China – Indonesia relations and the Strait of Malacca: geopolitical analysis and risk assessment

Indonesia Island Chain
Indonesia’s view from the space (Credits: NASA, Public domain, via Wikimedia Commons)

Geopolitical Report ISSN 2785-2598 Volume 25 Issue 10
Author: Riccardo Rossi

Due to Malacca’s geopolitical centrality, China has strengthened economic-diplomatic dialogue and relations with Southeast Asian countries, especially Indonesia.

Since the launch of the Belt and Road Initiative and in the framework of the 21st Century Maritime Silk Road project, China has identified the Strait of Malacca as the main checkpoint of the Sea Lines of Communications (SLOC), which interconnects the main ports of the People’s Republic of China to the Gulf countries and the African and European markets.

Geopolitical scenario

In the Southwest Asia-Pacific area, the United States and China have paid significant attention to the South China Sea, including the Spratly and Paracelsus Islands, the Philippines, and the Strait of Malacca.

Washington and Beijing might compete to influence Jakarta because Indonesia has an intermediate position between Malaysia and Singapore. Furthermore, Malacca, together with the Sunda and Lombok straits, constitutes a chain of straits, the only communication route of the northern side of the SCS with the adjacent maritime spaces: the Bay of Bengal, the Indian Ocean and the Timor Sea.

Since the launch of the Belt and Road Initiative in 2013, Beijing elaborated a strategy to improve relations with Jakarta with the final goals to:

  • Protecting Malacca’s geo-economic importance due to its centrality in the Chinese heavy industry’s supply of fossil resources necessary to meet a percentage of energy needs.
  • Implementing foreign direct investments (FDIs) in Indonesia to increase the Chinese multinational companies’ presence in the country and, therefore, exploit local natural resources.
  • Countering the growing U.S. political-military presence in the proximity of the Strait of Malacca, represented by the military bases in Singapore, Thailand, and the Philippine archipelago.

The Indonesia Global Maritime Fulcrum (GMF) doctrine presented by President Joko Widodo might help Beijing’s strategy to pursue its geostrategic priorities. Indeed, the GFM doctrine seeks to achieve five key steps which confirm the maritime dimension’s essential role in revitalising the national economy:

«1. The redevelopment of Indonesia’s maritime culture 2. The commitment to protect and develop marine resources 3. The commitment to develop maritime infrastructure and connectivity 4. Maritime diplomacy to invite Indonesia’s partners to cooperate in maritime affairs 5. The need to build maritime defence capability.».

Since Beijing and Jakarta have common interests in the region and seek to increase their maritime activities, in 2015, Indonesia and China signed the Joint Statement on Strengthening Comprehensive Strategic Partnership between the People’s Republic of China and The Republic of Indonesia. The document highlighted Chinese – Indonesia’s necessity to strengthen cooperation in 1) diplomacy, defence, and security; 2) trade, investments, and economic development; 3) maritime, aeronautics, science, and technology; 4) cultural and social affairs; 5) international and regional affairs.

Military scenario

In recent years, Beijing has promoted military and security cooperation with Jakarta. In May 2021, the two countries organised joint naval manoeuvres. On November 18th, 2022, in the city of Xi’an in the Chinese province of Shaanxi, during the meeting between the Indonesian Defence Minister, Prabowo Subianto, and his Chinese colleague, General Wei Fenghe, the parties agreed on improving military and security collaboration.

Economic scenario

The People’s Republic of China became Indonesia’s third largest economic partner after Japan and Singapore. In 2021, trade between Indonesia and China reached 24.34 billion dollars and increased 58.43% from the previous year. Therefore, Indonesia became China’s third largest trade partner among the ASEAN countries. During the same year, Indonesian exports to China (mostly minerals – nickel and copper, and food products – fruit, vegetables, and fish) amounted to 63.3 billion dollars, while Indonesian companies’ imports from China reached 60.71 billion dollars.

Increasing trade volume caused Indonesian dependency on Chinese exports and supported Beijing’s strategy in the Southeast Asian country based on expanding Chinese foreign direct investments (FDIs).

Indeed, Chinese monetary funds might help the Indonesian Government to develop local infrastructures, mainly in North Sumatra, North Kalimantan, North Sulawesi, Maluku, and Bali, and, consequently, increase Indonesian industrial parks’ productivity.

In this regard, China has boosted investments in the PT Indonesia Morowali Industrial Park (IMIP), located in the Bahadopi district and established in 2013 thanks to the joint venture between Shanghai Decent Investment Group (49.7%), PT Bintang Delapan Group (25.3%) and PT Sulawesi Mining Investment (25%) and the financial support of the China Development Bank (5 billion dollars loan). It should be mentioned that IMIP includes one of the country’s largest nickel mines and several processing plants, like two stainless steel factories with a capacity of one million tonnes per year and 2 million tonnes per year.

In addition, the Indonesian Government recently announced the completion of the 150 km high-speed railway Jakarta – Bandung, a project of about 6.7 billion dollars which should reach full operation in the next year.

Risk assessment

Beijing seeks to deepen bilateral relations with Jakarta to counter U.S. Pivot to Asia policy and affirms the Chinese presence in the South China Sea region. According to Beijing’s economic strategy, Indonesian industrial parks might allow China to purchase natural resources (nickel and gold) which are fundamental for the Chinese industrial sector and, contemporarily, increase the Chinese soft power in Indonesia and influence Jakarta’s decision on the management and security trade flows across the Strait of Malacca.

Therefore, China might increase foreign direct investments (FDIs) in the following years to make Indonesia dependent on Beijing’s financial assistance and allow Chinese companies to exploit the Indonesian market and infrastructures.

Looking at Beijing’s strategy, it is a Chinese imperative to maintain and expand its authority in Indonesia with the final goals of strengthening the Chinese presence in the northern countries of the ASEAN region, primarily Myanmar, and growing investments in the North Sea Route, which interconnects Asian and European markets via the Bering Strait and the Arctic Ocean.

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