(Yicai) July 6 -- Some Chinese companies are continuing to put down roots in Indonesia despite growing policy uncertainty, betting that long-term investment and localization will help them navigate the country's increasingly interventionist industrial policies.

A rare joint letter submitted by the China Chamber of Commerce in Indonesia (CCCI) to the Southeast Asian nation's President Prabowo Subianto in May underscored growing concern among Chinese businesses over regulatory uncertainty. The chamber warned that higher taxes and mining royalties, tighter foreign-exchange controls, stricter forestry enforcement, visa restrictions, and delays to major projects were undermining Indonesia's reputation as an investment destination.

Despite mounting policy risks, However, Indonesia remains one of China's most important overseas investment destinations in Southeast Asia, and businesses willing to adapt to local market conditions continue to see long-term opportunities.

Behind the debate lies a broader question: whether Indonesia's push to capture more value from its natural resources can coexist with its ambition to attract foreign capital.

A Joint Letter Highlights Growing Concerns

In mid-May, the CCCI submitted a five-page English-language joint letter to Prabowo. Unusually, the letter was also copied to the Chinese embassy in Jakarta, with language that was unusually direct. It argued that rising taxes and mining royalties, proposed rules requiring foreign-exchange earnings to remain onshore, stricter forestry-law enforcement, tighter work-visa policies, and the suspension of several major projects had seriously disrupted the operations of Chinese-invested companies.

The letter went so far as to state that Indonesia was “overdrawing its credibility as an investment destination.”

The document attracted attention not only because it represented one of the few high-profile public objections by Chinese businesses overseas, but because it highlighted the widening gap between Indonesia's impressive investment figures and the increasingly difficult operating environment on the ground.

China's annual direct investment into Indonesia increased from about USD2.2 billion in 2020 to roughly USD5.4 billion in 2025, while cumulative investment has exceeded USD25 billion, making Indonesia China's second-largest investment destination in the Association of Southeast Asian Nations. Behind those figures, however, policy uncertainty has steadily increased.

This is not the first time Indonesia has abruptly rewritten the rules. In September 2023, the government banned direct e-commerce transactions on social media platforms, forcing TikTok Shop to shut down its checkout function in October without a transition period. Officials said the move was intended to protect local small businesses and the textile industry from low-cost imports. According to the Indonesian Fiber and Filament Yarn Producers Association, however, the textile and garment industry still lost 150,000 jobs in 2023, followed by another roughly 14,000 layoffs in the first half of 2024 as factories closed.

Earlier, in 2020, PT Conch South Kalimantan Cement, an Indonesian cement factory of Anhui province-headquartered Conch Cement, was fined IDR22.4 billion (USD1.4 million) for selling cement below market prices. A wave of new producers had transformed Indonesia's cement market from undersupply to overcapacity, eventually triggering a damaging price war.

"Ten years ago, cement was still a good business," recalled a Chinese entrepreneur who has spent more than a decade in Indonesia.

Resource Nationalism Raises the Stakes

By 2026, policy uncertainty had reached another level. Indonesia reduced its annual nickel ore production quota to 260 million-270 million tonnes from 379 million tonnes in 2025, a cut of more than 34 percent, while some large mines saw quotas reduced by more than 70 percent. Mining royalties were changed from a fixed 10 percent to a floating range of 14 percent to 19 percent linked to London Metal Exchange prices, while the correction coefficient in the benchmark nickel-pricing formula was raised from 17 percent to 30 percent.

According to CCCI estimates, procurement costs for 1.1 percent-grade wet-process nickel ore and production costs for battery-grade nickel products both nearly tripled.

Indonesia also began requiring resource exporters in 2025 to retain all foreign-exchange earnings in domestic banks for at least one year. Beginning in 2026, those funds must be deposited at state-owned banks, with further limits on how much can be converted into rupiah.

