China’s importance to the burgeoning economies of Southeast Asia has increased remarkably since the mid-1990s . This has been led by dramatic growth in trade already large enough to significantly alter the foreign policy outlooks and priorities of Southeast Asian nations . While Southeast Asia-bound investment has lagged behind trade, Chinese investment in the region is beginning to pick up and looks certain to expand in coming years .
However, when one looks beyond the steep graphs of growing trade volumes and examines who exactly is doing business, some notable texture appears in the contours of on-going China-Southeast Asia economic integration (China Brief, May 13). Specifically, a close look reveals the extraordinary importance of Southeast Asians of Chinese ancestry in fueling growth in economic ties. While this is not necessarily surprising in itself, its implications can have surprisingly cascading effects for relationships with China among other countries in the region with a sizeable ethnic Chinese population.
This article examines the importance of ethnic-Chinese Indonesians in the development of the People’s Republic of China (PRC) and Republic of Indonesia’s relationship and some effects of increased China-Indonesia economic interaction on the ethnic-Chinese Indonesian community.
Situating Chinese Indonesians
Approximately 25 million people of Chinese ancestry live in Southeast Asia, including roughly 6 million in Indonesia, constituting about 2.5 percent of the population . It is an incredibly heterogeneous grouping, but, broadly speaking, it can be divided into two categories. The first are those whose families have lived in Indonesia for 3-5 generations and are unlikely to speak a Chinese dialect or ascribe any particular importance to China other than a source of cultural heritage. The second group are first or second generation Indonesians who may still retain family ties in China and are likely to have closer cultural association with China.
Although their numbers are small, Chinese Indonesians control a huge amount of wealth—one-half to three-quarters of private wealth in Indonesia by most estimates . While many Chinese Indonesians are poor like the majority of their countrymen, more than three-quarters of Indonesia’s 20 wealthiest people are ethnically Chinese. Although this super-rich class tends to be made of recent migrants and their progeny, families who have lived in Indonesia for generations are often successful small business owners. Indeed, general stores, motorbike repair shops, and electronic stores are almost invariably owned by Chinese Indonesians throughout the archipelago.
While their economic importance is evident, Chinese Indonesians are, and have been, virtually shut out from politics, academia, and government, and face resentment and racist treatment by “indigenous” Indonesians. The reasons for this are complex, but boil down to the ruling class playing politics with Chinese Indonesians from the days of the Dutch to the 1997 Asian Financial Crisis that collapsed the Suharto era.
On bilateral relations, Chinese Indonesians were central to the Indonesia-China international relationship during the Suharto era, but only as a sticking point and not as actors moving relations forward. However, this dynamic has witnessed a dramatic transformation in just the last decade.
Chinese Indonesians in International Relations as a Political Issue
Despite the policy of both Jakarta and Beijing stemming from the 1980 Nationality Law of the PRC that Chinese Indonesians are strictly Indonesian citizens for whom China is simply a foreign country, the reality is that Chinese Indonesians mean a great deal to the China-Indonesia relationship. As a political issue, even though officials insist that the plight of Chinese Indonesians is solely an Indonesian matter, ethnic ties have ensured that it is invariably an international issue as well. Under Suharto’s New Order, Indonesia froze diplomatic relations with China for 33 years for domestic reasons concerning Indonesia’s ethnic Chinese minority. To bolster its anti-communist credentials and politically marginalize this important minority, the Indonesian military labeled China and Chinese Indonesians latent threats to the nation. As a result, normalization languished for decades.
When Indonesia resumed diplomatic relations with China in 1990, concerns over China’s future interaction with Indonesia’s ethnic Chinese minority were central to negotiations. Throughout the remainder of the Suharto regime, China was careful not to closely associate with Chinese Indonesians. Even after the killings of about 1,000 Chinese Indonesians in May 1998 amidst widescale rioting that brought an end to the regime, Beijing resisted commenting on this “domestic incident,” despite public outrage in China.
The plight of Chinese Indonesians has continued to be an important subtext in the China-Indonesia relationship since the end of the New Order. On one hand, China has taken notice of legal reforms that now make Chinese Indonesians co-equal citizens, which has contributed to the nations’ warm bilateral relations. On the other hand, China remembers the killings of May 1998, which are a cause of negative Chinese perceptions of Indonesia.
Chinese Indonesians as Facilitators of Economic Ties
Chinese Indonesians are also important to the China-Indonesia relationship because they often serve as a bridge in bilateral economic relations, a role that is growing stronger with time.
It is commonly noted that trade and investment between China and Indonesia is expanding rapidly. On the trade side, emerging from virtually zero in 1990, bilateral trade was $19 billion in 2006  and well on its way to meeting the governments’ goal of $30 billion by 2010. While foreign direct investment totals are impossible to pinpoint, it is clear that bilateral capital flows are rapidly increasing as well.
What is not commonly noted is that at least 90 percent of this business involves Chinese Indonesians . Regarding Indonesia’s imports from China, this is not surprising. The bulk of these imports are bought and distributed by small traders, most of whom are Chinese Indonesians. Buttressed by reduced cultural barriers to doing business and a ready-made, national distribution network due to Chinese Indonesian ownerships of small businesses, they are simply the natural trading partners for Chinese manufacturers.
It is also unsurprising that Indonesian investment in China is being driven by Chinese Indonesians. With almost all of Indonesia’s largest corporations and financial houses controlled by Chinese Indonesians, they are natural players in the China market. It should be noted, however, that Chinese Indonesian tycoons such as Wijaya, Riady, and Liem are going into China purely for profit-seeking reasons and, while their ethnicity is helpful in their exchanges, ethnic solidarity is not the reason why they are pursuing investment opportunities in China .
