Chinese Manufacturers Step Up Indonesia Factory Investment as Supply Chains Shift

From selling goods to building factories

Indonesia recorded 1,714.2 trillion rupiah in investment in 2024, up 20.8 percent from the previous year, as Chinese manufacturers increasingly moved beyond selling imported goods to building local factories. China contributed 121.6 trillion rupiah, about 14 percent of foreign investment, making it the third largest source after Singapore and Hong Kong, according to figures shared at OCBC Indonesia's One Connect Forum in Jakarta.

Bankers and executives at the forum described a change in what Chinese companies want to discuss. Distribution is giving way to questions about factory locations, permits and Indonesian partners. Producers are establishing operations from West Java to Sulawesi, seeking access to a large consumer market and supply chains that can deliver faster and withstand disruption.

As of September 5, 2025, the investment push reaches across nickel refining, electric vehicles, solar materials, power equipment, electronics, healthcare and logistics. Indonesia's government wants to sustain that momentum, with a target of about 8 percent annual economic growth during 2025 to 2029. Its priority sectors include renewable energy, semiconductors, the digital economy, healthcare and manufacturing for export.

Indonesia offers several attractions at once: a population expected to approach 300 million within five years, a rapidly growing middle class, industrial land, tax incentives and a large pool of workers. Producing locally also puts companies closer to their customers. For manufacturers facing trade tensions and changing procurement rules, the decision increasingly involves where to make goods, not simply where to sell them.

Why companies are moving production

Chinese manufacturers have faced successive pressures to spread production across countries. The US China tariff conflict began in 2018. During the pandemic, lockdowns and shipping disruption showed how quickly a business could lose access to supplies when it depended heavily on production in one country.

The United States and European Union have also increased scrutiny of supply chains connected to China. Products containing substantial Chinese inputs can face higher duties or challenges over their country of origin. Manufacturers have responded by distributing production across Southeast Asia, seeking better market access while reducing exposure to political and trade risks.

Rhodium Group, which tracks Chinese investment, described that shift in an April 2025 analysis of companies moving capacity into the region:

Since the first US China trade war, ASEAN has become the main destination for firms diversifying supply chains away from China.

The analysis warned that tariffs above 30 percent on goods originating in China would also weigh on Southeast Asia if those duties extended to exports that rely heavily on Chinese inputs. That possibility is encouraging investors to buy more from local and regional suppliers and manufacture more intermediate components within ASEAN. Intermediate components are parts or materials that another factory uses to make a finished product.

How the investment shift developed

Indonesia's factory expansion reflects several years of trade pressure, domestic policy changes and infrastructure development. A short timeline shows how those forces came together:

• 2018: The US China tariff conflict began, encouraging companies to reconsider their production locations.
• 2020: Indonesia's ban on raw nickel ore exports took effect, requiring mining companies to process ore domestically.
• During the pandemic: Lockdowns and shipping disruption exposed the risks of relying on production in a single country.
• 2023: The Jakarta to Bandung high speed railway entered service after delays and cost increases.
• 2024: Indonesia recorded 1,714.2 trillion rupiah in investment, including 121.6 trillion rupiah from China.
• April 2025: Rhodium Group described ASEAN as the main destination for companies diversifying supply chains away from China.
• 2025: Medical device manufacturer Wego entered a joint venture with Indonesian company Oneject after Jakarta increased support for locally made products.

Wego's partnership illustrates how domestic purchasing policy can influence factory decisions. Local content requirements and preferences in procurement, the process of buying goods for institutions or public projects, give suppliers a reason to manufacture inside Indonesia instead of relying entirely on imports.

Nickel anchors the industrial expansion

Manufacturing is the main draw for new Chinese capital, with nickel and electric vehicles leading the expansion. Indonesia supplies roughly 65 percent of global refined nickel, while Chinese companies control an estimated three quarters of refining capacity within Indonesia, according to independent researchers.

Nickel is used in many batteries for electric vehicles. Refining turns mined material into forms that manufacturers can use. Indonesia's large refining base helps establish technology standards and supplies a growing battery and vehicle industry, although the country still produces only a tiny share of finished batteries for cars.

The Morowali and Weda Bay industrial parks show the scale of the industrial model. They combine mines, smelters, chemical operations, dedicated power plants, ports and worker housing within integrated campuses. Keeping those activities close together gives early investors advantages of scale and allows suppliers to cluster around large factories.

Indonesia's ban on raw nickel ore exports has been central to this development. By requiring processing at home, the policy keeps more of the value created from minerals within the country. Instead of exporting only the ore, Indonesia can earn from the industrial steps that turn it into usable material.

Electric vehicles need more than nickel

BYD has committed around US$1.3 billion to a factory in West Java, with planned production capacity of about 150,000 vehicles a year. Wuling and Chery are expanding local assembly, while brands selling cars and electric bikes are deepening their Indonesian presence.

