Increase in Chinese Investment in Indonesia in 2026

 By Kusnandar & Co.,  Attorneys At Law – Jakarta, Indonesia

  

The significant rise of Chinese investment in Indonesia in the first quarter of 2026 reflects an important shift in the country’s economic landscape, particularly in relation to industrial downstreaming and structural transformation. With investment reaching approximately USD 2.2 billion and growing by 22% year-on-year, Indonesia is increasingly positioned as a strategic destination for foreign direct investment, especially from China.

From an economic standpoint, this influx of capital offers substantial benefits, including the expansion of domestic industrial capacity, job creation, and the acceleration of technology transfer. Notably, the concentration of investment in downstream sectors aligns with the Indonesian government’s policy to enhance the added value of natural resources and reduce reliance on raw material exports.

However, from a legal and public policy perspective, the surge of foreign investment at this scale also raises several strategic concerns. These include the potential dominance of foreign entities in critical sectors, imbalances in bargaining power between foreign investors and domestic businesses, and risks related to environmental protection and labor standards. Accordingly, the effectiveness of Indonesia’s legal framework and its enforcement mechanisms becomes a determining factor in ensuring that such investments deliver sustainable and equitable outcomes.

Normatively, Indonesia has established a comprehensive legal framework to ensure that investment activities are conducted lawfully and in an orderly manner. Law Number 25 of 2007 on Investment serves as the primary legal foundation, guaranteeing legal certainty, equal treatment, and the obligation for investors to undertake corporate social responsibility. In practice, foreign investors are required to establish a legal entity in the form of a Foreign Investment Limited Liability Company (PT PMA), thereby subjecting their operations to Indonesian law.

Furthermore, the risk-based business licensing regime, as regulated under Government Regulation Number 5 of 2021, has streamlined the licensing process while maintaining regulatory oversight. All business actors must obtain a Business Identification Number (NIB) and relevant operational licenses based on the level of risk associated with their activities. For high-risk sectors such as industrial downstreaming, compliance with Environmental Impact Assessment (AMDAL) requirements is mandatory to mitigate environmental harm.

In strategic sectors such as mining and energy, Indonesian regulations impose obligations for domestic processing and refining, ensuring that investments contribute to value-added production rather than merely extractive activities. In addition, labor laws require prioritization of local workforce employment and regulate the use of foreign workers, including mandatory provisions for knowledge and technology transfer.

Regulatory reforms introduced under Law Number 6 of 2023 on Job Creation have further strengthened Indonesia’s investment climate by simplifying business procedures and expanding access for foreign investors. Nevertheless, such facilitation must be balanced with robust supervision to safeguard national interests.

In conclusion, the increase in Chinese investment in Indonesia is legally permissible and legitimate, provided that all regulatory requirements—ranging from corporate establishment and licensing to sectoral compliance, environmental protection, and labor obligations—are duly fulfilled. The primary challenge lies not in the absence of legal norms, but in the consistency of their implementation and enforcement.

In this regard, the state must act not only as a facilitator of investment but also as a firm and sovereign regulator. Striking a balance between attracting foreign capital and protecting national interests is essential to ensure that such investments contribute meaningfully to Indonesia’s long-term and sustainable economic development.

By : K&Co. - May 5, 2026