China-Indonesia Strategic Alignment Amid U.S.-China AI and Resource Competition, Fracturing ASEAN's Non-Aligned Stance

Executive Summary

Indonesia has made a structural choice to fill the capital and technology gaps in its nickel downstreaming policy by turning to China. The elevation of its defense and foreign ministerial dialogue to a comprehensive strategic dialogue mechanism, along with joint military exercises near Taiwan, demonstrates that this is part of Jakarta’s active hedging strategy. At the same time, the Prabowo administration continues to employ non-aligned rhetoric, framing its tilt toward China as a tool for maximizing practical interests rather than an ideological shift. As the United States, under its Pax Silica initiative, moves to exclude nations that also join China’s AI framework, Indonesia and other ASEAN members face increasing pressure to choose sides. South Korea must treat Indonesia’s pro-China tilt not as an obstacle to be blocked but as a given condition. It should secure its interests through a three-pronged strategy: expanding its role in the battery material supply chain, participating in discussions on independent ASEAN technology standards, and decoupling its approach to security issues. The trend of ASEAN fragmenting into individual hedging strategies by member states, in place of a unified response, underscores the need for South Korea to diversify its bilateral diplomatic channels.

I. Issue Analysis

Deepening China-Indonesia Strategic Ties Amid U.S.-China AI and Resource Competition Puts ASEAN's Non-Aligned Stance to the Test

1. Background and Developments

Indonesia's foreign policy is rooted in its constitutionally-based non-aligned principle of being 'free and active' (bebas dan aktif). President Prabowo Subianto has repeatedly emphasized this principle since taking office, vowing to maintain friendly relations with all countries, including China and the United States [1].

This principle was put to a practical test on August 12, when the Indonesian naval frigate KRI I Gusti Ngurah Rai conducted a joint exercise with a People's Liberation Army (PLA) Navy vessel in the waters east of Taiwan [15]. The exercise took place in a sensitive area at a sensitive time, as Taiwan's annual Han Kuang military drills were underway. Taiwan officially inquired with Indonesia about its reasons for participating [15]. The Indonesian Ministry of Foreign Affairs stated that it was "fully aware that this area is particularly sensitive" but explained that its frigate's presence was part of a simple "passing exercise" [15].

Shortly after this exercise, on August 21, the 2nd meeting of the China-Indonesia Foreign and Defense Ministers' Dialogue and the 1st meeting of the Comprehensive Strategic Dialogue Mechanism were held back-to-back in Jakarta. Co-chaired by Chinese Foreign Minister Wang Yi and Indonesian Foreign Minister Sugiono, the meetings resulted in an agreement to deepen cooperation in multiple fields, including maritime issues, and to "firmly support each other's core interests" [7][9]. On the same day, Indonesian Defense Minister Sjafrie Sjamsoeddin, in a meeting with his Chinese counterpart Admiral Dong Jun, requested an expansion and upgrading of joint military exercises between the two countries. Beijing reportedly agreed to this, offering defense industry cooperation and technology transfer [11].

2. Current Situation

The outcomes of the Jakarta meetings were not limited to military cooperation. According to Channel NewsAsia, the two countries also agreed to strengthen cooperation in minerals, energy, and technology [1]. This creates a structure combining Indonesia's critical mineral resources, including nickel, with China's processing and refining technology and capital. The Global Times characterized the dialogue as "deepening the synergy of the two countries' development strategies," emphasizing expanded cooperation in multiple areas, including the maritime domain [7]. While this reflects the typical achievement-focused narrative of Chinese state media, the elevation of the talks from the previous Foreign and Defense Ministers' Dialogue to a Comprehensive Strategic Dialogue Mechanism can be read as a substantive change [7].

In parallel, the U.S.-China tech rivalry across the South China Sea is also directly targeting Southeast Asia. According to the South China Morning Post, both Washington and Beijing have been pressuring Southeast Asian countries in recent months to join their respective AI frameworks [4]. Beijing is reportedly offering exclusive benefits to attract partners from the Global South, while labeling the U.S.-led system as 'exclusive' [4]. A report from The Business Times (Singapore) is more specific: the United States is preparing to notify multiple partner countries that, based on its 'Pax Silica' initiative launched in 2025, any nation that also joins China's competing framework will be excluded from the U.S.-led AI coalition [14].

Public responses from Southeast Asian countries to this pressure to choose sides have been mixed. Thai Prime Minister Anutin Charnvirakul explicitly declared in an interview with the Bangkok Post that his country would "remain neutral" in the U.S.-China AI competition [16]. Indonesia, in contrast, has not issued a separate public statement on the AI bloc issue, instead moving to first deepen its military and resource cooperation with China [1][7][9]. The Diplomat assesses that Southeast Asian and Gulf countries have the potential to carve out an independent role between the U.S. and China, both of which possess complete AI ecosystems. However, it also points out that given the current gap in AI capabilities, it will be difficult for countries in these regions to achieve genuine autonomy in data centers and model development [13].