What is surprising is that Indonesian exports to China and Chinese investment in Indonesia have become the domain of Chinese Indonesians, since both mainly involve natural resources. Regarding Indonesian exports to China, which are almost entirely natural resources or based on natural resources with little value-added, Chinese Indonesians have been able to get involved due to deregulation over the last several years. After being shut out of these industries under the New Order, reforms have created an environment in which large firms controlled by Chinese Indonesians now compete fiercely through open tenders as opposed to government or “indigenous”-owned companies controlling the market.
As for Chinese investment in Indonesia, which is almost entirely in natural resources and infrastructure, it is even more surprising that Chinese Indonesians are playing a role, since these industries are controlled by the Indonesian government, which is run by non-Chinese Indonesians. While all infrastructure projects and most energy deals are still dominated by non-Chinese Indonesian firms (usually firms linked to Vice President Jusuf Kalla and People’s Welfare Minister Aburizal Bakrie), Chinese Indonesians often act as “guides” for Chinese companies looking to invest in Indonesia in order to help blunt cultural and linguistic barriers to doing business in Indonesia.
The fact that Chinese Indonesians matter for China-Indonesia relations should not be unexpected. While they were a negative focus of the relationship for decades, they have recently been a contributing factor to improved bilateral relations. Diplomatically, Beijing has taken note of Indonesia’s legal reforms regarding Indonesians of Chinese ethnicity, which has created goodwill and contributed to robust relations. Economically, Chinese Indonesians have been able to serve as a bridge between the two countries due to their ability to reduce cultural barriers to doing business. As a result, Indonesia has most likely gained more access to capital than it would have if it did not have a significant Chinese minority .
All told, the most remarkable impact of the rise of China on Chinese Indonesians has been their transformation from a liability into an asset for the Indonesian government. As Jakarta looks to benefit from a rising China, it has prioritized rolling back discriminatory policies against Chinese Indonesians and encouraged their engagement with China. Clearly, this is a heartening development after decades of using Chinese Indonesians as a scapegoat and to advance unrelated political goals.
The story is not entirely positive, though. Aside from Mari Elka Pangestu, Indonesia’s ethnically Chinese trade minister who is the embodiment of Jakarta’s attempt to use its Chinese minority to enhance relations with China, Chinese Indonesians are still notably absent in government. Perhaps it is official reluctance, rigid regulations in government service, or simply poor compensation, but Chinese Indonesians are not being tapped to fill the staggering lack of China expertise in the Indonesian government.
It should also be noted that Chinese Indonesians could return to being a political liability in the future. It is entirely possible that an economic downturn could lead to renewed resentment toward this comparatively wealthy minority. In a worst-case scenario, Chinese Indonesians could again become the target of violence and Beijing’s increasingly nationalistic government might feel compelled to condemn it, thus creating major problems in diplomatic relations.
For the time being, though, Chinese Indonesians appear to be playing a constructive role as actors bringing China and Indonesia closer together. Jakarta has recognized the importance of its treatment of Chinese Indonesians for its important relations with Beijing. All told, their increasing prominence as factors in China-Indonesia relations is another indication of how far Chinese Indonesians and China-Indonesia relations have come since the collapse of the New Order and the reemergence of a new center of gravity in Asian politics.
* The article is largely based on approximately 20 interviews with academics, policymakers, and businesspeople in Jakarta, Indonesia in Summer/Fall 2007.
1. According to the International Monetary Fund, China-Southeast Asia bilateral trade reached $161 billion in 2006, up from $21 billion in 1996.
2. Joshua Kurtlantzick. “China’s Charm Offensive in Southeast Asia”. Current History, September 2006. 274.
3. Michael Glosny. “Heading toward a Win-Win Future? Recent Developments in China’s Policy toward Southeast Asia”. Asian Security, vol. 2, no. 1, 2006, 32.
4. Indonesia’s 2000 census reported that there are only 1.7 million Indonesians of Chinese descent (less than 1 percent of the population), but sociologists agree that most Chinese Indonesians opted not to associate and that the real number is approximately 6 million. For instance, see Jamie Mackie, “How many Chinese Indonesians?”, Bulletin of Indonesian Economic Studies 412, no. 1 (2005): 97-101.
5. The exact amount of wealth controlled by Chinese Indonesians is impossible to pinpoint, but virtually all estimates fall between one-half and three-quarters of private wealth in Indonesia. For instance, see Adam Schwarz, A Nation in Waiting: Indonesia’s Search for Stability, (Boulder: Westview, 2000), 99.
6. IMF Direction of Trade Statistics, not including Hong Kong.
7. The author asked 10 well-informed businessmen and analysts in Jakarta to estimate the amount of China-Indonesia business that involves Chinese Indonesians. All but one cited at least 90 percent. The other said at least 85 percent.
8. This point was stressed in all of the author’s interviews. Also see Marleen Dieleman, How Chinese are Entrepreneurial Strategies of Ethnic Chinese Business Groups in Southeast Asia? A Multifaceted Analysis of the Salim Group of Indonesia. (Leiden: Leiden University Press, 2007), 165-166, quoting Anthony Salim.
9. Li Xing and Paul Opoku-Mensah, “Diaspora in Development and Integration: The Case of Chinese and African Diasporas.” Center for Comparative Integration Studies (CCIS) Working Paper No. 7, 2008.