Progress and Remaining Obstacles in Sino-Indonesian Relations

Publication: China Brief Volume: 5 Issue: 18

The year 2005 is shaping up to be significant for Sino-Indonesian relations. In April, during a state visit to Indonesia by Chinese President Hu Jintao, the two sides agreed to establish a “strategic partnership,” a status China has accorded to only three countries: the United States, Russia, and India. Indonesian President Susilo Bambang Yudhoyono called the agreement an “historic milestone,” while Hu declared it marked the beginning of a “new era” in bilateral relations. In July, Yudhoyono paid a state visit to the PRC and the two sides concluded several major agreements covering defense technology cooperation, trade and investment, and Chinese language teaching support. While the two visits represent important steps forward in a relationship historically fraught with tensions and suspicions, it would be wrong to conclude that the “strategic partnership” signals a major re-alignment in Indonesia’s foreign policy. While Indonesia remains a non-aligned country, the United States, Japan, and Australia are likely to remain Jakarta’s most important extra-regional partners in terms of aid, trade, and security for some time to come. Moreover, closer economic interaction with China does not necessarily mean political alignment: indeed domestic factors in Indonesia are likely to conspire against a close political relationship. It should also be kept in mind that while China has become a major consumer of Indonesia’s rich natural resources, the two countries remain direct competitors in several areas, with negative consequences for Indonesia’s manufacturing industry.

Five interlinked factors have shaped Jakarta’s China policy since the two countries established diplomatic ties in 1950. The first is historical memory. Although Chinese merchants traded peacefully with the ancient kingdoms of maritime Southeast Asia for many centuries, Indonesians tend to focus on the negative experiences of the past. For instance, in the thirteenth and fourteenth centuries, Chinese emperors demanded tribute from Javanese kings. [1] This selective historical memory gave rise to the perception of China as an aggressive and expansionist power, a perception reinforced over the years by China’s 1950 annexation of Tibet, its border war with Vietnam in 1979, and its “creeping assertiveness” in the South China Sea during the 1990s. Many influential Indonesians today still consider modern-day Chinese leaders to have a “Middle Kingdom mentality,” and that their ultimate ambition is to turn Southeast Asia into a neo-tributary system.

The second factor is Indonesia’s self-image as Southeast Asia’s primus inter pares based on its size, location, and population. Jakarta’s leadership aspirations were dealt a severe blow in 1997 when the financial crisis plunged the country into a political and socio-economic crisis from which it has yet to fully recover. The crisis period occurred conterminously with China’s rising political, economic, and military profile in Southeast Asia, leading Jakarta to view Beijing as a potential rival for regional influence and leadership.

The third factor is the status of Indonesia’s ethnic Chinese population. Comprising only five percent of the population, Chinese-Indonesians dominate the economic life of the country. Indigenous (pribumi) Indonesians have always resented their economic dominance and question their loyalty to the country. This resentment has periodically boiled over into violent anti-Chinese pogroms, such as in May 1998. Whenever the PRC has expressed concern at the treatment of Chinese-Indonesians, Jakarta has censured Beijing for meddling in its internal affairs.

The fourth factor is anti-communism, which has found fertile ground in Indonesia since independence, particularly among the Indonesian armed forces (TNI) and Muslim groups. In Indonesia, communism is regarded as antithetical to religious practice, the 1945 Constitution, and national development. This aversion to communism led General Soeharto to seize power in September 1965 after an alleged coup attempt by the Indonesian Communist Party. Soeharto accused Beijing of complicity in the “Gestapu affair” and suspended diplomatic relations with the PRC between 1967 and 1990. Old habits die hard, and anti-communism remains alive and well in post-Soeharto Indonesia.

The fifth factor is pragmatic economic self-interest. During times of economic slowdown, such as in the mid-1980s and after the 1997 economic crisis, Jakarta has looked to expand trade with the PRC in an effort to kick-start the economy. Since 1999 Indonesia has also tried to project itself as a “Chinese friendly country” in an effort to persuade Chinese-Indonesians to repatriate their money after they moved billions of dollars off-shore after the May 1998 riots.

Domestic considerations will continue to shape Indonesia’s China policy under President Yudhoyono. In his October 2004 inauguration speech, Yudhoyono outlined his priorities: generating economic growth to alleviate poverty and unemployment; eradicating corruption; and ending separatist conflict in Aceh and Papua. To help achieve the first goal Indonesia naturally seeks to take advantage of China’s booming economy. The Sino-Indonesian “strategic partnership” is basically a roadmap to enhance cooperation in three major areas: economics, politics and security, and socio-cultural activities. [2] Indonesia considers the first of these to be the most important, and the two visits have helped bolster the economic relationship. During Hu’s visit to Indonesia, the Chinese side agreed to provide $300 million in preferential loans and facilitate $10 billion in investments. In July, the two leaders agreed to boost bilateral trade from the current $13 billion per annum to $30 billion by 2010. Over the past five years the growth area in Sino-Indonesian economic relations has been in energy resources. China’s appetite for hydrocarbons to fuel its burgeoning economy, together with Beijing’s desire to reduce its dependence on energy resources from the Middle East and the “strategic chokepoint” of the Malacca Strait, have been a boon to Indonesia. [3] The Jakarta Post on July 28 noted that China imported $1.17 billion worth of oil and gas from Indonesia in 2004, and Chinese oil companies are now major investors in Indonesia’s oil and gas fields. [4]

China’s booming economy is not, however, a panacea for Indonesia’s economic woes. Indeed many Indonesians perceive China to be more of an economic threat than an opportunity. The economic threat posed by China is twofold: first, inflows of foreign direct investment into the PRC occur at the expense of Indonesia; and second, a combination of high-technology and low labor costs enable Chinese companies to mass produce high-quality but inexpensive goods. Chinese competition has already taken a heavy toll on Indonesia’s massive footwear industry, and its textile industry seems destined to suffer a similar fate. [5] Labor unions in Indonesia fear that the proposed China-ASEAN Free Trade Area will be the death-knell of the country’s manufacturing industry as Indonesian goods will be unable to compete with Chinese manufactured goods. President Yudhoyono himself pointed to the scale of the challenge when he was quoted by the Jakarta Post on November 29, 2004 as describing the PRC as “a magnet for foreign investment” and “unbeatable as a manufacturing outlet.”