3. Analysis of Key Actors

Indonesia (Prabowo Administration)is the de facto architect of this closer alignment. Since his tenure as defense minister, Prabowo has made diversifying the defense industry and strengthening self-reliant defense capabilities a core task. Securing defense technology transfers from China is an extension of this policy [11]. Simultaneously, under his downstreaming policy aimed at capturing the value-added of critical minerals like nickel domestically, partnering with Chinese capital and technology offers clear economic incentives [1]. However, participating in joint exercises in the waters near Taiwan could ostensibly conflict with the 'free and active' non-aligned principle. The foreign ministry's immediate, limited explanation of a 'passing exercise' can be seen as an attempt to manage this principled contradiction [15].

China (Foreign Minister Wang Yi, Defense Minister Dong Jun)clearly intends to use Indonesia, Southeast Asia's largest economy and an influential member of ASEAN, as a regional foothold. The phrase 'mutual support for core interests' can be interpreted as a diplomatic move to secure Indonesia's tacit understanding on South China Sea issues [7][9]. The South China Morning Post analyzes that this joint exercise could set a precedent that "lowers the political threshold," encouraging other ASEAN members to engage in similar military cooperation with China [9]. In the AI sphere, Beijing is also pursuing a strategy of highlighting the exclusivity of the U.S.-led system to present an alternative framework to countries of the Global South [4].

The United Statesis hardening its policy through the Pax Silica initiative, demanding that Southeast Asian countries make an explicit choice of alignment [14]. This approach departs from the past practice of allowing room for 'hedging.' The Council on Foreign Relations (CFR) recently assessed that ASEAN is losing trust in the United States, pointing out that the bloc's institutional weakness (being "toothless") is a background factor accelerating individual member states' approaches to China [6].

Individual ASEAN Member Statesare not responding in a unified manner. Thailand has publicly declared neutrality on the AI bloc issue [16]. On the other hand, Thailand has also taken independent actions that conflict with ASEAN's common position, such as welcoming Myanmar's junta leader Min Aung Hlaing. The Diplomat assesses this as an issue that could strain ASEAN's cohesion [17]. This is an example of how, while ASEAN externally professes non-alignment and neutrality, individual member states are taking different approaches to alignment based on their own national interests.

4. Summary of Key Issues

The first issue is the sustainability of Indonesia's 'passing exercise' explanation. If military cooperation near the Taiwan Strait is repeated or upgraded, the gap between Jakarta's non-aligned justification and its actual actions could become more pronounced [15][9].

The second issue is how ASEAN countries will respond if the United States actually enforces its exclusive approach to AI blocs. There is a possibility that the region will diverge, with some countries declaring explicit neutrality like Thailand, and others, like Indonesia, silently deepening cooperation with China first [16][1].

The third issue is that deepening cooperation in minerals and energy could structurally intensify Indonesia's economic dependence on China. If reliance on Chinese capital and technology for nickel downstreaming becomes entrenched, it could act as a factor constraining future options in the security and diplomatic spheres [1][7].

The fourth issue is the impact of this pressure for alignment at the individual country level on the cohesion of ASEAN as a multilateral organization. Both the CFR and The Diplomat point to ASEAN's lack of institutional response capacity, suggesting a potential trend where individual members' bilateral approaches to China and the U.S. solidify, replacing a common ASEAN-level response [6][17].

II. In-Depth Analysis

Deepening China-Indonesia Strategic Ties Amid U.S.-China AI and Resource Competition Puts ASEAN's Non-Aligned Stance to the Test

In-Depth Analysis

1. Root Cause: A Combination of the Prabowo Regime's Pragmatism and Resource Nationalism

The fundamental driver behind Indonesia's accelerating alignment with China is not ideology, but the practical need to secure financing for resource development. The Prabowo administration has made creating value-added through domestic processing and refining of critical minerals, including nickel, a national priority. Implementing this downstreaming policy requires large-scale capital and refining technology. China is effectively the only partner that can provide both. The agreement on cooperation in minerals, energy, and technology reported by Channel NewsAsia is a product of this structural necessity [1].

American and Western capital has been hesitant regarding Indonesia's downstreaming policy. Their standards for environmental and human rights issues, investment return periods, and political risk differ from those of Chinese state-owned enterprises and banks. In contrast, China already has a track record of making massive investments in nickel industrial parks like Morowali. From the Prabowo administration's perspective, deepening relations with China is not an ideological choice but rather a process of institutionalizing an already-formed structure of capital and technological dependence.

At the same time, President Prabowo continues to use the principle of non-alignment as a basis for political legitimacy. He has vowed to maintain a "free and active" foreign policy and foster friendly relations with both China and the United States [1]. This rhetoric is not just for domestic political consumption. The principle of non-alignment, rooted in the preamble of the Indonesian constitution and the nation's founding ideology, has been a core element of national identity since the Sukarno era. Prabowo's repetition of non-aligned rhetoric while expanding military and resource cooperation with China should be seen as a dual strategy: maintaining domestic legitimacy while maximizing practical interests abroad.

