How China views its economic relations with Indonesia – Lowy Institute

Report on Indonesia-China Relations and Sustainable Development Goals

Introduction: A Partnership at 75 Years

In 2025, the 75th anniversary of Indonesia-China diplomatic relations marks a significant milestone in a partnership crucial to the Indo-Pacific region. This relationship, characterized by expanding trade, investment, and strategic cooperation, has profound implications for the achievement of the Sustainable Development Goals (SDGs). This report analyzes the bilateral partnership, focusing on its contributions and challenges to sustainable development, particularly in relation to SDG 7 (Affordable and Clean Energy), SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 17 (Partnerships for the Goals).

Economic Cooperation and Infrastructure Development

Bilateral Trade and Investment Contributions to SDG 8

The economic dimension of the Indonesia-China partnership is a significant driver of economic growth, directly impacting SDG 8. China stands as Indonesia’s primary economic partner, with key statistics underscoring this relationship:

• Bilateral Trade: Reached US$135 billion in 2024, making China Indonesia’s largest trading partner.
• Foreign Investment: China is Indonesia’s second-largest foreign investor.
• New Commitments: A state visit in November 2024 secured new investment commitments worth US$10 billion.

Advancing SDG 9 and SDG 7 through Strategic Investments

Chinese investment is heavily concentrated in sectors critical to SDG 9 (Industry, Innovation, and Infrastructure) and SDG 7 (Affordable and Clean Energy). These investments aim to modernize Indonesia’s industrial base and support its energy transition.

1. Mineral Downstreaming: Investment supports Indonesia’s policy to add value to its critical mineral resources, a key component of its industrialization strategy.
2. Renewable Energy: Capital is directed towards developing renewable energy sources and the electric vehicle (EV) supply chain, including battery factories.
3. Infrastructure Projects: High-profile projects such as high-speed rail networks and industrial parks are being developed, enhancing national connectivity and industrial capacity.

Challenges to Sustainable and Sovereign Industrialization

Dependence and its Impact on SDG 9

While Chinese investment accelerates industrial development, it has created a state of technological and financial dependency, posing a challenge to the full realization of SDG 9, which emphasizes fostering innovation and building domestic industrial capability.

• Technological Control: An estimated 75% of the technological know-how in Indonesia’s critical minerals sector is controlled by Chinese companies.
• Supply Chain Reliance: Indonesia’s industrial expansion, particularly in downstreaming, is largely dependent on the stability of Chinese supply chains for raw materials and midstream processing.
• Limited Value Addition: Indonesian exports to China remain heavily reliant on commodities and critical minerals with minimal domestic technological value added, limiting progress towards a knowledge-based economy.

This dynamic ties Jakarta’s industrial ecosystem to Beijing’s orbit, raising concerns about long-term economic sovereignty and the sustainability of its development model.

Global Partnerships and Strategic Diversification

Strengthening SDG 17 through Multilateral Engagement

Both nations leverage their partnership within global forums to advance their interests, aligning with the principles of SDG 17 (Partnerships for the Goals). For China, Indonesia is a pivotal Global South partner in platforms like the G20 and BRICS+. Indonesia’s engagement with the Shanghai Cooperation Organisation (SCO) further solidifies these strategic ties.

However, to mitigate dependency and enhance the sustainability of its development, Indonesia is pursuing a diversification strategy by:

• Inviting investment from other partners, such as Australia and the United States, into its critical minerals industry.
• Seeking to ensure that its supply chains are not entirely dependent on a single source of investment and technology.

To date, this diversification remains limited, as most new projects continue to rely on Chinese technology and financing.

Policy Recommendations for Sustainable Development

Aligning Future Cooperation with SDG Principles

To recalibrate its position and ensure that its partnership with China contributes more effectively to long-term sustainable development, Indonesia can implement several policy instruments.

1. Mandate Technology Transfer for SDG 9: Future investment agreements, particularly in critical minerals and renewable energy, should include integral, enforceable technology transfer requirements. This will ensure that Chinese projects build genuine domestic capability and foster innovation among Indonesian professionals, directly supporting SDG 9.
2. Diversify Capital Sources for SDG 17: Indonesia should actively widen its sources of capital beyond existing models to reduce financial dependency and strengthen global partnerships for sustainable development, in line with SDG 17.
3. Reinforce Regional Frameworks: Strengthening ASEAN-led frameworks can help preserve open regional norms, ensuring that bilateral partnerships contribute to broader regional stability and sustainable growth.

The effective use of these instruments will determine whether Indonesia can redefine its economic trajectory towards a more sovereign and sustainable model of industrialization.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 7: Affordable and Clean Energy

  The article mentions investments in “renewable energy,” “electric vehicles,” and “battery factories,” which are central to transitioning to sustainable energy systems.

• SDG 8: Decent Work and Economic Growth

  The article focuses on economic growth through bilateral trade (reaching US$135 billion), foreign investment, and industrial expansion via Indonesia’s “downstreaming policy.” It discusses economic sovereignty and the reliance on foreign supply chains, which are key aspects of sustainable economic development.