Linked to the economic challenge posed by China is the issue of Chinese-Indonesians. There is a danger that the PRC’s growing economic presence in Indonesia will exacerbate pribumi jealously of the ethnic Chinese community, for in their minds China and Chinese-Indonesians are inextricably linked. [6] And how might an increasingly nationalistic China respond to future anti-Chinese riots in Indonesia?

Sino-Indonesian security links are likely to experience growth under President Yudhoyono, though there will be limits to this cooperation. Perceptions of the PRC as an expansionist power remain deeply embedded in the national psyche, especially at the elite level. Although Indonesia adopted a non-aligned foreign policy on independence, since 1965 it has generally been pro-Western and Jakarta continues to support a US military presence in East Asia to balance China (though it strongly opposes the US military presence when it is deemed to infringe on Indonesia’s sovereignty, such as in the Malacca Strait). While fears of PRC encroachment on Indonesian oil and gas fields near the Natuna Islands have receded since the mid-1990s, Jakarta will continue to remain vigilant for any signs of Chinese expansionism in Southeast Asia, especially in the maritime domain. [7]

As far as defense cooperation is concerned, Indonesian government ministers have raised the possibility of weapons acquisitions from the PRC as part of a program to modernize the TNI. Since 1991, Indonesia has been subject to an arms sales embargo by the United States because of human rights abuses in East Timor and Papua. During President Hu’s April visit, China agreed to provide technical assistance to Indonesia’s state-owned defense industries, including aircraft and ship building, as well as co-production of small arms and ammunition. [8] A formal agreement was signed to this effect in July. There have even been media reports, in the Financial Times on August 1 for example, that China also agreed to provide missile technology to Indonesia. However, Indonesia is unlikely to make any significant arms purchases from the PRC any time soon, partly because of lack of enthusiasm within the TNI itself and partly because of the poor quality of Chinese equipment. Undoubtedly Jakarta is trying to play the “China card” in an effort to persuade the US Congress to lift the arms embargo. Earlier this year the Bush Administration began the process of restoring military-to-military links with Indonesia, starting with the provision of spare parts for Indonesian transport planes involved in tsunami relief operations and the restoration of the International Military Education Training (IMET) program. During President Yudhoyono’s visit to Washington last spring, the Wall Street Journal reported on May 27 that the Bush Administration promised to discuss with Congress the possibility of restoring sales of non-lethal weapon systems to Indonesia in recognition of improvements in Jakarta’s human rights record as well as the country’s importance in the on-going “war on terror.” Should Congress continue to limit US weapons sales, Jakarta is more likely to seek alternative supplies from Russia rather than China, a trend already begun in 2002 with the purchase of four Russian-made fighter aircraft.

Sino-Indonesian relations have come along way since the two countries normalized relations in 1990, and especially since the fall of Soeharto in 1998. Nevertheless, the Indonesian elite, particularly the upper echelons of the armed forces, remains suspicious of China’s long-term intentions in Southeast Asia. These suspicions stem from negative perceptions of China as an expansionist power, Indonesia’s own self-image as the rightful leader of Southeast Asia, an aversion to the communist ideology, and popular prejudices against the ethnic Chinese. Indonesia will remain committed to a policy of engagement with the PRC, as a stable and productive relationship with China will, on balance, benefit the Indonesian economy. However, as President Yudhoyono’s first foreign trips suggest, Indonesia will continue to privilege its relations with traditional economic and security partners such as Australia, the United States, and Japan.


1. For instance, every Indonesian schoolchild learns that in 1289 emissaries sent by Emperor Kubilai Khan to demand tribute from the Javanese King Kertanegara were sent back minus their ears and noses. Martin Stuart-Fox, A Short History of China and Southeast Asia (Sydney: Allen & Unwin, 2003), p. 63.

2. “Full text of Chinese-Indonesian joint declaration on strategic partnership,” Foreign Broadcasting Information Service (FBIS), April 26, 2005.

3. Ian Storey, “China seeks to reduce its dependence on Strait of Malacca,” Jane’s Intelligence Review, May 2005, pp. 36-40.

4. In July 2005 Chinese companies agreed to invest $7.5 billion in Indonesia, much of it in the country’s energy sector. See “RI inks $7.5 billion in deals with China.” Jakarta Post, July 30, 2005.

5. Anthony L. Smith, “From Latent Threat to Possible Partner: Indonesia’s China Debate”, in Satu P. Limaye (ed.), Asia’s China Debate (Honolulu: Asia-Pacific Center for Security Studies, December 2003), p.5.

6. Smith, “From Latent Threat”, op. cit., p. 5.

7. For an analysis of the Natuna Islands issue see Ian Storey, “Indonesia’s China Policy in the New Order and Beyond: Problems and Prospects,” Contemporary Southeast Asia, Vol. 22, No. 1 (April 2000), pp. 145-174.

8. See “Indonesia set to buy arms from China,” Straits Times, September 19, 2002 and “Running low on ammunition,” Straits Times, May 13, 2005.