Suppliers backed by Chinese investors are also adding cathode and precursor production lines near existing smelters. These materials are used in making battery components, linking mineral processing to more advanced manufacturing. Indonesian officials have promoted battery recycling as another part of that chain.

Indonesia's next challenge is to turn its strength in refined nickel into a larger finished battery industry. That requires time, dependable electricity and stricter traceability, meaning records that show where materials came from and how they were processed. Those records matter for meeting requirements in the United States and European Union.

Domestic demand will help determine how quickly vehicle production expands. Electric vehicle sales are growing from a low base, and charging networks are still being built. Manufacturers must therefore weigh opportunities among Indonesian buyers alongside the prospects for exporting vehicles and components.

Solar investment and the electricity grid

Indonesia wants renewable sources to provide 34 percent of its electricity by 2030. Chinese companies have signed agreements worth billions of dollars involving solar modules, hydropower, battery storage and digital systems for the electricity grid.

Xinyi Glass Holdings announced an investment of US$11.5 billion in a quartz sand processing complex supporting solar glass production. LONGi opened a solar panel factory near Jakarta. Both developments connect Indonesia to the manufacturing of equipment and materials used in renewable energy.

State electricity utility PLN has signed memorandums with Chinese companies for renewable energy and smarter grids worth tens of billions of dollars. Grid digitalisation uses digital monitoring and control systems to help manage electricity supply and distribution.

Progress on Chinese backed initiatives has been faster than on Western backed packages such as the Just Energy Transition Partnership, which has struggled to mobilise financing quickly. Faster development can support electricity supply and industrial growth, while also making oversight and environmental safeguards a pressing concern.

Railways, industrial estates and digital demand

The Jakarta to Bandung high speed railway is the most prominent transport project associated with Chinese investment. It began operating in 2023 after construction faced schedule changes and rising costs. Chinese companies also continue to finance roads, ports and industrial estates, infrastructure that supports the movement of goods and the operation of factories.

Indonesia has promoted 81 projects across real estate, tourism, agro industry, renewable energy and logistics requiring around 239 trillion rupiah in investment. These opportunities extend the investment push beyond mineral processing and vehicle production.

Greater Jakarta has seen a surge in demand for data centers. Batam is also emerging as a regional hub as Singapore limits new capacity. Data centers house the computing equipment needed to store information and run digital services, making them part of the infrastructure behind the digital economy.

Chinese companies are active across that economy through electronic commerce platforms, device manufacturing and cloud services. Alongside investment in power equipment, electronics, solar and glass materials, and logistics, these activities show how broadly the manufacturing and infrastructure push is spreading.

The rules shaping factory decisions

Indonesia has spent a decade changing the rules governing foreign direct investment, or FDI. This is investment in business operations, such as a factory, rather than simply the purchase of financial assets. Its Positive Investment List sets out where foreign owners can participate and the conditions that apply.

A newer licensing system based on business risk aims to speed up permits for activities considered to pose lower risks. Special economic zones and industrial estates offer fiscal incentives, while income tax discounts reward large manufacturers that commit investment over a specified number of years.

Indonesia's policy package includes several practical benefits for qualifying investors:

• Income tax discounts for large industrial projects.
• Customs and value added tax facilities for imports of capital goods, such as machinery used in production.
• Access to serviced land in industrial estates and special economic zones.
• Licensing based on risk to streamline permits for activities with lower risks.

The value added tax rate rose to 12 percent, and local content requirements, known as TKDN, are being updated in sectors ranging from power to medical devices. Companies that organise their investments around these rules tend to move more quickly from planning to production.

For Indonesian partners, local production can bring access to technology and quality systems that help smaller suppliers improve their work. The practical appeal of the policy package depends on how well tax incentives, permits, land, electricity and purchasing requirements fit together for an individual factory.

Tariff advantages come with conditions

Some manufacturers see Indonesia as a base for selling into overseas markets. Negotiations with the United States have made it a practical export location for certain product categories, with final tariffs near 19 percent in some cases. Those rates can be lower than the rates applying to equivalent goods originating in China. The details vary by product and remain subject to change.

Within Asia, goods that meet origin requirements under the ASEAN China Free Trade Area, or ACFTA, and the Regional Comprehensive Economic Partnership, or RCEP, can qualify for better access. Rules of origin determine which country a product belongs to for trade purposes, using requirements about its materials and production.

The Asia Society Policy Institute has warned that expanding Chinese production in ASEAN is happening alongside closer scrutiny in the United States and Europe:

ASEAN is becoming a key offshore manufacturing base for Chinese companies, especially in clean energy, but this puts the region in the crosshairs of global trade responses to Chinese overcapacity.

Overcapacity means that factories can produce more than markets are ready to buy. For exporters, scrutiny can mean stricter origin checks, demands for records on local content and compliance teams tracing inputs through several layers of suppliers.