2. Structural Context

Political Structure: Indonesia's foreign policy decision-making structure grants significant discretion to the president. As a former defense minister, Prabowo is well-versed in military networks and defense industry interests. Defense Minister Sjafrie Sjamsoeddin's request to China for expanded joint exercises and defense industry cooperation and technology transfer [11] should be seen not as an independent initiative by the defense ministry, but as an action aligned with the strategic direction of the presidential office. Indonesia's defense industry (including PT PAL and PT Pindad) has long sought to enhance its self-reliance capabilities but has been hampered by a lack of capital and technology. China's offer of technology transfer is a tangible incentive that fills this gap.

Economic Structure: Indonesia's ban on nickel ore exports, followed by its downstreaming policy, has paradoxically led to a deeper dependence on China for processing and exports. China is the largest investor in and the biggest customer for Indonesia's nickel smelters. Within this structure, Indonesia's bargaining power to exercise genuine sovereignty over its minerals is limited. The phenomenon of a resource-rich country becoming more externally dependent by relying on a single nation for processing capabilities is a pattern that has been repeated in many developing countries.

Security Structure: Indonesia's position on the South China Sea is complex. While not a direct claimant in the territorial disputes, Indonesia has repeatedly clashed with Chinese fishing vessels and coast guard ships in its exclusive economic zone near the Natuna Islands. Nevertheless, its participation in joint exercises in waters near Taiwan [15] could be interpreted as a signal of de facto alignment with China's position on the Taiwan Strait issue, separate from the South China Sea conflicts. The fact that Taiwan officially inquired about Indonesia's reasons [15] means the exercise was perceived not as a simple, incidental event but as a signal affecting the regional security balance.

3. Comparison with Historical Precedents

Indonesia's non-aligned stance during the Cold War was symbolized by Sukarno's role in the Bandung Conference (1955) and the founding of the Non-Aligned Movement. At that time, non-alignment was a strategy to secure an independent voice through Third World solidarity within the U.S.-Soviet bipolar system. The current U.S.-China competition is fundamentally different from the Cold War. It is not an ideological confrontation but a rivalry within a context of economic interdependence, centered on technology standards, supply chains, and capital flows. This difference actually narrows the scope for a balancing strategy that Indonesia can pursue. During the Cold War, non-alignment could be established simply by opting out of military and ideological blocs; today, the structure effectively compels choices at every level, from supply chains and communication networks to AI infrastructure.

More recent precedents are the cases of the Philippines and Thailand. The Philippines expanded economic cooperation with China during the Duterte administration but reverted to security cooperation with the U.S. after the South China Sea arbitration ruling. Thailand's Prime Minister Anutin publicly declared that his country would "remain neutral" in the U.S.-China AI competition [16]. Indonesia's approach is different from both. It is not making a sharp turn in policy following a change in government, like the Philippines, nor is it explicitly declaring neutrality, like Thailand. Instead, it is pursuing a 'domain-specific hedging' strategy: individually raising the level of cooperation with China in the military, resource, and technology sectors, while managing its relationship with the U.S. through separate, parallel channels. This aligns with the trend of weakening trust in the U.S. across ASEAN, as noted by the CFR [6]. Against a backdrop of accumulated skepticism within ASEAN about America's ability to fulfill its regional commitments, Indonesia's approach to China can be read not as an individual deviation but as a signal of a broader regional realignment.

4. Key Variables Shaping Future Developments

First is the intensity with which the U.S. implements its Pax Silica initiative. If Washington actually moves to exclude countries that join China's AI framework from its own coalition [14], it will become difficult for Indonesia to manage its already deepening alignment with China in minerals and military cooperation separately from its choices in AI and technology standards. It will face a test of whether to respond with an explicit declaration of neutrality, like Thailand, or to effectively lean toward China's framework based on practical considerations.

Second is the level of tension in the Taiwan Strait. Whether the participation of an Indonesian frigate in exercises near Taiwan [15] remains a one-off event or becomes regularized in the future depends on the intensity of China's requests and the responsiveness of Indonesia's Ministry of Defense. Since the defense minister has already requested an expansion of joint exercises [11], if this trend continues, the reactions from Taiwan, other ASEAN members, and the United States could impose real costs on Indonesian diplomacy.

Third are the international prices of critical minerals like nickel and the speed at which the West builds alternative supply chains. How quickly the U.S. and Europe secure alternatives to Indonesian nickel (from sources like Australia, Canada, and Africa) will affect both Indonesia's bargaining power with China and the West's incentives to engage. The longer it takes for the West to establish alternative supply chains, the more likely Indonesia's structure of dependence on China is to become entrenched.

Fourth is whether there will be a collective response at the ASEAN level. In a situation where Thailand's declaration of neutrality [16] coexists with the Philippines' strengthening of security cooperation with the U.S., if ASEAN fails to formulate a common position on AI and supply chain issues, competition in hedging at the individual country level will intensify. This would weaken the region's ability to check Indonesia's individual moves, increasing the risk that Jakarta's alignment with China could solidify as a precedent that erodes the non-aligned norm of ASEAN as a whole.