Over the past decade, Indonesia-China relations have reached their peak since the launch of the Belt and Road Initiative (BRI) in 2013. Muhammad Zulfikar Rakhmat, Director of the China-Indonesia Desk at CELIOS, emphasized that the debt-trap issue is not only about financial matters. “When a country feels unable to make independent policy decisions for fear of upsetting its cooperation partner, that can also be considered being trapped in debt. In the context of Indonesia and China, for example, we face many issues involving China that are not beneficial to Indonesia, yet our government’s response has been very cautious because China is Indonesia’s largest economic partner. This situation shows that Indonesia has fallen into a debt trap with China.”
This phenomenon is reflected in Indonesia’s cautious stance on issues concerning North Natuna and the Uighurs, as well as in fiscal policies that benefit Chinese companies. Yeta Purnama, a CELIOS researcher, noted, “Rather than sanctioning these companies, Indonesia instead provides tax incentives to Chinese companies. This reduces potential tax revenue from domestic foreign investment, while at the same time creating the potential for Indonesia to become dependent on China’s external debt.” In her view, the debt-trap concept needs to be redefined more broadly to include situations in which close economic ties limit a country’s freedom in foreign policy.
Zulfikar emphasized the importance of diversification and multilateral cooperation in reducing the risks of dependence. “Equally important, Indonesia also needs to make use of multilateral forums, particularly by participating in collective action to strengthen its negotiating power with China,” he concluded. Such steps are considered crucial to enabling Indonesia to safeguard its policy sovereignty while continuing to benefit strategically from its economic ties with China.
Over the past decade, Indonesia-China relations have reached their peak since the launch of the Belt and Road Initiative (BRI) in 2013. Muhammad Zulfikar Rakhmat, Director of the China-Indonesia Desk at CELIOS, emphasized that the debt-trap issue goes beyond financial concerns. “When a country feels unable to make independent policy decisions out of fear of upsetting its partner, it can also be considered trapped in debt. In the case of Indonesia and China, we face many issues that are not beneficial for Indonesia, yet our government’s response has been very cautious because China is Indonesia’s largest economic partner. This situation shows that Indonesia has fallen into a debt trap with China.”
This is reflected in Indonesia’s cautious approach toward issues like North Natuna and the Uighurs, as well as fiscal policies favoring Chinese companies. Yeta Purnama, a researcher at CELIOS, highlighted, “Instead of sanctioning these companies, Indonesia actually provides tax incentives to Chinese firms, which reduces potential domestic tax revenue while simultaneously increasing dependence on China’s external debt.” She added that the debt-trap concept needs a broader definition: it is a condition where close economic ties limit a country’s freedom in foreign policy.
Zulfikar stressed the importance of diversification and multilateral engagement to reduce dependency risks. “Equally important, Indonesia should leverage multilateral forums and participate in collective actions to strengthen its negotiating power with China,” he concluded. Such steps are considered crucial for Indonesia to safeguard policy sovereignty while strategically benefiting from its economic relationship with China.
Contact Person:
Yeta Purnama (081325068100)