Chinese manufacturers are responding by sourcing more locally and moving activities such as casing, testing and packaging into Indonesia. They also use independent audits to verify origin. Customs advisers map components and production steps so companies can demonstrate where goods were made and meet requirements in destination markets.

Hong Kong and banks connect the investment flows

Hong Kong is a major channel for Chinese capital entering Indonesia. Banks and law firms there provide stock market listing venues, project finance and specialist services that support investment across borders. Chinese investments recorded under Hong Kong or Singapore can ultimately finance Indonesian factories, meaning the direct figure recorded for China can understate the wider flow of Chinese capital.

The ranking of Singapore, Hong Kong and China therefore reflects the investment channels recorded in official data. For a company building a factory, the financing route can involve institutions and business structures in more than one location.

OCBC Indonesia says its China desk increased its corporate customer base by about 50 percent from the previous year. The desk provides accounts, trade finance and foreign exchange services to mainland Chinese clients establishing local operations. Trade finance helps companies pay for goods and manage payment risks, while foreign exchange services handle transactions between currencies.

The bank expects these customers to provide more income as their projects move from construction into production. Indonesian lenders with offices in Hong Kong also describe a busy pipeline as automakers, glass manufacturers and petrochemical suppliers confirm sites in West Java and elsewhere.

Jobs and industrial growth bring costs to manage

New factories can create jobs, export earnings and practical knowledge about running industrial supply chains. Local partners can gain technology and production expertise, while processing minerals domestically retains more value in Indonesia. Those benefits explain why officials support the investment trend and compete for further projects.

AidData, a research laboratory tracking Chinese investment and development finance, estimates that more than 90 percent of Chinese state backed finance to Indonesia since 2000 came as debt. It also counts US$94.1 billion in private Chinese FDI since 2010, much of it directed toward energy, transport and critical minerals.

Debt financing must be repaid, making project costs and delays important for borrowers. The Jakarta to Bandung railway opened four years later than planned and exceeded its budget, requiring Indonesia to shoulder more debt. AidData's researchers described the difficulties affecting major infrastructure projects:

Energy and transport projects are particularly risky, facing more delays and environmental, social, and governance challenges.

In nickel centers, smelters built with Chinese partners often use coal power. Concerns include air quality, water use and worker safety. Labor relations also require attention in some mining districts, where local communities worry about safety, wages and environmental damage. Government agencies say they are tightening oversight and promoting cleaner smelting technology to reduce pollution.

Indonesia's large nickel output creates a further commercial challenge. Additional supply has pushed prices lower, helping battery buyers but reducing margins for some producers. Expanding production therefore has different effects along the chain: cheaper materials can support battery manufacturing, while processors face pressure on their earnings.

What will determine the next factory investments

The tariff gap between China and ASEAN is one major influence on future investment. Higher US rates on Chinese goods, alongside lower rates for ASEAN exports, encourage production in Indonesia. A narrower gap would reduce that incentive.

Scrutiny of Chinese inputs is another influence. More aggressive origin checks and cases investigating attempts to avoid tariffs could discourage exports heavily dependent on Chinese components. Companies could respond by increasing Indonesian production and sourcing, or by reconsidering their investment plans.

China's domestic economy and policies governing overseas investment also matter. Weaker profits at home or tighter controls could slow new projects abroad, while an economic rebound could sustain investment.

Indonesia's own decisions will be equally important. Clearer local content requirements, faster licensing, reliable power and cleaner industrial parks can affect where manufacturers place their next production lines. Exporters will continue watching measures against imports in their target markets and adjusting sourcing to protect market access. The government has set its growth ambitions for 2025 to 2029 and its renewable electricity target for 2030; delivery will depend on how investment, demand and operating conditions develop together.

The Bottom Line

• Chinese manufacturers are moving from exporting finished goods to building Indonesian factories for local sales and overseas markets.
• Indonesia recorded 1,714.2 trillion rupiah in investment in 2024, up 20.8 percent. China supplied 121.6 trillion rupiah, about 14 percent of foreign investment.
• China ranked behind Singapore and Hong Kong, both of which also serve as channels for Chinese capital.
• Indonesia supplies roughly 65 percent of global refined nickel; Chinese firms control an estimated three quarters of its refining capacity.
• BYD has committed around US$1.3 billion to a West Java factory with planned capacity of about 150,000 vehicles annually.
• Solar manufacturing, renewable power, grid upgrades, transport and digital infrastructure are attracting Chinese investment.
• Local content rules, tax incentives and licensing shape factory plans, while tariffs and origin requirements shape export strategies.
• Jobs and industrial knowledge come alongside debt exposure, project delays, pollution concerns, worker safety issues and pressure from lower nickel prices.
• Future investment depends on tariff differences, scrutiny of Chinese inputs, China's economy and Indonesian operating conditions.