China and Indonesia have agreed to enhance economic cooperation during Chinese Premier Li Qiang’s visit to Jakarta. The agreements include a memorandum of understanding (MOU) between the central banks to facilitate bilateral transactions in local currencies.

The visit also resulted in an investment agreement between sovereign wealth fund China Investment Corporation and Danantara Indonesia, although specific details of the agreement were not disclosed.

Both nations committed to increasing collaboration in tourism and agricultural exports.

Li’s visit follows China’s recent initiatives to strengthen ties with Southeast Asia. This includes a 2+2 dialogue last month between the foreign and defense ministers of both countries.

Additional MOUs were signed covering economic, industrial, and supply chain development, as well as health and media sector cooperation.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ From suspension to strategic partnership: The remarkable transformation of China-Indonesia ties

The current economic agreements represent a significant evolution in bilateral relations that were completely severed for over two decades.

China and Indonesia’s diplomatic relations were established in 1950 but suspended from 1967 until 1990 following Indonesia’s violent anti-communist purges and subsequent regime change1.

This historical context makes the current partnership particularly significant. Bilateral trade has grown from just US$1.18 billion when relations resumed in 1990 to US$149.09 billion in 2022, representing a 19.8% year-on-year increase2.

The local currency agreement announced during Premier Li’s visit continues a pattern of deepening financial integration, with China now being Indonesia’s largest trading partner for 11 consecutive years3.

This shift illustrates how economic interests have overcome historical political tensions, with trade volume increasing nearly 130-fold over three decades.

2️⃣ Indonesia exemplifies ASEAN’s strategic balancing in US-China competition

President Prabowo’s administration is carefully navigating the increasingly complex regional dynamics to maximize economic benefits while preserving Indonesia’s sovereignty and options.

Indonesia’s approach aligns with the broader ASEAN strategy of maintaining productive relationships with both superpowers, accepting significant Chinese investment while avoiding exclusive alignment with Beijing4.