTA, this chapter highlights that increased economic competition with China has driven segments of the Indonesian business sector to demand greater protectionism, deliberately provoking the perception of the ‘China threat’. It is emphasised that despite recent improvements, Indonesia–China relations have not entirely broken away from the difficult past as suspicions and sensitivity continue to characterise these relations. In fact, the perception of China's aggressive penetration in the Indonesian market, if not managed well, could combine with the long-standing resentments concerning the economic role of the Chinese minority to potentially destabilise the bilateral relationship.