Red flags rising over China's trade surplus with Indonesia

Asia Times

2 days ago

Indonesia's widening trade deficit with China has evolved into more than an economic concern—it now poses the risk of becoming a destabilizing fissure within the country's social fabric and, by extension, ASEAN's regional stability.
According to Indonesia's Central Statistics Agency (BPS), between January and April 2025, Chinese imports to Indonesia surged to US$25.8 billion, while Indonesian exports to China stagnated at $18.9 billion.
The resulting $6.9 billion deficit, the highest recorded in recent history for such a short period, raises already rising concerns about asymmetry in the bilateral trade relationship.
Although Indonesian authorities have attempted to downplay its significance by dismissing suggestions that this is due to the redirection of Chinese exports blocked by US and EU tariffs, the underlying realities paint a different picture.
The sectors most affected by Chinese imports —namely, mechanical and electrical machinery, steel, automotive parts, and ceramics —are precisely those where China has long faced overcapacity.
With Western markets erecting expanding barriers on Chinese goods in response to perceived unfair trade practices, Southeast Asia, particularly Indonesia, has become a convenient outlet for China's surplus industrial products.
In effect, Chinese goods that cannot be sold in the US and EU are being channeled into the Indonesian market, either directly or via re-routing strategies through third countries.
This dynamic mirrors the 2018–2020 period of the US-China trade war, when Southeast Asia similarly absorbed a disproportionate amount of redirected Chinese exports.
Indonesia's manufacturing base has already begun to show signs of strain from the flood of cut-rate Chinese wares. The once-thriving textile sector, exemplified by the now-defunct Sritex conglomerate in Solo, has been unable to keep up with the price competition from cheap Chinese imports.
Small and medium-sized manufacturers in ceramics and steel are also increasingly being squeezed by Made in China goods.
Though the Indonesian government has responded by levying anti-dumping duties on select products, such as nylon film from China, Thailand and Taiwan, these actions have largely been reactive and insufficient to counteract the scale and pace of Chinese trade redirection.
The longer this continues, the more it will undermine local industry, employment and economic self-sufficiency.
The economic repercussions are only one layer of the problem. What makes this fissure particularly dangerous is its potential to metastasize into social tension. Indonesia's multi-ethnic composition includes a sizable Chinese-Indonesian minority that has historically been subject to scapegoating during economic downturns.
The riots of May 1998, which led to the collapse of the Suharto regime, serve as a chilling reminder of how quickly economic grievances can morph into ethnic-based violence against ethnic Chinese.
In the current climate of economic pressure and increasing unemployment—especially among urban manufacturing workers—there is a real risk that the narrative of Chinese imports 'destroying local industry' could morph into resentment directed at Chinese-Indonesian entrepreneurs, many of whom operate in retail, logistics and trade.
In an age where social media can amplify divisive messaging in real-time, the potential for misinformation and targeted ethnic vilification should not be underestimated.
At the regional level, Indonesia's predicament reflects a broader structural challenge in ASEAN. Countries like Malaysia, Thailand and Vietnam have also experienced spikes in Chinese imports, particularly in sectors like automobiles and electronics.
The nature of these imports—often heavily subsidized and arriving in large quantities at prices below prevailing market rates—suggests deliberate Chinese dumping.
Yet ASEAN's current mechanisms are ill-equipped to deal with these surges in a coordinated manner. Each country acts on its own, imposing unilateral anti-dumping tariffs or seeking redress through domestic trade tribunals, thereby diminishing the strength of a collective ASEAN-wide economic position.
What is needed is not isolationism but a recalibration of engagement. Indonesia and ASEAN must articulate clearer expectations in their trade relationships with China. Fairness, reciprocity and respect for domestic industries must be at the heart of any economic partnership.
The notion that Southeast Asia should serve as China's release valve for overproduction is not only economically detrimental but geopolitically short-sighted. It risks turning ASEAN from a central strategic partner into a passive buffer zone—absorbing external shocks without the tools to respond effectively.
Equally important is ASEAN's need to revive its own internal trade capacities. The ASEAN Economic Community was envisioned to deepen intra-regional trade and investment, yet the share of intra-ASEAN trade has remained stagnant at around 22–24% over the past decade. This is far below the intra-regional trade levels of the EU, which stands at around 60%.
Reducing non-tariff barriers, streamlining customs procedures and improving regional logistics are all urgent if ASEAN is to build internal economic resilience.
Greater economic interdependence within ASEAN would not only mitigate vulnerability to external dumping but also foster shared growth that benefits smaller economies equally.
For Indonesia, the road ahead demands bold policy interventions. The country must begin by strengthening its industrial strategy—reinvesting in productivity, technological upgrading and workforce development—so that its manufacturing sectors are not merely shielded but revitalized.
Trade defense instruments must be improved, not only in terms of speed and scope but also in coordination with ASEAN partners. The government should also launch public education campaigns that preempt the ethnicization of economic issues.
The messaging must be clear: this is not a conflict between ethnic groups but a structural issue in global trade dynamics that requires unity, not division.
China, for its part, must recognize that sustaining goodwill in Southeast Asia cannot rely solely on infrastructure investment or diplomatic fanfare. It must pay heed to the social consequences of its trade behaviors.
Dumping excess production into Indonesia and other ASEAN markets may offer short-term economic relief for Chinese exporters, but it risks breeding long-term resentment, social instability and strategic blowback in a region vital to China's Belt and Road Initiative ambitions.
The growing trade imbalance between Indonesia and China is not yet a fracture—but it is undeniably a fissure, one that reveals the fragile interconnections between economic policy, social harmony and geopolitical alignment.
Whether this fissure is widened or closed depends on the wisdom and coordination of both Indonesia's domestic leadership and ASEAN's collective diplomacy. To ignore it would be to misread not only the fragility of Indonesia's pluralistic society but also the limits of ASEAN's absorptive capacity.
By addressing this issue with fairness, clarity and resolve, Indonesia can lead the region in forging a more balanced relationship with China—one that respects economic sovereignty, sustains regional stability and ultimately preserves the dignity of Southeast Asia's diverse peoples.
Phar Kim Beng, PhD, is professor of ASEAN Studies, International Islamic University Malaysia and senior visiting fellow at the University of Cambridge.
Luthfy Hamzah is senior research fellow of ASEAN Studies at Strategic Pan Indo Pacific Arena.