At the same time, the rupiah briefly weakened beyond IDR18,000 against the US dollar, a record low, while the yuan reached IDR2,683. In a WeChat group of 463 Chinese entrepreneurs operated by the outbound-investment community Tongque Chuhai, one pinned message outlined contingency plans for employees' daily necessities. If the yuan reached IDR2,800, companies were advised to begin stockpiling rice and cooking oil; at IDR3,000, they should start distributing supplies directly to employees.

"Going overseas isn't a dimensional advantage -- it's starting a business all over again," the entrepreneur said. In his view, Jakarta is trying to reclaim more resource revenue for the state, although he acknowledged the strategy “could end up driving Chinese companies away.”

Luo Lingling, also known as Da Qiao, founder of Tongque Chuhai, takes a more optimistic view of the chamber's letter. "You can't deny that Chinese investment is now a force Indonesia depends on heavily -- it brings capital and better technology to help Indonesia develop, so raising these demands makes sense," she said. While some observers may interpret the letter as a signal of retreat, Luo believes it instead demonstrates that Chinese companies are increasingly willing to communicate their concerns collectively.

Between "being driven away" and "speaking up," Chinese businesses are searching for a workable balance.

Those Who Stay Are Finding New Opportunities

For companies that choose to stay, Indonesia continues to offer opportunities, particularly for businesses prepared to commit to long-term localization.

Chinese phone brand Oppo appointed its first local chief executive in Indonesia as early as 2013. Like its competitor Vivo, it chose to establish deep local roots rather than expand abroad only after dominating the domestic market, investing heavily in dealer networks and localized operations. In the first quarter of this year, Oppo and Vivo ranked first and fourth in Indonesia's smartphone market, with market shares of 22 percent and 13 percent, respectively.

Electric two-wheller company Ofero, founded by Wang Dong, former chief marketing officer of Vivo Indonesia, also built its business around local employees and distribution partners from the outset. Earlier this year, the company relocated its factory to Semarang, one of Indonesia's electric-vehicle supply chain hubs, and shifted to self-owned production.

Chinese dairy producer Yili Industrial Group has likewise tailored its operations to local needs. Recognizing that most Indonesians are Muslim, the company installed showers in factory prayer rooms and built community facilities such as basketball courts in nearby villages. As a result, employee turnover at its Joyday ice cream factory has remained in the single-digit percentage range, according to Luo. 

These companies share one characteristic: rather than simply transplanting successful business models from China, they have invested time, resources, and patience in adapting to local conditions.

Luo argues that some of Indonesia's biggest opportunities exist in upstream supply chains that few companies are willing to develop. One cosmetics packaging supplier in her network depends on blister sheets, yet only two or three Indonesian manufacturers can meet the required quality standards.

"They can raise prices whenever they want," the packaging supplier said to Luo. Building a local blister-sheet factory requires investment worth tens of millions of yuan, prompting the company to seek Chinese partners willing to jointly finance production.

Prepared food is another underappreciated opportunity. Almost 90 percent of Indonesia's population is Muslim, making halal certification essential for food producers. The market already has strong demand for prepared food products, with dim sum served in many restaurants produced centrally, and chains such as the noodle restaurant chain Mie Gacoan relying heavily on prepared ingredients.

The biggest constraint remains Indonesia's underdeveloped cold-chain logistics network. Companies entering the sector must absorb higher infrastructure costs before they can benefit from growing demand, making product selection especially important.

For retailers and e-commerce companies, Luo believes many newcomers underestimate supply-chain management rather than storefront expansion. While merchants in China can consolidate purchases through wholesale platforms such as 1688, Indonesia's fragmented supplier base often forces businesses to import full shipping containers from China, significantly increasing working-capital requirements.

There is no single formula for entering the Indonesian market, Luo said. “Get to one on your own first, then find a local partner to scale from one to ten.”

Rather than concluding simply that Indonesia is a difficult market, the experiences of long-term investors suggest a more nuanced lesson: success depends largely on how much time and commitment companies are willing to devote to localization. Policy uncertainty may persist, but for businesses that understand the market, that uncertainty can itself become part of the opportunity.

Editor: Emmi Laine