• SDG 9: Industry, Innovation, and Infrastructure

  This is a primary focus of the article, which details investments in “transportation infrastructure” like the “high-speed rail,” “industrial parks,” and “digital infrastructure.” It also extensively discusses industrialization (mineral downstreaming), technological dependence, and the need for technology transfer and domestic capability building.

• SDG 11: Sustainable Cities and Communities

  The development of the “Whoosh high-speed railway” is mentioned as a key infrastructure project. This directly relates to building sustainable transport systems within and between cities.

• SDG 12: Responsible Consumption and Production

  The discussion revolves around the management of “critical mineral supply chains” and the government’s “downstreaming policy.” This policy aims to increase the value of natural resources domestically, which connects to the sustainable management and efficient use of natural resources.

• SDG 17: Partnerships for the Goals

  The entire article analyzes the bilateral partnership between Indonesia and China, covering trade, investment, and technology. It also mentions Indonesia’s engagement in multilateral platforms like the UN, G20, BRICS+, and the Shanghai Cooperation Organisation (SCO), as well as its efforts to diversify partnerships by inviting investment from Australia and the United States.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Under SDG 7 (Affordable and Clean Energy):
  • Target 7.a: Enhance international cooperation to facilitate access to clean energy research and technology. The article discusses Chinese investment in Indonesia’s renewable energy sector and battery factories, which represents international cooperation, although it highlights the dependence that comes with it.
  • Target 7.b: Expand infrastructure and upgrade technology for supplying modern and sustainable energy services. The investment in renewable energy and battery production for electric vehicles directly contributes to this target.
• Under SDG 8 (Decent Work and Economic Growth):
  • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation. The article discusses Indonesia’s “downstreaming policy” to add value to its mineral exports and the proposed policy of “tightening technology-transfer requirements” to build domestic capability.
• Under SDG 9 (Industry, Innovation, and Infrastructure):
  • Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure. The article explicitly mentions investments in “transportation infrastructure,” including the “high-speed rail,” as well as “industrial parks” and “digital infrastructure.”
  • Target 9.2: Promote inclusive and sustainable industrialization. The focus on Indonesia’s “downstreaming policy” for critical minerals is a direct effort to boost domestic industrialization.
  • Target 9.b: Support domestic technology development, research and innovation. The article highlights Indonesia’s dependence on Chinese technology and proposes policy instruments like conditioning investment on “R&D collaboration benchmarks” and “skill diffusion among Indonesian engineers” to support this target.
• Under SDG 11 (Sustainable Cities and Communities):
  • Target 11.2: Provide access to safe, affordable, accessible and sustainable transport systems for all. The mention of the “Whoosh high-speed railway” is a direct example of a project aimed at improving national transportation infrastructure.
• Under SDG 12 (Responsible Consumption and Production):
  • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources. The article’s focus on “critical minerals” and the “downstreaming” policy reflects an effort to manage these natural resources more efficiently and capture more value domestically.
• Under SDG 17 (Partnerships for the Goals):
  • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources. The article details Chinese investment (US$10 billion in new commitments) and Indonesia’s efforts to attract investment from other countries like Australia and the United States.
  • Target 17.6: Enhance North-South, South-South and triangular regional and international cooperation on and access to science, technology and innovation. The entire Indonesia-China relationship described is a form of South-South cooperation. The call for “technology transfer” and “R&D collaboration” directly aligns with this target.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• For SDG 7:
  • Indicator (Implied): The amount of international financial flows (investment) to Indonesia for renewable energy, as part of the US$10 billion commitment.
• For SDG 8:
  • Indicator (Mentioned): Annual growth rate of real GDP per capita can be inferred from the discussion on economic growth and the total bilateral trade value, which reached US$135 billion in 2024.
• For SDG 9:
  • Indicator (Mentioned): The proportion of medium and high-tech industry value added in total value added. The article implies this is low, as exports “remain heavily reliant on critical minerals and commodities – with minimal technological value added.”
  • Indicator (Mentioned): The percentage of an industry controlled by foreign entities. The article states that 75% of Indonesia’s nickel capacity is controlled by Chinese companies.
  • Indicator (Implied): The number of trained Indonesian engineers, data scientists, and professionals resulting from technology transfer agreements, as suggested by the call for “genuine skill diffusion.”
• For SDG 11:
  • Indicator (Implied): The proportion of the population that has convenient access to public transport, which would be improved by projects like the Whoosh high-speed railway.
• For SDG 12:
  • Indicator (Implied): Domestic material consumption. The “downstreaming policy” aims to increase the domestic processing of raw materials like nickel, which would be reflected in this indicator.
• For SDG 17:
  • Indicator (Mentioned): Total official development assistance and foreign direct investment. The article mentions China is the second-largest foreign investor and cites a new US$10 billion investment commitment.
  • Indicator (Mentioned): Dollar value of exports and imports. The article states the total bilateral trade reached US$135 billion.
  • Indicator (Implied): The number of science and/or technology cooperation agreements. The article proposes making technology transfer and R&D collaboration an integral part of future investment approvals.

4. Table of SDGs, Targets, and Indicators

Source: lowyinstitute.org