Old vs. New: How EBC Sees Indonesia Rewriting Its Financial Rules with China
Indonesia is no stranger to bold economic shifts, but the recent wave of agreements signed with China marks a turning point. EBC is committing our efforts to examining what this latest pivot means not just for bilateral trade, but for financial sovereignty, regional leadership, and the shape of emerging-market resilience.
A Currency Pact That Changes the Game
On 25 May 2025, during Chinese Premier Li Qiang’s state visit ahead of the ASEAN-GCC-China Summit, Indonesia and China signed four key Memoranda of Understanding. The most impactful among them was the upgraded Local Currency Settlement (LCS) agreement between Bank Indonesia (BI) and the People’s Bank of China (PBOC). This revised framework now allows direct Rupiah-Yuan usage not only for trade but also for capital account transactions—a fundamental shift in how the two nations manage financial flows.
The impact is immediate and far-reaching. With bilateral trade reaching USD147.80 billion in 2024, up 6.1% year-on-year, and projected to surpass USD160 billion in 2025, Indonesia is now among China’s top ASEAN partners, joining ranks with Vietnam and Malaysia. This is more than strong trade. It’s a statement of intent.
Why Local Currency Matters More Than Ever
The benefits of this upgraded LCS go far beyond bypassing dollar conversions. For Indonesian exporters dealing in palm oil or nickel, the system eliminates conversion costs, improving margins. For Bank Indonesia, the deal enhances flexibility in policymaking. With 5.3% of its reserves already in Yuan, BI gains more room to manoeuvre when adjusting interest rates—something particularly useful when the global environment is volatile.
“This isn't just about cutting transaction fees—it’s a recalibration of Indonesia’s financial DNA,” says David Barrett, CEO of EBC Financial Group (UK) Ltd. “By enabling Yuan-backed trade and investment flows, BI is building a hedge against Fed policy shocks.”
From Soft Power to Industrial Strength
Alongside financial changes, Indonesia is also strengthening its economic sectors. The LCS framework supports wider initiatives, including a USD5 billion plan to develop twin industrial parks connecting Fujian in China with the Batang Special Economic Zone in Indonesia. These projects are expected to generate over 100,000 new jobs and enhance bilateral supply chains.
In the tourism sector, nearly 2 million Chinese visitors are anticipated in 2025, thanks to streamlined visa rules and better payment systems. Cultural and media exchanges are also on the rise, including joint tuberculosis vaccine research and a collaboration between Antara and Xinhua News Agency.
A New Path to Infrastructure Funding
Perhaps one of the most significant advantages of the new financial architecture is access to BRICS+ initiatives. Under the LCS arrangement, Indonesia is better positioned to draw funding from the New Development Bank (NDB), potentially unlocking capital for President Prabowo’s USD20 billion infrastructure agenda—without relying on dollar-denominated loans.
That’s a win not just for financing, but for policy independence.
ASEAN and China: A Region in Motion
Zooming out, the LCS agreement aligns with wider regional shifts. China-ASEAN trade reached 2.38 trillion Yuan (about USD330 billion) between January and April 2025, a 9.2% increase from the previous year. The upgraded CAFTA 3.0 agreement adds further momentum, promoting cooperation in green energy, digital economies, and infrastructure.
The recent ASEAN-GCC-China Summit in Kuala Lumpur further highlighted the region’s drive toward diversified financial alliances. While there’s no explicit rejection of the dollar, the signals are clear—ASEAN economies want more flexibility and less dependency.
“Indonesia is crafting a blueprint for monetary diversification. The Local Currency Settlement (LCS) deal illustrates how mid-sized economies can reduce overreliance on a single dominant currency, balancing regional cohesion with global standards,” Barrett notes.
The EBC Perspective
EBC is committing our efforts to tracking how this evolving partnership plays out. From rethinking currency strategy to opening new infrastructure channels, Indonesia is showing what’s possible when an emerging economy chooses to lead rather than follow. The era of one-size-fits-all finance is ending—and Indonesia’s approach might be the model others watch next.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Disclaimer:
Investment involves risk. The content of this report is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.
Publication date:
2025-06-12 06:06:58 (GMT)
